Plains GP Holdings LP Class A Stock

Good day, and thank you for standing by. Welcome to the PAA and PAGP Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Again. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Blake Fernandez, Vice President of Investor Relations. Please go ahead.

Thank you, Danny. Good morning. Welcome to [indiscernible] American Second Quarter 2026 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the news and events at ir.plains.com. An audio replay will also be available following today's call. Important disclosures regarding forward-looking statements and non-GAAP financial reidentified Slide 2. An overview of today's call is provided on Slide 3 and a condensed consolidated balance sheet for PAGP and other reference materials are in the appendix.

Today's call will be hosted by Willie Chiang, Chairman, CEO and President; Al Swanson, Executive Vice President and CFO. and other members of the management team.

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

Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported second quarter adjusted EBITDA attributable to plans of $738 million. which puts us on track to deliver our full year EBITDA guidance of $2.88 billion, plus or minus $75 million for 2026. Al will cover more details on our results in his portion of the call. .

The conflict in the Middle East and supply disruptions from the [indiscernible] illustrate the importance of reliable, secure and responsibly produced energy. We believe this increases the value of existing infrastructure, and we are well positioned to help play a critical role in meeting global energy demand well into the future.

While the macro environment has been volatile, we are successfully executing on our 3 key initiatives for the year. In May, we closed on the sale of our Canadian NGL business, bringing our leverage down to 3.3x. Additionally, we have captured our targeted Cactus II synergies, which will enhance our connectivity to the Corpus Christi market and oil exports longer term.

Finally, we expect to realize $50 million of efficiencies across the organization by year-end 2026, along with an additional $50 million by the end of 2027. Strong fruitativity and customer demand, coupled with our premier crude oil footprint are creating new organic investment opportunities. As we outlined in our June press release and detail on Slide 5, we increased our growth capital spending for 2026 from $350 million to a range of $400 million to $450 million.

These are predominantly quick-hit projects that will contribute to the 2027 EBITDA and will generate greater return above our hurdle rate. This includes a further build-out of our further Permian gathering system to service additional dedicated acreage in the Midland and Delaware basins. The acreage is backed by several high-quality producers and spans multiple counties.

This brings our POP JV total dedicated Permian acreage to approximately 5.1 million acres. Additionally, we're expanding our Canadian gathering systems, additional capacity and connectivity and will support strategic projects in the Clearwater and the Duvernay formations and are backed by producer commitments.

Finally, we have sanctioned a very capital-efficient expansion of the Capture pipeline adding an additional 75,000 barrels a day capacity. This brings the total capacity of the line to 725,000 barrels a day. The expansion will come online by the end of this month and will support increased demand for export barrels out of the Corpus Christi market.

We continue to evaluate additional investment opportunities, both organic and inorganic, that strengthen our portfolio and complement our existing asset base. With regard to Permian production, we now expect approximately 100,000 to 200,000 barrels a day of growth in 2026 versus 2025 on an exit-to-exit basis.

Upside from our previous forecast of relatively flat production is mainly due to natural gas egress coming online earlier than expected. Importantly, the ramp-up in Permian oil production will create meaningful momentum into 2027, while having minimal impact to EBITDA this year.

Our capital allocation framework and efficient growth strategy remain intact. We have a commitment to capital discipline to optimize our asset base and maintaining a very flexible balance sheet while returning significant cash to shareholders.

With that, let me turn the call over to Al cover our quarterly performance and other financial matters.

Thanks, Willy. Slides 6 and 7 contain adjusted EBITDA walks that provide additional details on our performance. For the second quarter, we reported Crude Oil segment adjusted EBITDA of $690 million, representing a significant increase from the first quarter level. This was driven by a combination of Cactus II synergies, efficiencies, market-based opportunities and the absent of headwinds from the first quarter.

I would note that second quarter results include approximately $14 million of one-off environmental remediation expenses. Moving to the NGL segment, we reported adjusted EBITDA of $40 million, which reflects the mid-May closing date on the sale of the business. We are contemplating removing NGL segment EBITDA and from our reporting in the third quarter and instead reporting adjusted EBITDA with one segment.

A summary of 2026 guidance and key assumptions are on Slide 8. As Willie outlined, we raised growth capital to a range of $400 million to $450 million and increased our Permian production forecast to 100,000 to 200,000 barrels a day exit to exit. Maintenance capital was decreased to $175 million largely due to the timing of the NGL sale. Regarding our pipeline loss allowance revenue, we are approximately 70% hedged for the balance of the year at an average WTI price around $62.

We plan to disclose our 2027 hedge position in February in conjunction with our full year outlook. As illustrated on Slide 9, we expect to generate approximately $1.75 billion of free cash flow in 2026 and return significant capital to unitholders while maintaining financial flexibility.

Our pro forma leverage ratio at the end of the second quarter was 3.3x and reflecting approximately $2.9 billion of debt reduction driven by the NGL divestiture.

With that, I will turn the call back to Willy.

Thanks, Al. Slide 10 highlights the 7% compound and growth of our crude business over the past few years. Our efficient growth strategy and the sale of the NGL business position us well to execute through a range of market environments, generating a more durable cash flow and creating long-term value. We continue to build momentum into 2027 and with increasing Permian production and a strong balance sheet with leverage at the low end of our target range.

Our capital allocation framework priorities remain the same. One, return cash to unitholders through our targeted $0.15 per unit annual increases; two, execute on accretive bolt-on acquisitions and organic CapEx and three, maintain a strong balance sheet with financial flexibility. We've already identified and expect to capture an additional $50 million of streamlining costs in 2027, and we are well positioned to capture potential tailwinds on from the volatile oil macro environment.

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

[Operator Instructions] With that, operator, please open the call for questions.

[Operator Instructions] Our first question comes from Gabriel Morin with Mizuho.

I just wanted to ask about the revised CapEx, which I know came out a couple of weeks ago. Can you just talk about this level of $400 million plus in investment capital maybe how sustainable you think that will be, given that some of it's Canadian, some of it's Permian, some of it's Cactus. Just curious how you're thinking about in '27 and beyond. .

Sureabe,it's Chris Chandler. So Willi laid out in our slides also show the drivers that led us to change the guidance for 20 -- some of those are typical 18- to 24-month projects. So the spend will carry into '27 and maybe a little -- the way I think about it is I don't expect 2027 to look significantly different than 2026, but it is trending a little higher than our historical $300 million to $400 million range on net lanes.

So we'll provide 2027 guidance obviously when we provide full year guidance in late January, early February.

And then maybe if I could just ask about the Cactus expansion and adding the 75,000 barrels a day. Just how long do you think that takes to fill? And to what extent can you keep adding these bite-sized expansions to Cactus going forward before you have to contemplate something much bigger than that.

It's Jeremy Goebel. To answer your question, our marketing affiliate can fill the space now and capture the volatility that we're seeing. The expectation is to contract that over time when we see the market. So the reason we executed on it earlier than expected as you saw a lot of volatility -- you saw growing production. You saw a really short time period, very capital efficient. And you see on the demand side, new buyers on the market.

So our marketing affiliate can fill that role until someone wants to take the space from us. So we can fill it quickly and then turn it to a term basis, which is our ultimate goal.

And then as to your question on are there other opportunities? Our team continues to evaluate capital-efficient opportunities, and we'll update you as we have.

Our next question comes from Manav Gupta with UBS.

I wanted to go -- I know it's a little early, but I was thinking maybe you could talk a little bit about how 2027 is shaping up for you. puts and takes, especially given the number of new pipelines expected, which will alleviate the Permian egress problem so that crude could come to the market. So help us understand the puts and takes for 2027 versus 2026?

Manav, it's Willie. Let me try to address this. We're not going to give you guidance on 27 because the world continues to evolve. What we really want to convey to you is that longer term, whether it's the end of '26, early '27 is really going to be determined by how things shape up in the Middle East. .

There remains a lot of uncertainty, as everyone knows. The oil markets are very extreme. But as we view this as the longer this goes, the more you draw global inventories to low levels. The more important North America is going to be to providing fuel for the rest of -- the energy to the rest of the world. So everything we're doing is positioning us to be able to capture that when it comes. And you tell me the oil price, you tell me when things resolve, we can easily put a number together, but that's probably the extent I'll share on what our views are other than it being very constructive. And we've got a lot of momentum going into '27.

Perfect. My quick follow-up that I just wanted to understand from you is that your balance sheet is fixed. I think earlier in the year last year, you were looking at more bolt-on opportunities. Now I think you are looking at more organic growth projects also. Can you help us understand the balance between future growth driven by bolt-ons versus organic opportunities?

Manav, this is Willie again. The answer is we look at all of them. We've got lots of levers to pull. -- the organic opportunities present themselves. We do it. If it's the bolt-ons, we execute on those. I'm really pleased where we are with our balance sheet where it is and the ability to pull levers and lots of different things, whether it's bolt-ons, whether it's CapEx, returning more cash to shareholders and even taking out the press.

Those are some of the options that we have. So it's a good position to be in, and we'll play the right card when the time comes.

Our next question comes from Praneeth Satish with Wells Fargo.

Great. So just going back to the guide that you raised the exit to exit Permian production growth by 100,000 to 200,000 barrels per day on improving gas egress. But I guess you -- and you kind of had strong Q2 results, but you left the 2026 EBITDA guidance unchanged. I guess intuitively, I would have expected at least some of those flush volumes to reach your system and contribute to earnings upside this year. So maybe you can just help us understand why the higher volume outlook doesn't necessarily translate into higher EBITDA guidance for this year and how you're thinking about the timing of when you realize those benefits?

Yes. This is Al. One quarter -- first quarter crude was kind of the low point for us. 2Q, we reported the $690 million I mentioned, which is up over $100 million from the first quarter. Our guide at the midpoint currently for the second half is above the $690 million, the math is, say, would be in the low $700 million. So we've modeled in a very strong kind of exit to the year.

We do believe that we will be seeing and capturing volumes. We had a bit of that in already but we do expect really that this sets us up for the momentum that Willie mentioned for 2027, more so than a raise for the second half of the year. since we've already modeled a pretty strong second half of the year.

Got you. That's helpful. And then maybe switching gears on the Cactus II expansion. So -- you guys have 1 of the last meaningful brownfield expansion opportunities in the Permian with Cactus. So I guess I'm just trying to understand how you balance adding incremental capacity versus just kind of maintaining a tighter market where you could benefit from stronger recontracting rates as it's been a tough slog the last few years.

So I mean, I'm sure you've done some internal analysis on that trade-off. But I guess with you going forward with this expansion, can we assume that the expected returns are compelling enough, I guess, to outweigh the benefits of a tighter market? Just how should we think about that?

Renee, good question. This is Jeremy. First of all, the 75,000 barrels a day won't change the market and our outlook for production is substantially higher than 75,000 barrels a day. So the market from a supply and demand takeaway will be net tighter -- the economic returns is very capital efficient. That's not in question. They'll be very good. from our standpoint, we're executing on it.

Basin is very well contracted. Cactus 1 is very well contracted. Cactus II is very well contracted, and we're working to continue on Cactus III. So -- we don't think this impacts our ability to contract at strong rates across the system. And we think the volatility will present some opportunities to pay for the expansion in the short period of time and give us the opportunity to contract more space.

Our next question comes from Jeremy Tonet with JPMorgan Securities.

This is Francine on for Jeremy. Just wanted to dig a bit deeper on the guide that appears to kind of present declines outside of regions other than the Permian. Can you walk us through what you're seeing with volume expectations and kind of where that leads us in terms of puts and takes to the current maintained guide?

Sure. This is Jeremy. -- look, we're seeing increased activity. Like the Permian has added 30 rigs from the trough. The Eagle Ford has added 10 rigs. Pod-River Basin is up 33%, so from 9 to 12 rigs Canada continues to grow. So we're seeing opportunities across the system as evidenced by the expansion capital across the system.

So from our standpoint, we're cautiously optimistic that, that will continue, and it should be good for both our assets in the Permian and outside the Permian. As for the guide, I think out covered that, we are certainly in a position to continue to execute as volatility.

The most volatile piece was the second quarter -- the third quarter price volatility was slower. -- volatility in margins across the regions got pretty narrow. It's just a different quarter. And so that the same situation because ships are moving all over the place, could represent itself in the third and fourth quarter.

So we certainly expect to continue to do as well as we can. But right now, we're maintaining guidance flat, but we think we're going to execute on what we've already put in to plan and hope to meet it.

That's helpful. And then I wanted to also touch on what you're seeing for the Canadian organic growth opportunity set and whether those opportunities more so present near term or longer term, if you could talk about that.

Sure. We're very excited about Canada. The clear water around our rainbow asset we are continuing to add capacity. And every time we add it, it gets sold. So we're excited about it, and those are long-term contracts. Same with our Rangeland asset, which sits in the Duvernay, and we can bring those either north to Edmonton or south to the U.S. markets. So both of those areas, we're seeing capital, our magnitude asset, which we haven't talked about much is seeing activity -- substantial activity, there may be an opportunity to to partner with some of the egress that's coming out of Canada.

So I think we see a lot of opportunities in and around our gathering footprint and how that might fit with assets like our Cushing terminal or our Capline assets downstream. So I think we're excited about Canada and knock-on effect for the rest of our business.

Our next question comes from Spiro Dounis with Citi. .

I want to start off first with market-based opportunities. Can you maybe talk through the outlook into the second half of 2016 and maybe where you still expect to see some areas for opportunities. And kind of just curious how you're thinking about differentials, volatility, curve structure, storage and how much of that is contemplated in the guide here?

This is Jeremy. We're not forecasting market-based opportunities other than what we've captured. So I think from our standpoint, if those opportunities present themselves, we will, we can play time, quality and location spreads across the system, and we will. And so from our standpoint, we feel very well positioned with where the guide is. And as volatility presents itself, we'll capture it just as we did in the second quarter. .

Got it. Second question, maybe just focusing on exports. -- if you're seeing changes in customer behavior, Jeremy, I know you mentioned seeing new customers show up. Curious if that applies to exports here. And how you're thinking about flows to Corpus versus Houston into the back half of '26?

So yes, we are seeing different customers be interested instead of being spot purchasers or under term contracts only from the Middle East look to expand where they purchase barrels for some level of security of supply. So that is a different behavior than we've seen. I think you've seen it across commodities as well. So we're going to continue to look at that as ability to term up additional space. Corpus versus Houston. .

Look, both are very good markets. The Corpus market does demand a premium. It's a single quality barrel. That's WTI, largely some TL. Houston's got a broader mix of what gets exported. It's got more refining capacity. They're both very good markets. Both markets are largely tight. You've got close to 90% utilization in both markets. So we're cautiously optimistic that both will continue to grow as the markets tighten and get to back where you're closer to the longer-term margins where we'll contract additional space.

Spiro, this is Willie. You know our assets well. But I think the thing I wanted to highlight is on our visits with people we've been talking about the market shifting to a demand pull model. We've been in a supply push model for quite some time with surplus supply in the world. I do think what your -- the question that you're asking is really hitting on a key thing, which we believe is happening. With the inventory of the global inventory of the crude supplies, this is really shifting to a demand pull market and your question about others wanting to come and get access to barrels really as a security and supply is very true.

And if you look back in the second quarter, we actually had record crude exports out of the Gulf Coast. And as these things typically work because you've got a long supply chain with ships, that shifted, and now we had more volumes going on to Cushing, but that could easily start shifting back as little events happen. So the key thing for us is we've got great assets that can play all these different options, hard to exactly figure out what will happen, but when it will happen, we feel we'll be in the right place in time to be able to capture it.

Our next question comes from Keith Stanley with Wolfe Research.

Only 1 question for me. I wanted to dig into the Cactus II economics a little more. So your Permian CapEx this year is only up $35 million -- you have the $40 million earn-out. So it kind of implies the Cactus II project let's call it, $50 million to $75 million, which would be a really high return for you guys. So looking forward, how can we think about the cost of future phases of expansion of Cactus II? Do they get a lot more expensive than this? Or can you replicate this a few more times?

Keith, it's Chris Chandler. I'll take that. First, let's talk about the phase we just completed, 75,000 barrels a day. Without sharing the exact number, I think you're reading in our numbers well in that the expansion we just completed was highly economic. We were able to do it for far less than we anticipated when we acquired the asset, able to do it more quickly. I would think of it in terms of tens of millions of dollars and that doesn't include the earnout that we disclosed in the slides.

So very, very economic and very quick to market, as Jeremy shared. We're taking a close look at future expansion opportunities. Those will have to be backed by customer commitments, of course, but I think it's safe to say that the cost for those future phases are looking more economic than we originally promised as well when we acquired the asset.

So we're really pleased overall, we've been able to capture the synergies with Cacistry and expansion opportunities are ready to go and look very economic when the customer support is firmed up.

Our next question comes from A.J. O'Donnell with TPH.

Maybe if I could just follow on to the last question a little bit. Could you talk a little bit more about just kind of the economics of the expansion? Just thinking -- I believe you said the affiliate could build the space right now. But as you work to contract that over the longer term, where do you kind of see the rates on that project volume at largely where they are at right now? Or does that get a premium?

Good question. It depends on how we contract that. If it's with the shippers that we have in the past, it's going to look just like the rates we disclosed last year and the year before when we did our recontracting efforts -- so long-term rates are in that ballpark, and we'll continue there. If we opportunistically find other markets, we will -- it all depends on the structure, the term and everything else.

So we don't necessarily want to give away our playbook on the earnings call. But I would say, long term, I expect it to be consistent with where we have been ex.

Okay. Great. And then just 1 more on Cactus II. I think in February, you kind of described stabilizing the base pipeline then looking at capital efficient expansions -- and then in May, you said an expansion would kind of be phased and pace to demand. And now that the first 75 is sanctioned, is the base pipeline fully recontracted and stabilized? And how soon could we expect to see additional phases?

Good question. So the duration of the next phases will be longer than this one. So I think it will take some time for the next phases. But as far as the base contract, we have sufficient demand right now to contract the pipeline, the expansion and the other, it's a matter of price. So I think we see sufficient demand to contract the base pipeline as far as future expansions, that will take time to come on .

And A.J., this is Willie. I think a lot of that really depends on my earlier comments about how many -- how much people need the barrels back to that demand pull, right? We're talking -- what Jeremy is talking about is it's basically ideally a longer-term contract. It's the tenor versus the price, and that's going to evolve. And at some point, we think it's going to continue to be scarce, and that's why we're pretty constructive on the market going forward, including the export markets. .

Our next question comes from Jackie Colitis with Goldman Sachs. .

Just thought I'd follow up on a question you retire your confidence in capturing that the $50 million of cost efficiencies by the end of this year and then another in 2027. Just provide us progress update here on where the savings are physically materializing? And what could drive incremental efficiencies from here?

Jack, it's Chris Chandler. Yes, we've made good progress on our commitment to capture $50 million in 2026 of efficiencies Certainly, the NGL sale was a catalyst in that area, but not by any means the entire driver -- we've made a number of changes that contribute to that $50 million and an additional $50 million that we expect to capture in 2027. But I think in terms of reassessing and streamlining our organizational structure, -- looking at the number of employees we have in leadership and management roles.

We're more focused in crude oil pure-play companies. So that demands a different level of oversight and a different approach to how we run the business and our business processes. We've done some targeted rightsizing of our trucking business closed and consolidated some marketing offices -- and just taking a fresh look at everything we do and how we do it from a business process standpoint. So as to capture year-to-date, it's fair to say we've realized a little less than half of the $50 million so far this year. and we're on track to capture the remaining by year in 2026.

And again, we feel good about capturing an additional $50 million in 2027. Hope that helps.

No, very helpful. I appreciate it. And then just a follow-up on the Canadian gathering system. Just if I could talk a little bit more about the moving pieces are overall, the incremental Canadian egress. And a little bit more color on what you're thinking about the timing there and the potential size capacity on range land?

So good question. So I think from our standpoint, think of Rangeland as a gathering system. And so the expansions there are filling latent capacity -- the rainbow is an expansion of capacity of the mainline and building laterals. As far as egress goes, first, we'll look to fill our existing, which we do on Los Canada and Rangeland today. I think there are some other more capital-efficient projects that will probably go.

It may be something that we work with those counterparties on opportunities, like I said, around Capline and Cushing in other locations. I wouldn't I don't think the Rangeland expansion would be competitive with some of those projects based on scale.

Our next question comes from Gabe Dowd with Truth.

I was hoping you can maybe just ask another Permian macro question. Any views just given conversations with producers now for 27? Any views on where the rig count could go from here? And then just trying to frame when you think there could be an acceleration in crude volumes at a basin level maybe approaching 8 million barrels per day because I think that's probably what the basin hit by 2030. But if crude remains elevated. I'd imagine you could maybe see some acceleration. So curious maybe what your overall views are on that?

So first of all, the gas egress has come on quicker than we expected. And with that, as you've seen with the G&P operators, their plants are filling up quickly. The same is occurring. So the 100 to 200, we are seeing volume from July into August. -- that trends probably favorably to those numbers. So we could see it go -- we have a positive bias based on the last few weeks. .

So from our standpoint, as Willie mentioned, positive momentum going into 2027. And look, Willie mentioned that you have to give us a price, you have to give us the economic background, but productivity has improved. So the 260 rigs you see today are more efficient than the 260 rigs you saw in 2025.

So we're excited about the opportunity to grow through the second half of this year and into next year. And it's just a matter of the duration of that as to where the basin gets to. So you see a very favorable path to get to north of 7 million barrels a day, continued improvements on recovery reducing breakeven prices and supportive commodity prices will be required to get to 8 million barrels a day, but it's not an unreasonable scenario. We're just like will say, you got to sell us the backdrop of tells where the base gets to.

No, that's helpful.

Gabe, it's Will. You've heard many of the other calls. And as I look at the transcripts and the summaries of them, there are a number of the producers that really talented the ability to produce more. So that's good, right? We want to be able to -- we want our industry to produce at the most efficient and economic point. And I think people are starting to crack the code on that. .

No, that's right, Will. A lot of operators have highlighted surfactants and other technologies to improve productivity and recovery factors. So that could also be a tailwind, as you noted. But maybe just a quick follow-up in the conversation, is there the specific price for '27 where you feel operators could be a bit more active and 70 on the screen now for '27? Is it 75 gets more excited? Just curious some of your conversations if there's a signal that, that seems like pretty obvious as to where producers could add.

I'll let Jeremy forecast the price .

Less about price, but more about activity. So your first question was where could you see incremental activity. I think you've heard a number of operators talk about deeper benches in the Midland Basin being very productive. And I think you'll continue to see capital move into those. In the Delaware Basin, New Mexico continues to expand in all directions. Vertically, they keep going to find other benches and then horizontally, it keeps going north and to the west. And so from our standpoint, New Mexico continues to expand and surprise to the upside.

You're even seeing some of the deeper benches work in areas like the Woodford Barnett in the Delaware Basin in certain areas. So I think the basin continues to expand its resource base and we're excited about that because it sits under our footprint.

Our next question comes from Theresa Chen with Barclays.

Willie, going back to your comments about your organization's ability to capture tailwinds from this macro environment and some of, I think, Jeremy's comments to earlier questions. Just looking at the past several months of heightened market volatility anything about the performance of your commercial organization exceeded your expectations? Are there specific examples where the team was able to capitalize on market dislocations or emerging opportunities in ways that surprised you?

Theresa, one, it's good to hear your voice. The answer is there's a lot of -- we've got a good team that captures different opportunities. And while not getting into all the different strategies we've had, I would point to the response in being able to get barrels down to the Gulf Coast. We had record exports during the second quarter. We were able to basically source barrels and help facilitate moving those.

So that volume, that's 1 of our strategies. We've been able to capture some volumes. Our values around the shape of the forward curve that has been good. And the other piece of value that always comes -- it's not the market opportunities, but it's the discussions that we have with our producer partners on where their pinch points are that set up for some of these capital projects that we are now putting into place. Oil price level itself, we stand to gain on PLA. I think as Al shared, we've got a little bit of PLA left to hedge. We've captured -- we hedged a good portion of that going into this year. And so we didn't have a lot much to play with, but we still have some barrels out there that could help us for the rest of the year. Hopefully, that helps you.

It does. And in terms of capturing marketing related earnings related to wide quality differentials, clearly, there are a lot of variables at play here. Specifically, -- how do you think about the growing volume of Venezuelan barrels in the Gulf Coast, increasing heavy supply in Path 3, coupled with incremental Westbound egress for WCS over time, whether that be TMX expansion or 1 million-barrel per day West Coast oil pipeline.

How does that change your views on heavy differentials across North America and your marketing and optimization opportunities there as a result?

Teresa, good question. It's a very dynamic question. The pace of growth in Canada and the pace of growth in Venezuela will dictate that, right? And if you pull the Saudi barrels out of the Gulf Coast and you have more Venezuela coming in, maybe that's somewhat of a dislocation. But realistically, as Venezuela pushes in and pushes Canadian back and widens those differentials a bit.

And there are spreads with heavy differentials across grades. But the West Coast could add egress. So it's a function of how quickly is egress added in Canada, how quickly does Venezuela in production get to the Gulf Coast and can it grow on a sustained basis. versus production. So you have those 3 things dictating it, and they're all moving at different speeds.

And so any time there's a dislocation, our team can capture it. But our preference is first to move it. So we'll look to move barrels and that there's dislocations that we can capture, we will. So I think from our standpoint, growth is good, dislocations are good and will help our customers get around those dislocations.

And Teresa, the -- on the Venezuela question, if it was around our views on heavy barrels coming into the Gulf Coast, I think it's healthy because those barrels are originally designed for the Gulf Coast, and that pushes barrels back which allows us to have more opportunities with that. .

Our next question comes from Sunil Sibal with Seaport Global.

So first of all, just a clarification. I think Al mentioned that in Q2, you had $14 million of environmental remuneration expense. I was curious -- is there any impact of that in the second half also in terms of your efforts on that front?

This is Al. No, they were one-off. We do not expect that to recur in the second half. .

Okay. Then obviously, a lot of discussion on today's call on Permian as well as Canadian opportunities. I was curious as you think about the $400 million to $450 million of CapEx spend that you incur in forward years, are there other regions or any specific regions where you see outsized opportunities?

Sunil, this is Willie. -- the better chance to get higher returns are around our assets. And while we don't target assets only by region, if we've got strong returns anywhere along our value chain, we consider it. But the chances are it's going to be in the areas that have more activity. But we remain very, very disciplined on our thresholds and it's more return-driven and strategy than region driven.

Okay. So you're implying Willy here that $400 million to $450 million, it's you can basically get through that in those 2 regions, primarily right? .

That would be a good assumption. .

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Willie Cheng for closing remarks.

Thanks, Daniel, and thanks, everyone, for joining us today. We look forward and are excited to see you on the road. Take care, and have a safe weekend. .

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and welcome to the PAA and PAGP First Quarter 2026 Earnings Call. [Operator Instructions] Please note this call is being recorded. I would now like to turn the call over to Blake Fernandez, Vice President of Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, and welcome to Plains All American First Quarter 2026 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.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 2. An overview of today's call is provided on Slide 3. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix.

Today's call will be hosted by Willie Chiang, Chairman, CEO and President; and Al Swanson, Executive Vice President and CFO, along with other members of our management team.

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

Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA table to Plains of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure and responsibly produced energy.

The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis.

We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term, longer term as countries replenish depleted strategic petroleum reserves globally. Post war, we would not be surprised to see several countries restock their SPRs above pre-war levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity.

On the supply side, OPEC production capacity post war remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply.

Against this backdrop, North America, including the Permian, remain well positioned to play a critical role in meeting global demand. As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains is well positioned for both the near-term volatility and longer-term macro environment.

Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on Slide 4, we're increasing the midpoint of our full year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million this year, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026.

Our trajectory of growth this year is underpinned by 3 key drivers: the sale of our NGL assets, Cactus III synergy capture and streamlining. The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next 3 quarters.

We're also seeing increased producer interest in both Canada and the U.S. for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops.

As global markets turn to North America for long-term energy supply, we are well positioned across key producing basins and downstream markets to drive multiyear growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet and continuing to return cash to unitholders via our disciplined capital allocation framework.

With that, I'll turn the call over to Al to cover our quarterly performance and other financial matters.

Thanks, Willie. Slides 5 and 6 contain adjusted EBITDA walks that provide additional details on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full quarter contribution from the Cactus III acquisition, offset by a number of one-off items, including winter weather impacts in the Permian, system maintenance and timing of minimum volume commitments.

Moving to the NGL segment. We reported adjusted EBITDA of $145 million, reflecting a stronger-than-expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions are on Slide 7. Growth capital remains $350 million, while maintenance capital was increased to $185 million, reflecting ownership of the NGL assets in May.

Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on Slide 8. The NGL segment increased by $70 million, driven by outperformance in the first quarter, along with the ownership of NGL assets in May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes and increased West Coast volumes.

To the extent that elevated commodity environment persists in the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year-over-year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond.

We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. As illustrated on Slide 9, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility.

For 2026, we expect to generate approximately $1.85 billion of adjusted free cash flow, excluding changes in assets and liabilities and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1x, reflecting the Cactus III acquisition.

First quarter leverage pro forma for the NGL sale would decrease to approximately 3.5x, and we would expect leverage to migrate towards the low end of our target range of 3.25x to 3.75x by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate.

Our acquisition of Cactus III last year has mitigated the tax liability to unitholders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale.

There was no cash tax impact in the quarter as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie.

Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on executing our 3 initiatives for 2026, closing the NGL sale, driving synergies on Cactus III and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value.

Importantly, the improving oil macro environment starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unitholders.

Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus III is proving timely as tensions in the Middle East position North America as a key source of global energy supply into the future.

Before I turn the call over to Blake, I'd like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains in separate releases earlier this week, we're targeting to close the transaction this month. While it's unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains and Keyera are committing to do so.

So I realize you have -- you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter. So we would appreciate if you would refrain from asking questions regarding the transaction.

Blake, I'm now going to turn it over to you to lead us through Q&A.

Thanks, Willie. As we enter the Q&A session, please limit yourself to questions will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we're ready for questions.

[Operator Instructions] Our first question comes from Brandon Bingham with Scotiabank.

Just wanted to maybe ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what's baked into the new guide and maybe the embedded outlook in there?

Sure. Brandon, this is Al. Yes, our original guidance for the year assumed a $60 and $65 environment for 2026 to kind of a $62. We came into the year highly hedged at roughly those levels. The $85 environment that we're talking about for the future is roughly the strip from June through December when we looked at it. So there would be some benefit based on crude prices on our PLA, but the fact that we had hedged quite a bit before entering the year, that sensitivity we give is just a raw sensitivity.

In order to make it more meaningful, we would have had to have disclosed to you the hedge position at the beginning of the year, which we haven't historically done. So what I would say is that the first quarter performance and the 9 months of our guide is very minimally impacted by actual PLA pricing.

Okay. Yes, very helpful. And then maybe just wanted to ask about in light of some of the commentary in your prepared remarks about a more constructive longer-term market and just the whole macro environment as it stands today, how are you guys thinking about the potential for the Epic expansion at this point?

Brandon, this is Jeremy. We're excited about the opportunities around our entire long-haul portfolio and are having constructive dialogue with existing customers and new customers looking for secure supply from the United States. So that results in some spot activity. But longer term, the expectation is to contract at higher rates than maybe before this would happen with potentially new counterparties.

So that would apply to recontracting existing pipeline capacity and expansions as well. So we're looking at all the above and hope to have updates in the coming quarters on how that looks.

Our next question comes from Gabriel Moreen with Mizuho.

Maybe I'll just ask the Permian macro question, really, in terms of sort of your best outlook. I think previous years, you had talked about 200,000 barrels a day year-over-year growth. Best venture at this point, I realize there's a lot of things in play and things are changing quickly. But do you think that goes significantly higher from here, $400,000, $500,000 in '27? I'm just curious what your latest thoughts are there.

Yes, Gabe, this is Willie. Jeremy may have some additional comments, but I'll give you my thoughts. The U.S. producers have remained very disciplined as far as capital allocation, and they're looking really at the back end of the curve to see where it goes. WTI is roughly $70. And our view is when you start getting into the $75 and above, increased activity happens.

There's also some other things that on the short-term operating bias that's limiting production or constraining it a bit. We've got some natural gas. The Permian has some natural gas takeaway constraints. There are new lines that are being built and being commissioned as early as later this year.

So the thought being that alleviates itself. Our assumption for the Permian this year was flat. And if it -- if there is some upside, obviously, we benefit from it. But our view going forward is not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes behind that's going to increase production here maybe with a little bit of a flush later this year or early next year.

So I think it really depends on the back of the curve, but the systems are ready to go.

And then maybe if I can ask kind of on the sustainability of some of the marketing opportunities you're currently seeing. Can you just talk about, I guess, some of the spreads that you're seeing and also on the value of dock space the extent you're debating internally maybe terming some of those out at higher prices?

And then also the steepness of the curve in backwardation, how that's playing with your storage? Is that helpful? Is that a hindrance? I'm just curious your thoughts on that.

Gabe, without getting into specific strategies, which I would say time location, quality spreads, all that volatility, we benefit from all of those because we have the assets, the supply position and the trading function to capture those opportunities.

While it's hard to forecast those when they arrive, and that could be the time spreads, could you sell a barrel now and buy it back later by emptying a tank, that type of thing. Could you -- difference in grades between Canada and the United States, difference in grades on Gulf Coast grades, all of those are strategies and things we can take advantage of with our integrated system. And so we're excited about those opportunities.

What we've put in this as Willie and Al both stated, we've substantially captured what's in this forecast. It's hard -- this is a very volatile time period. We've only been in the 60 to 70 days. So it's hard to forecast that to continue. But if it continues, we would expect to capture more opportunities going forward.

And just to add on to what Willie is saying, we do estimate there's close to 200,000 to 300,000 barrels a day of oil that's behind pipe in the Permian Basin. So that flush production he's talking about is substantial. And a lot of that's in the more constrained areas of the Delaware Basin, which we have a broader footprint.

So take New Mexico and other places. So as Willie said, we're not giving a formal guide, but that -- if you look at the plot of -- you talked about spreads, the Waha Spread, it's almost flat price in Waha has been largely negative since last September. That's what's accumulating all of this to go.

And so as gas prices recover, productive capacity is already there to add. And as you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contract at greater rates. So we're seeing more demand from new customers. We're seeing potentially less production. Those should all benefit to taking short-term opportunities and convert them to longer-term opportunities.

And Gabe, this is Willie again. If you look at our numbers, long haul has increased and the margins on that has also improved. So I think we're moving to a more structurally full life situation as we go forward, which should be constructive for us.

Our next question comes from Manav Gupta with UBS.

I just wanted to focus a little bit on the weather impact. I think it was about $49 million quarter-over-quarter. I'm just trying to understand the fair timing of minimum volume commitments. Is there a possibility some of this can be reversed in 2Q? Some of what you lost in your -- in the current quarter comes back into the second quarter. If you could talk a little bit about that.

Yes, Manav, those are 2 different things. But first, with regard to weather, weather is just production shut in for a period, you can't make that back, but the flush production does come back. With regard to the timing of MVCs, that's continuous in our process. And if you look at some of the earnings calls from others about their dock performance or other things in that first quarter, freight was really expensive and margins didn't have people moving.

So long-haul volumes were down across the industry, but that has completely reversed in timing. So you would absolutely expect that to be recovered. It's just a question of when those MVCs accrue versus when they're paid, but all the pipelines are full again and the MVCs are being reversed.

Manav, this is Willie. If you're referring to Slide 5, I think the point of your question is on that negative 49, there's a bunch of onetime events in there that you're absolutely correct that we -- that will not occur again as we go forward.

Perfect. And if you could also talk about the very strong results from the NGL segment in the first quarter versus the last quarter, some of the drivers of what helped you deliver a much stronger earnings on that segment quarter-over-quarter.

Sure, Manav. This is Jeremy again. higher border flows than expected. You had very full storage in Canada and continued production, which required the volumes to be exported, and those were exported through our Empress assets. So higher border flows leads to more straddle production, and that would all be unhedged and impact -- so that was more border flow concept, but higher frac spreads as well in the first quarter towards the end of the first quarter.

So I'd say those 2, and that has continued into the second quarter, which is the increase in guide for the NGL business through closing.

Our next question comes from Michael Blum with Wells Fargo.

My question is really on the guidance, the crude oil segment. So I'll just ask it all at once. So the increase, I just wanted to make sure I understood, it sounds like most of this is optimization, which you've already locked in and then maybe the rest is PLA. So I just want to make sure I understood that. And then the second part is, if prices stay elevated for the balance of the year, would there be upside to the guide in the crude segment? Or is that already sort of baked into the numbers?

Michael, this is Willie. Great question. Our assumptions are -- the numbers that are in there really are what we've captured that roll off through the year that we'll actualize on optimization efforts. And you're correct. If we have a stronger macro environment, higher prices, there definitely is upside.

Our next question comes from Jeremy Tonet with JPMorgan Securities.

Just wanted to see what you guys are seeing locally ear to the ground there as far as producer activity and whether rigs being picked up by the independents or how -- if larger drillers could as well? And what would be needed to be seen, I guess, across the strip to gain the comfort to do that. And so just wondering how you think production could uptick here? Or what do you see?

Jeremy, this is Jeremy. So since it started, you've already seen 15 rigs added back, and we would expect some to continue. But as Willie mentioned, there's a bit of a throttle right now. You can't add more natural gas to the system. as the flaring not allow. So productive capacity is there, rigs being added now would impact 2027. I think there's a bit of confusion by the market in that if you take the products market and the physical crude market, they're substantially more tighter than the financial markets would indicate, which means the back end of the curve has to come up.

It's very difficult even if you open the Strait of Hormuz tomorrow to get everything back in order the way it was. It's going to take a while for shipping to start. You have to empty tanks before you can start back up production. Products markets are just empty in some places. So I think there's real dislocation that will take time.

I think some of the integrators have stated it's for every day, it's down, it's 3 days to get back up. And so it's potential for months to get out of this, even if they were resolved today. I think that's the part that probably producers are waiting on is more surety at the back end of the curve that they bring rigs on because at this point, the service companies are stacked equipment.

It takes capital to get those back in, takes commitments to make those back in. So I think producers to make those commitments need commitment from prices that they'll be there. And the longer this goes, the more likely that will occur.

But I think it's just a dislocation in the back end of the curve right now that's maybe causing some hesitancy, but that's going to prolong the problem.

Got it. That's helpful there. And then I just want to see, I guess, how you think that impacts basis over time here and what it could mean for future egress expansion?

Thanks, Jeremy. It's constructive for basis, more production is and more demand on the water. So you're seeing a specific to the Corpus market and some of the on-the-water efficient docks, you're seeing higher pricing and relative to even the screens. And so that on a prolonged basis as there's new buyers coming to America, there's vessels that used to be pointed at other locations that intend to come back and forth to the United States for a while.

So I think you're seeing that on the NGL side. I think you'll see it on the LNG side, and I think you'll see it on the crude side. More buyers and more demand is generally constructive for spreads. And so we would expect to match either our supplier or our customers with that and hopefully offer service at a higher rate.

Jeremy, this is Willie. You're aware that on Cactus III, we have expansion capacity there. And as we've always said, we're going to pace that with market demand and commercial contracts. The other highlight on that is, as we've gotten to know the project and have assessed it, we have the ability to do that in a phased approach.

And also, it's really fairly flexible for us to get additional volumes, and it's not a long term -- it's not a binary big expansion. There's ways to do it in phases, which should match customer demand. And generally speaking, in a higher price environment, there are more opportunities because there's basically a pull on the whole system.

And so typically, in that kind of a market, the market opportunities and optimization opportunities become a little more prevalent versus a lower price where less is moving and there's less opportunities. I hope that helps.

Our next question comes from Jackie Koletas with Goldman Sachs.

First, I was wondering if you could just comment on the progress of your cost reduction initiatives. Are these on track with expectations at this point? And is there any potential for upside capture here? When should we expect for Plains to realize more significant efficiencies through the year?

Jackie, it's Chris Chandler. I'm happy to take that. We are on track to capture the efficiencies, $50 million by the end of 2026 and an additional $50 million in 2027. We've actually already made a number of changes, some unrelated to the NGL transaction, some in anticipation of the NGL transaction. So we feel confident in the number. There's always upside.

We're always looking for additional opportunities, and we will certainly pursue any that we find. We're not prepared at this time to change the $100 million target we have through the end of 2027. But on track there, and things are going well.

Great to hear. And then I'll just one on just shifting to capital allocation. With debt reduction as a near-term focus, particularly following the pending NGL sale, when can we expect a shift or kind of allow a shift from debt paydown to a larger focus on potential buybacks or preferred paydowns?

This is Al. I'll take a shot at it. Yes. So clearly, with the proceeds from NGL, we anticipate taking that and paying down roughly a little over $3 billion of debt, which would be the term loan, the outstanding CP we have and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage. We expect of 3.5x.

We expect that to migrate down, which will then come back to where we've been for the last number of years prior to the Epic acquisition, leverage towards the low end of our range. Our view would be capital allocation, first and foremost, focused on maintaining distribution growth, funding investments, whether they're organic or M&A related.

As well as looking at taking out prefs should leverage remain at or below the bottom end of the range and opportunistic share repurchases. So a long-winded way of saying that once we get through the NGL sale and deployment of the proceeds back to where we've been operating for the last several years.

I'm showing no further questions at this time. I'd like to turn the call back over to Willie Chiang, President, CEO and Chairman, for closing remarks.

Michelle, thanks. We appreciate everyone's support and attention, and we look forward to seeing you on the road. Stay safe. Thank you very much.

Thank you for your participation. You may now disconnect. Everyone, have a great day.