Good day and welcome to the PAA and PAGP Third Quarter 2019 Earnings Call. Today's conference is being recorded.At this time, I'd like to turn the conference over to Roy Lamoreaux, Vice President of Investor Relations and Communications. Please go ahead, sir.

Thank you, Walter. Good afternoon, and welcome to Plains All American's third quarter 2019 earnings conference call. Today's slide presentation is posted on the Investor Relations News & Events section of our website at plainsallamerican.com.Slide 2 contains important disclosures regarding forward-looking statements and non-GAAP financial measures. The appendix includes condensed consolidating balance sheet information for PAGP.Today's call will be hosted by Willie Chiang, Chief Executive Officer; and Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry Pefanis, President and Chief Commercial Officer; Jeremy Goebel, Executive Vice President, Commercial; and Chris Chandler, Executive Vice President and Chief Operating Officer along with other members of our senior management team are available for the Q&A portion of today's call.With that, I'll now turn the call over to Willie.

Thanks, Roy. Good afternoon, everyone and thank you for joining our call. Let me begin by hitting the high points of the information we released this afternoon. We're pleased to report solid third quarter earnings results. As outlined on Slide 3, these results exceeded expectations in our fee-based segments and reflect a continuation of strong performance in our supply and logistics or S&L segment. As I will discuss more in detail we've increased our 2019 full year adjusted EBITDA guidance by $100 million, plus or minus $3.075 billion. And we have decreased our 2019 growth capital program by $150 million to $1.35 billion.Additionally, our preliminary guidance for 2020 adjusted EBITDA is approximately $2.55 billion to $2.6 billion. This is composed of $2.5 billion for our fee-based businesses, reflecting fee-based growth of approximately $100 million, which includes offsetting an estimated $85 million of expected impacts from the competitive environment.Our preliminary adjusted EBITDA guidance for our S&L segment is $50 million to $100 million. Our preliminary 2020 growth capital guidance is $1.35 billion, and we expect meaningful reduction on our capital investment programs in 2021 and beyond as we complete our current capital program.Let me put our 2020 -- our preliminary 2020 guidance into context with respect to the Permian production growth. During 2018, Permian production grew by approximately 1 million barrels a day. And we expect 2019 growth of approximately 800,000 barrels a day. For the full year 2020, we expect Permian production to grow on average approximately 500,000 barrels a day, which is about 100,000 barrels a day on average less than our prior estimates as we have further calibrated the anticipated impact of producer capital discipline on drilling and completion activity.I would note that we expect 2020 Permian production to end the year 300,000 to 400,000 barrels a day…

Thanks, Willie. During my portion of the call, I'll share a brief recap of our third quarter results provide additional information on our guidance for 2019 and our 2020 preliminary guidance and review our current capitalization, liquidity and leverage metrics.Our third quarter adjusted EBITDA of $731 million represents a year-over-year increase of 15% driven by solid fee based performance and strong S&L performance.Moving to slide eight, our third quarter fee based results of $635 million exceeded expectations and on a sequential basis we're driven by higher than anticipated Permian gathering volumes in the early startup of Cactus II. These based results represent a year-over-year increase of 13% and an increase of 9% over the second quarter 2019. Our S&L performance reflects favorable crude oil differentials in the Permian Basin.Slide 9 provides an overview of our updated fee base guidance for 2019, our preliminary fee base guidance for 2020 and our estimated growth CapEx for both years. We expect to generate more than $1 billion of cash flow in excess of distributions for 2019, resulting in full year common unit distribution coverage of more than 200% and per unit results that exceed our prior expectations.Additionally, we start 2019 capital program by $150 million to plus or minus $1.35 billion reflecting some shift of capital investment to 2020, as well as some optimization of project scope and lower costs. With respect to our 2020 preliminary adjusted EBITDA guidance. Let me build on a few of Willie's comments. From 1Q '17 through 3Q '19, we nearly doubled our Permian tariff volumes, averaging quarterly growth of approximately 230,000 barrels per day.This includes more than 95% growth on our long haul systems, for which for the first three quarters of 2019 have operated at effectively 100% utilization. Our 2019 results also benefited from accelerating the…

Thanks Al. Thus far in 2019, we've delivered solid fee based results enhanced by strong S&L execution in a period of favorable market conditions. In addition, we've continued to advance our ongoing efforts to improve safety and reliability of our operations with strong performance in those areas year-to-date.Looking forward, we've aligned ourselves with long term industry partners across the value chain, which allows us to build and optimize capital efficient projects, help solve industry needs, and secure returns that meet or exceed our hurdle rate above our weighted average cost of capital. We remain focused on continuing to grow our fee-based business through the completion of our current capital program, and ongoing optimization efforts while maintaining a strong balance sheet and credit profile.As Al mentioned, we will also continue to look at portfolio optimization and additional potential asset sales. Acknowledging the headwinds described throughout our call, we believe we're well positioned for 2020 and beyond. Initiatives described throughout the call to our cash flow as we complete our current capital program, which will allow us to further balance our capital allocation leverage, including leverage reduction, and returning capital to unitholders in the next few years.A summary of our performance versus our 2019 goals is included as well as key takeaways from today's call shown on Slide 11, and 12. We look forward to updating you in February with our full 2020 guidance.Before I turn it over to Roy, I do want to make a clarification when I talked about our Cactus II pipeline, it is mechanically complete. I may have referred to it as 600,000 barrels a day of demonstrated design capacity. The correct number is 670,000 barrels a day of design capacity.With that, I'll turn it back to you, Roy.

Thanks Willie. As we enter the Q&A session, please limit yourself to one question one follow-up question and then return to the queue if you have additional follow ups. This will allow us to address the top questions from as many participants as practical in our available time this afternoon. Additionally, Brett Magill and I plan to be available this evening and tomorrow to address additional questions.Eduardo, we're now ready to open the call for questions.

[Operator Instructions] We will now take our first question from Jeremy Tonet at JP Morgan. Please go ahead, sir.Q - Jeremy TonetGood afternoon.

Hi, Jeremy.

Want to start off with capital allocation philosophy and you touched on a lot of different ways during the call, but just want to bring it back in light of kind of where the share price sits right now and how it's kind of declined and how you think about stacking capital for the projects that you have, if they could be scaled, if they could be JV portfolio optimization, in thoughts on whether buybacks, any sense, any point, the future could make sense just kind of given the levels which trending at right now, how that all kind of plays together?

Jeremy, this is Willie, let me make a couple comments and I'll ask Al to add to it. I mean, clearly, we've got a capital program that's going on for this year and next year. We need to continue to allocate capital to complete that that is priority one is to get that done. We always look at ways that we can improve the returns of projects. If you've seen we have brought additional partners into that, we’ll continue to look at that. But we really hit a point of inflection in 2021, where the cash flow starts kicking in from the completed capital projects, and our capital load starts dropping. So at that point, it gives us more flexibility to do things.And then the other thing we're looking as Al talked about, we continue to look at potential asset sales, and even some other ways to additional cash to give us sell some more financial flexibility. So that's kind of the base case. Depending on if we get some excess earnings from S&L and or asset sales, there's a possibility for shareholder return. We would only buy shares back if they were value compelling. We have had discussions with our board on it and we would be able to move quickly on it. But at this point, our focus is really to get our capital projects done and get ourselves moving where we can get some of the cash in the door. Al?

Willie, I think you hit it. Clearly it's one of the prongs of our capital allocation strategy. As we mentioned, we've had discussions with our board, we think we could implement a program very quickly. It just right now we're prioritizing leverage and funding, what we think are very highly strategic and accretive projects. But there will be a time when we'll prioritize it, if our shares if it makes sense at the time when we get there.

That makes sense. That's helpful. Thanks. And there's been a lot of talk in the marketplace as we've seen over time with Permian take away competition kind of ramping up and it seems like we're at the precipice of it right now with some competitor pipes, entering service. And so just want to see if you could provide any more color on 4Q transportation looks like the guide embed, a little bit of a step down there. So just want to see, given that we're partway into the quarter right now, what level of comfort you have, as far as kind of hitting that number just, any color you can provide that would be helpful?

Let me ask Jeremy Goebel to address that.

Jeremy, first of all to answer your second part of your question the near term, what we were doing is reflecting a surge in production, we saw spot capacity and regional differentials across multiple types and multiple regions that supported. We have forecasted in Q4 additional takeaway capacity from regions coming on Cactus II came on, which is different than some that rolled in but some of the spot capacity we value differently in the fourth quarter.As we go through the quarter. We feel comfortable where the projection is going into next year and beyond. I think Al touched on it during the call, as Willie did as well, that our forecast for next year reflects our view of what regional differentials are and what we've used by capacity and allocation will be, it steps up year over a year as a surgeon production we're seeing now that's come into our system.One thing to take away from the call as we've been preparing for this environment for several years, we've been grooming up our lease supply, we've been ensuring we have the right upstream and downstream connectivity to provide our customers and the utmost connectivity and most efficient way to get from the wellhead to the market.In addition, that turned up leads supply gives us opportunities to make sure that where we have slack, we can optimize utilization of our pipeline systems. On top of that, we have substantial long-term commitment strategy. Both Willie and l talked about. That's why we get excited about the projects we do we have long-term industry partners, long-term contracts, that combined with our marketing position gives us an ability to make sure our pipes stays full and optimize their capacity.

That's great. That's all for me. Thanks for taking my question.

Thanks.

[Operator instructions] We will now take next question from Shneur Gershuni of UBS. Please go ahead, sir.

Hi, good afternoon, everyone. Just wanted to actually talk about Permian takeaway capacity for a little bit here, some of your peers have mentioned the high cost of using DRA and how much capacity it's added to the overall Permian takeaway system. So, with spreads seriously compressing and probably expensive to use DRA, do you have a sense of how much capacity can be taken out of Permian take away capacity as a result of sort of taking out this peak capacity assorts?

Yes, Shneur this Chris Chandler. The short answer is we don't have an estimate of how much capacity could be taken out of the DRAs it was stopped but it is something that we optimize on a daily basis we take into account things like power cost, pipeline flow rate and crude quality and it's a continuous optimization. And really in some cases some of our more recent pipelines have been designed to utilize a base loan of DRA. So it's unrealistic that DRA would be removed completely from using our pipelines.

Shneur this is Willi. I give you rule of thumb is plus or minus 20% on capacity for DRA, just a general comment.

Perfect. Okay. Thank you. And as a follow-up question, I know that you've sort of given us an initial outlook on 2020 and my questions about to be about '21. But, as you sort of look at the projects that you currently have complete visibility on right now that you're building out and so forth. When I look at Slide 9, you sort of have plus 21 with CapEx being meaningfully lower in '21 versus the current year. And it sort of seems to be suggesting that there could be some incremental EBITDA growth in 2021.Are we looking at something that can be pretty meaningful in 2021 in terms of just the continued ramp. When you sort of think about the capital you're putting in place for 2020? How much would still be ramping at the end of 2020 and it’s a '21? Do you have some sort of sense on that.

Yeah, Shneur, I would look at it as these capital projects kicking in and getting the benefit of it. So it is a meaningful amount that would start ramping up in 2021.

All right, perfect. Well, those are my two questions. Thank you very much, guys.

Thanks.

We'll now take our next question from Tristan Richardson at SunTrust. Please go ahead.

Hey, good evening, guys. Just, I had a question that the new development on Wink to Webster, can you talk a little bit about how the UGI came about and typically, it seems like we've senior equity partnerships focus on large customers that can bring volumes to bear. Kind of curious how this one came about?

Good afternoon. This is Jeremy. Look, we are always looking to optimize. If you remember, at this time, there were several competing projects for similar routes. Saddlehorn is an example when merged with Grand Mesa. This is optimizing long-term takeaway to ensure that there's sufficient takeaway to meet producers' needs, but at the same time making sure the industry is capital efficient. Wink to Webster and its partners had a pipeline. But for the long-term benefit of the downstream refiners, the producers and the owners of the pipeline system felt it made sense to merge the projects together and come up with a capital efficient solution.You'll see us continue to do that in all the projects, look at the White Cliffs project that we're reversing and turning into NGL service that I mentioned Saddlehorn Grand Mesa, the road river project, Diamond Capline, all of these projects are taking existing capacity or bringing partners together that have potentially competing projects and trying to be capital efficient. So I think going to Webster was just another one where rational mines come together in the industry and take two projects and put together as to one.

Tristan I would characterize this as really a great example of what we mean by driving capital efficiency across both ourselves in the industry.

Appreciate it. And then Al you mentioned preferred equity as a potential tool in the toolbox. Could you talk about sort of maybe book in sort of what kind of conditions do you think that would make sense as a funding mechanism. This is a balance sheet consideration as it just trying to think of what would set the stage that might be the best option?

Yeah, clearly, we view that our leverage will pick up in 2020, as we fund this capital program. So we view that as a funding tool, it'll be kind of done in concert, if we were to do it in relation to how much assets, we may identify to monetize any changes in our CapEx program, if any, and kind of ring, if you look at the preferred security, with the 50-50 kind of equity debt waiting that the rating agencies subscribe to it, versus our cost to capital. And so, and I think ballpark we have $800 million to $800 million to $1 billion kind of in our basket that we could we could utilize.So but the security also is subject to market conditions and that so we do view that as one of the things will be monitoring and if we need to manage leverage or fund our program will look to access that market.

Appreciate it. Thank you guys very much.

We'll now take the next question from Gabe Moreen. Please go ahead.

Hi, good afternoon. Two questions for me. One is in terms of the year-on-year Permian growth forecasts of 300,000 to 400,000 barrels a day. Whether that is conservative or aggressive, I guess time will tell but it seems a little bit more of a conservative numbers compared to some I think some other stuff that's out there. Can you talk about to what extent that's been developed in conjunction with talking to producer customers versus what that may be a PAA internal viewpoint?

Sure. This is Jeremy. We continually look at our forecasts we probably it's continuous based on dialogue with customers our own internal views. It's dialogue that the our customers are having to market. It may prove conservative we basically look at in this case, it's almost a run rate saying the 375 current rigs that are running continue to run through 2020 perspective.To be honest with you, 2018 ended with more production than we thought. So it began this year. So while activity continues to climb this year, our 2019 exit rates higher than we had forecasted at the beginning of the year, simply because of the momentum from 2018. It's quite possible that that happens again, we expect 2019 to exit around 4.65 million barrels a day.We, in this forecast that Willie was working from, which is really a constant activity forecasts, and no efficiencies built in gets you to roughly 5 million barrels a day exit next year, that growth will be different by different operators. And when you'll see some of the integrated far exceed historical growth rates and you'll see the liberty and pieces that have substantially lower.So it doesn't necessarily mean anything specific for specific operators, it just means that look that's our respective view of this activity level, core assets and we view well performance will continue to slightly increases lateral lengths get longer on a normalized basis, it seems like it's fairly flat.So that the impacts of parent child relationships we think customers are working through it that in wealth, spacing, et cetera. So we continue to see that incremental well be better than the last well, a lot of it because of getting smarter. And so as we said, none of that built in what we've got is a continuation of current activity and that's what yields that number.

And based on current price environment as well.

And Gabe this is Willie. To make sure I was clear when I described it, what I gave two numbers. One was 2020 average versus 2019 average, which is the 500 number, which is a little lower than we expected before and then the 300 to 400 number was year-end 2019 to year end 2020, which reflects the back end of 2020 starting to taper off

Thanks, Willie. And then my follow up question really is around some hand holding around S&L, the $50 million to $100 million to what extent you're protected on the downside if relationships get really out of whack in terms of Permian barrels selling at a premium because of MVC [ph] commitments and the like relative to those prices, how you feel that $50 million to $100 million might put you downside in a scenario like that?

This is Jeremy. I would look at it as that's our current reflection of all the impacts of S&L. S&L is in Canada, S&L in the Rockies S&Ls in the Permian. So we feel like we've got a good handle on those attributes. With respect to the Permian, we can be the beneficiary being a pipeline operator and owner of capacity to multiple markets plus the ability to sell into Midland. So the extent that happens, there's ways for us to benefit as well. So I think our length in this situation will help us take advantage of that if that turns out to be and we will continue to look opportunities to optimize around our asset base, our S&L footprint and to our marketing affiliate.

So that number, Jeremy touched on this, but really it's a reflection of when you look at our contractual commitments and our contractual position in 2020, and our volume forecast and like I said, rolling in the NGL, as well. We think there's a prepared reflection of the opportunity set in 2020.

Great, thanks, everyone.

We will now take the next question from Michael Blum at Wells Fargo. Please go ahead.

Thanks. My question is really about the asset sale approach for next year. I guess would that be discreet assets or would you also consider JV and existing assets and I guess within that context specifically with Red Oak. Are you sort of set at the current JV structure or was that kind of also be willing to sell down into as well? Thanks.

Let me go ahead and take this one, Michael. I don't want to get too specific on asset sales. We've talked about the option on one of the pipelines that specific, we've been working a number of potential opportunities. And I would answer, it's really all of the above as you've seen us implement over time. We do have some additional things we are looking at, but it's probably premature for us to give you specifics on that or give you a number on that.Jeremy, you want to add something?

Yeah, I think really captured it. We're opportunistic, and we like our assets and won't sell them and their evaluation that we're comfortable with. But in addition, the questions specifically on Red Oak P66 and planes are always looking to optimize the ownership the strategic alliances, it may be that we keep it this way. Maybe that we bring someone in and all be based on the opportunity set.

All right, thank you. That's all I had.

Thanks, Michael.

We'll now take our next question from Keith Stanley at Wolfe Research. Please go ahead.

Hi. The Q3 EBITDA is very strong and transportation segment and your updated guidance it implies kind of a tick down in the fourth quarter and transportation and in facilities and volumes pretty flat. Just anything unusual going on there as it just conservative in Q4 looking forward?

I believe this question was asked earlier. But I think very simply, there were – Cactus II came online and we had a surge of production from it. The condition because we were the first project online all of our Permian outlets all maintain full wild cactus to with elevated rates. So we wouldn't expect that spot capacity on those volumes.In addition, there were some opportunities in the Rockies and others that had spot differentials Red River pipeline was running at elevated levels. But our reflection next year is to step up $100 million from this year in spite of that, as projects come online as Cactus II to fully ramps, and towards the end of the year as Red River and Saddlehorn and White Cliffs [ph] step up.So we feel like next year reflected. But Q3 was an instance where we had Cactus II full and every one of our Permian pipelines is full, in addition to some Rockies opportunities and Red River.

On the facility side also there's a lot of spot activity that's hard to forecast natural gas assets, for instance significantly performed relative to the guidance we had out there. So those are the types of things that are harder to anticipate quarter-over-quarter.

Got it and just one quick follow-up on the sell down of the Wink to Webster the 29% interest. Can you just confirm the party who acquire that interest has not disclosed that publicly in the market yet.

To our knowledge, they have not disclosed that.

Okay, thank you.

Thanks, Keith.

And we'll take next question from Colton Bean from Tudor Pickering, Holt & Company. Please go ahead.

Just to follow-up on the $50 million to $100 million investment next year, can you give kind of a high level breakdown of contribution between the Canadian NGL business and crude marketing?

We don't go into that type of detail and the guidance.

And I guess just as you look at that number, the assumptions that would be consistent with pretty tight spread environment on crude.

Yes, correct.

Got it. Well, I guess you’ve seen the impacts on the NGL side of the businesses, I mean in the Edmonton spread has come in. So is that that's all kind of dialed-in here in that 50 to 100.

Yes, it is.

And then just on the $85 million that you referenced.

The Edmonton spread, on a short term basis, Canadian just have gotten weaker because of case study. Not sure that that's something that persists on a long term basis.

Got it? Okay. So on -- is that on the crude side or?

That was on the crude side actually I speaking to. On the NGL side the differentials are compressed as well.

See calling the reason we don't try to give too much more transparency there’s so many variables in the market that it really gets into a reconciliation nightmare of what might happen. So I think we'll just stick with our answer on the 50 to a 100 the components of what we do.

Understood. And just on the -- I think it was $85 million that you reference in terms of Permian headwind next year for transportation. Can you just characterize where in the system got hitting is that primarily long haul are you seeing any impact closer to the wellhead?

Yes, I let Jeremy touch on this. The 85 was really across our system and it includes Permian long haul, as well as some lower tariffs on some Rockies pipelines.

Yes, I think Willie covered it's primarily long haul, but our reflection of what we think the rates through transportation inter basin and transform, any changes to contracts we have within the basin, our view of what spreads are across the region all impacted into that number.As we've talked before, we've got this complex system that can get different markets, when everything is constrained, everything's full going up to Cushing, primarily. And with a lot of new pipelines that have been built, the volumes now are actually going to on to the Gulf Coast markets. So a good portion of that reduction on long haul is on our base and system going up to Cushing.

Yes, and I would also add to this, that when you think about our system and the movements within given basins, a lot of that is on long-term contracts just as a takeaway pipe. So when you think about it that our guidance next year reflects the combination of inter basin and long haul regional differentials, et cetera.

We will now take the next question from Pearce Hammond at Simmons Energy. Please go ahead.

Thanks for taking my question. Just one question for me. I'm curious if you have any update on the Eagle Ford terminals, Corpus Christi, the JV with enterprise any changes there? There was some talk about maybe enterprise selling their portion.

Thanks Pearce. This is Jeremy. Business as usual and JV with enterprises a partner we're excited we were shipping two to three cargoes a month and the terminal started up in September and as our customers are very happy so I think that's the only update I have for you.

So we have not been in a loop on what enterprises doing with their ownership.

Thank you.

We will take a next question from [indiscernible] at Bank of America. Please go ahead.

Good evening. Thanks for taking my question. First one for me, would you be able to talk about what led to the reduction in your 2019 CapEx and then 2020 coming in line with 2020 -- sorry, 2019, as you previously stated, is that because of delays in project construction timing, or is that just a lower contribution from JV?

Sure. This is Chris Chandler. As we said earlier, we have reduced our 2019 CapEx 1.35 billion. To answer to your question it's a mix of timing adjustments, project scope productions and cost optimization. So some of those that flow through to 2020 as well. But cost might be something like improved results from competitive sourcing versus our initial estimates. We're also looking at optimizing line size number tanks number, booster stations, exact routing and the pipelines, things like that. So capital efficiency is something we're always pursuing. So our ability to bring that number down for both 2019 and 2020 is a good thing in our business.

Got you. And maybe, why don't you touch briefly on recent market concerns related to potential future Federal legislation or any kind of presidential directive against fracking on federal lands. Have you considered what could be scope of potential throughput impact based on where your assets are?

Yes, this is Willie. It's hard to comment on that. It's something that's further out there and there's a lot of uncertainty on what might happen. What I can tell you is we can give you one statistic that if we look at the acreage dedications that we have, we've got less than 20% that are on federal lands. So from what I've been hearing from the producer community, there's some flexibility for people being able to move things around. But I think it'd be premature for us to quantify direct impacts before we know what might happen.

That helps. Thank you.

Yes.OperatorWe will take our next question from Jean Salisbury at Bernstein. Please go ahead.

Hey, just one more for me $85 million impact in your guidance next year. Mostly I think due to lower utilization of spot capacity. Can you just comment on if this is still anticipating material spot barrels to flow or is this actually pretty close to the ticker pay? I guess with our cost floor level?

A lot of the volumes and legacy pipes don't have MBC. So it's sort of a combination of what moves on MBC, what's dedicated to our gathering systems. And where we think those volumes naturally flow because of the demand where there's not an MBC.

Okay, I guess, I meant more outside of the first thing.

No, that's across our system. We have legacy assets that aren't new construction. And whether it be in the Rockies or -- and so a lot of our assets are demand pullers historical super industries controlled by refiners, they ship on those pipelines to feed their refineries. A lot of the newer construction has MBC. And this reflects that component. So, when Harry is talking about it our plan that 85 million reflects the net impact across the pipelines based on our flows and based on our view of what our entities are. The net impact to the business unit. That's the fee base pipeline business unit.

Okay. That's helpful. And then as the only midstream operator, who will have exit capacity from the Permian to Cushing, Houston and Corpus. Can you share your thoughts on what you think is the relative attractiveness of the three destinations to shippers once there's plenty of capacity to each one?

Sure. Cushing has a substantial refining complex and they like need barrels. And to the extent, you see lower activity in the Rockies in the Mid-Con, and there's a shortage of barrels that's what would pull their, the quality of the need Permian barrels to full barrels that way. From a corporate standpoint, the ease of access and the competition for water, I think there's substantial new capacity and that markets working as an export market.Houston, there's, in addition to Corpus having some refining capacity, Houston has a bigger refining base, but it also has the stage will exports.Nederland is in a similar function. So we have customers and Jean, if you look at a map of our system when we're done with all the projects in 2021, if you look at Slide 5 or 6. You can see, we can take a barrel from the Permian Basin and get it to St. James, Nederland, Corpus, Cushing, Wichita Falls, or Houston. So our intent is not to tell our customers where the barrels go, but to ensure that they have access to all of them, and pricing and our terminals can reflect those options. It makes our assets stickier for the long-term and that's the ultimate plan in what we’re developing.

That's really helpful.

The only thing I would add on that is I would just highlight that Cushing's demand, there is a demand for WTI qualities, right, the medium qualities there. That is the hub for a lot of Mid-Continent refineries. And as we go forward, we've always kind of predicted that crude segregation is going to get more important as the aggregate barrels get lighter, and I think we're going to continue to see more of that. But there's going to be a continued pull on 45 in lower gravity's at Cushing.

Thank you. I appreciate that.

Now take the next question from Sunil Sibal at Seaport Global Securities. Please go ahead.

Hi, good afternoon, guys. And thanks for the clarity. Most of my questions have been hit, but I did have a couple of clarification from points discussed. First on the federal land drilling, I think you mentioned 20%, was that referring to your current production coming from those kind of lands or is it more related to acreage dedications with regard to the federal land?

My comment was on the total acreage of what we have in the Permian.

So wouldn't impact existing production, right.

Okay, got it. And then on the CapEx side, so it seems like from your last update between '19 and '20 a $300 million reduction in capital. And then I think you talked about another $100 million or so of asset sales. So net-net, when we think about leverage exiting 2020, you're talking about a $400 million difference versus than you provided guidance last time, is that correct?

Chris, do you want to take that?

You're correct on the capital number, and you're correct on the asset sales number that your reference. So consistent with our capital allocation strategy, we look to self-fund our capital investments and also reduce leverage as we have the opportunity to.

But Sunil, of the 2019 and 2020 numbers, right. There's a timing component, a cost savings and an optimization component. We haven't given you the breakdown on that. But some of that will be CapEx that will shift from 2020 to 2021 as well.

Okay, got it. Thanks.

We’ll now take next question from David Amoss, Heikkinen Energy. Please go ahead.

Hey, guys, I'm thinking about the question that Shneur asked earlier on 2021. Can you just talk about how you expect your return on invested capital to change as we get further beyond your guidance now through 2020. Should there be some meaningful improvement in capital efficiency in 2021 and beyond?

Well, it's hard it's hard beyond 2021. It's hard to say what our return on capital be for projects that we don't have that as an all that, I think I can speak to the projects that we're on the slides really walk through and there's a number of them. And I think in total, they aggregate over $2 billion of invested capital, we feel very good about the returns, we're going to get from those projects, highly contracted, third parties, with third parties with natural shippers, long-term MBCs, and returns that meet or exceed our hurdles, which is 300 to 500 basis points over.So we feel very good about the returns when it gets on what we're invested in today. Beyond that, it's a little bit harder to find. Our view is that we need to turn those return hurdles or we should make the investments. So bottom line is we're trying to be as disciplined as we can with our capital dollars. They're precious and ultimately, we again, we feel very strong about the returns, we're going to seeing the growth we're going to see in 2021, as we complete these projects.

And then David, if I would add also, as you think about some of the assets sales that we've done. Asset sales sold at good values. That should be accretive to the projects we're doing. So I think directionally there's a lot of positive desire on taking return on capital employed up.

Okay, thank you. And then one follow-up just, if you wouldn't mind expanding on the moving Capline back a little bit and in terms of timing, what's the cause of that?

That project is progressing largely as expected. We're in the process of purging Capline itself and removing line fill. That's going well, that's to prepare for both inspection and reversal activities. And then the new section of pipe is an extension of Diamond, of course, from Memphis, Tennessee to Byhalia, Mississippi. That's approximately 40 miles. We are taking a little extra time to make sure we've chosen the best route that has the least impact on the community and we're in the process right now of optimizing that route and obtaining the right away for that extension.

Thank you for the clarification. Just one last one if you don't mind that process on the 40 miles, when do you feel like you'll be secure in knowing that that's done and you can proceed with your project?

That should come fairly soon. We're preparing to order long lead equipment, we're in the middle of detailed engineering. So they'll always be route optimization until we buy our last piece of right away but we have on the schedule to start construction in early 2020. So that, of course, requires that the route be locked down for those sections.

Get it. Appreciate it. Thank you.

We’ll take the next question from Christine Cho at Barclays. Please go ahead.

Hi, everyone. I just have one question on your CapEx. So your CapEx for next year says that you assume 300 million via positive pro rata debt at Red Oak. And I think you said that’s project level debt. Are you guys evaluating project levels for Wink to Webster? And if so, will your CapEx come down next year?

Christine, this is Al. No, we are not with regard to Wink to Webster. On these equity investment JVs, we've historically treated as investment and reported as our capital investment as to contributions and clearly the reason we're doing the disclosure around the Red Oak is to make sure that whether it's debt inside of the JV entity or contributions from us that were full disclosure on what the true investment is net pro-rata to us, but we are not looking at Wink to Webster project finances.

This concludes today's question-and-answer session. And I'd like to turn the conference back to the speakers for any additional or closing remarks.

Thank you all, appreciate you joining us today and we look forward to providing you an update in February.

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