Q2 2023 Plains GP Holdings LP Earnings Call
Participants
Al P. Swanson; Executive VP & CFO of Plains All American GP LLC; Plains All American Pipeline, L.P.
Blake Michael Fernandez; VP of IR; Plains All American Pipeline, L.P.
Christopher R. Chandler; Executive VP & COO of Plains All American GP LLC; Plains All American Pipeline, L.P.
Jeremy L. Goebel; Executive VP & Chief Commercial Officer of Plains All American GP LLC; Plains All American Pipeline, L.P.
Wilfred C.W. Chiang; Chairman & CEO of PAA GP Holdings LLC; Plains GP Holdings, L.P.
Brian Patrick Reynolds; Analyst; UBS Investment Bank, Research Division
Gabriel Philip Moreen; MD; Mizuho Securities USA LLC, Research Division
Indraneel Mitra; Analyst; BofA Securities, Research Division
Keith T. Stanley; Research Analyst; Wolfe Research, LLC
Michael Jacob Blum; MD and Senior Analyst; Wells Fargo Securities, LLC, Research Division
Neal David Dingmann; MD; Truist Securities, Inc., Research Division
Spiro Michael Dounis; Research Analyst; Citigroup Inc., Research Division
Sunil K. Sibal; MD & Senior Energy Infrastructure Analyst; Seaport Global Securities LLC
Presentation
Operator
Good morning, and thank you for standing by. Welcome to the PAA and PAGP Second Quarter 2023 Earnings Call. (Operator Instructions) 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.
Blake Michael Fernandez
Thank you, Michelle. Good morning, and welcome to Plains All American's Second Quarter '23 Earnings Call.
Today's slide presentation is posted on the Investor Relations website under the News and Events section at plains.com, where 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. Highlights from the quarter are provided on Slide 3, a condensed consolidating balance sheet for PAGP and other reference materials are located in the appendix.
Today's call will be hosted by Willie Chiang, Chairman and CEO; and Al Swanson, Executive Vice President and CFO, as well as other members of our management team.
With that, I will now turn the call over to Willie.
Wilfred C.W. Chiang
Thank you, Blake. Good morning, everyone, and thanks for joining us. In our release earlier this morning, we announced strong second quarter results, along with the closing of a Permian gathering Bolt-On Acquisition on July 28, and we provided an update on our NGL segment optimization efforts at Fort Saskatchewan. These announcements reflect meaningful progress towards executing on our full year '23 targets and goals.
As a result, our year-to-date performance and Bolt -- the result of our year-to-date performance and the Bolt-On Acquisition, we now expect to be at the high end of our $2.45 billion to $2.55 billion adjusted EBITDA range for 2023. Our revised outlook also contemplates slightly lower-than-expected Permian production, driven by lower commodity prices and some weather-related impacts that occurred in June and July. A high-level overview of our updated '23 guidance is located on Slide 4, and I will share additional detail in his portion of the call.
As summarized on Slide 5, our Permian JV acquired the remaining 43% non-operated interest in the OMOG JV from Diamondback Energy via a negotiated transaction for $225 million or approximately $145 million net to Plains' interest, which was funded with excess free cash flow.
This further aligns us with Diamondback in the core of the Midland Basin and is consistent with our objective of capital discipline and efficient growth, complementing our existing footprint. With regard to updates on our NGL business optimization, a summary of today's announcements are provided on Slide 6.
In summary, we sanctioned a 30,000 barrel a day Fort Sask Train 1 debottleneck and expansion. We also added connectivity projects to both our Co-Ed and wide-grade gathering pipeline and our Fort Sask fractionation complex, which further integrates and expands our NGL system. We entered into commercial commitments substantially increasing the weighted average contract tenured to 10 years across our Fort Sask fractionation capacity in our Co-Ed pipeline.
Overall, we expect the NGL projects to generate unlevered returns in excess of our hurdle rate on approximately $200 million of investment capital. This multiyear investment fits within our previously communicated expectations for total average annual capital growth -- capital spend of $300 million to $400 million a year net to PAA over the coming years.
Lastly, we have a third-party supply agreement that expires at the end of 2024, which reduces our overall frac spread exposed volumes by approximately 15,000 barrels a day. The combinations of these announcements is expected to be EBITDA neutral in 2025 and beyond in a $0.55 to $0.60 per gallon frac spread environment, with the contributions from the Fort Sask expansion, associated connectivity projects, in Co-Ed pipeline agreements offsetting the expiry of the NGL supply agreement.
Importantly, the end result is a more predictable and durable level of fee-based earnings in our NGL segment underpinned by long-term contracts. Additionally, we're no longer exploring a joint venture and a higher cost expansion of Train 2 at the Fort Sask facility as it did not meet our required return thresholds.
Before turning the call back over to Al, I want to leave you with 3 messages. First, we've exceeded our EBITDA targets through midyear, and we expect to be at the high end of our full year guidance range. Second, we closed an attractive Permian Bolt-On Acquisition that further improves our Permian footprint in an efficient, disciplined manner. And third, we announced several strategic actions in our NGL segment, which will help improve the long-term durability and the quality of our cash flow stream over time.
All of these actions align with our goals of remaining capital disciplined, generating multiyear free cash flow, reducing leverage and increasing returns of capital to our unitholders. With that, I'll turn the call over to Al.
Al P. Swanson
Thanks, Willy. We reported a second quarter adjusted EBITDA attributable to PAA of $597 million. This includes benefits from increased volumes across our systems in our crude oil segment. As mentioned on our last call, the NGL segment experienced lower sales volumes as a result of planned turnaround and seasonally weaker demand. Slides 11 and 12 in today's appendix contains walks, which provide more detail on our second quarter performance.
An overview of our updated 2023 guidance is located on Slide 7. As a result of business performance in both our crude oil and NGL segments year-to-date, and the partial benefit of the OMOG acquisition, we now expect to be at the high end of our full year adjusted EBITDA guidance of $2.45 billion to $2.55 billion. We continue to expect year-over-year growth in our crude oil segment, driven by Permian tariff volume increases.
For the NGL segment, we remain highly hedged and do not expect a material impact from the lower frac spreads or Canadian wildfires. Shifting to capital allocation, as illustrated on Slide 8, we remain committed to: one, significant returns of capital to our equity holders, two, continued capital discipline; and three, reducing debt and increasing financial flexibility.
For 2023, we expect to generate $2.5 billion in cash flow from operations, $1.6 billion of free cash flow, with $600 million of free cash flow after distributions available for net debt reduction, resulting in year-end leverage below 3.5x. We will continue to self-fund $325 million and $195 million of 2023 investment and maintenance capital net PAA, which is consistent with previous guidance and includes the anticipated capital related to today's NGL announcements. With that, I'll turn the call back to Willy.
Wilfred C.W. Chiang
Thanks, Al. Today's results reflect another quarter of strong execution and we remain very confident in our ability to continue delivering on our goals and initiatives. Macro uncertainty continues to drive volatility in both the crude and NGL markets. However, we previously took steps to proactively mitigate this risk by entering into a combination of short-term crude contracts and hedges in the long-haul crude business, along with our substantial hedge position in our NGL business.
Over the long term, Plains remains well positioned as North American supply will continue to be critical to meeting growing global demand. As previously outlined in our capital allocation framework, we remain focused on continuing to meaningfully increase returns of capital to unitholders through targeted multiyear distribution growth. We have a 7.5% distribution yield, significant free cash flow generation and balance sheet strength as shown on Slide 9.
We appreciate your continued interest and support, and we will look forward to providing further updates on our earnings conference call in November. With that, I'll turn the call over to Blake to lead us into Q&A.
Question and Answer Session
Blake Michael Fernandez
Thanks, Willie. As we enter the Q&A session, please limit yourself to one question and one follow-up. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as practical in our available time this morning. Additionally, the IR team will be available to address any additional questions you may have. Michelle, we're now ready to open the call for questions.
Operator
(Operator Instructions) The first question comes from Spiro Dounis with Citi.
Spiro Michael Dounis
First question, maybe to start with the guidance. From what I could tell, you all were trending, probably towards the upper half of the range even before this Bolt-On acquisition. So I'm curious, can you maybe speak to how much of that upgraded outlook is legacy operations versus the Bolt-On. It sounds like maybe there could be some puts and takes into the end of the year.
Wilfred C.W. Chiang
Yes, Spiro, the way I would characterize it is -- the Bolt-On is really a smaller piece of the amount -- the transaction is expected to close here hasn't closed yet. So -- or actually, it has closed, it's going to be 5 months, but it's predominantly overperformance in the business.
Spiro Michael Dounis
Great. That's helpful. Thanks, Willie. Second one, just going to the NGL segment. So Train 2 didn't meet the hurdle rates. Curious, maybe you can just go through some of the dynamics there and maybe what could bring that project back on to the burner here? And then beyond what's been announced today in Canada, anything else you're still pursuing around optimization there?
Wilfred C.W. Chiang
Yes, I'm going to let Jeremy touch on that, but I want to open with one comment on this. When you think about all the things -- there's a lot of moving parts around this whole optimization project. But the thing to think about is we always drive for the capital discipline, high-return option as we think about these options. Jeremy?
Jeremy L. Goebel
Sure. Spiro, I think the way to think about it is, we were looking at alternatives, Chris and his team have identified some lower cost groundfield opportunities around our Train 1 system. The comment -- we were able to offer a package that between that and some existing capacity we have in the East at Sarnia, we're able to meet our needs through doing that. So we found a substantially more capital efficient way to get to the same place. And us and our partner decided that a commercial arrangement versus a partnership was a better way to solve the problem.
Spiro Michael Dounis
Understood. And then in terms of -- anything else in terms of Canada and optimization, is it kind of different now? Or are you still more potentially in the background?
Wilfred C.W. Chiang
Chris?
Christopher R. Chandler
This is Chris Chandler. We continue to find some pretty compelling opportunities across our system. Of course, we just talked about the opportunities in Edmonton at our Fort Sask facility. But we also have the NGL extraction plants at Empress outside of Medicine Hat. And as Jeremy mentioned, we have some unutilized capacity at our Sarnia, Ontario fractionation facility. So we look at ways to optimize all of those and we're making small targeted investments to further grow our business in all those areas. So I think there's -- there continues to be opportunities and we're excited to pursue them.
Wilfred C.W. Chiang
And Spiro, the way these things typically work as you build some of these things out, you end up finding additional optimization opportunities. So it's kind of a continuing process as we go through things.
Operator
The next question comes from Brian Reynolds with UBS.
Brian Patrick Reynolds
Maybe just as a follow-up to the guidance update, just kind of questions around your intra-basin volumes going forward, just given the [pure] acquisition that took place in 2Q or whether you're seeing any fundamental shifts in the back half Permian volume expectations?
Jeremy L. Goebel
Okay. So I think there was two questions there. On intra-basin volumes, the acquisition doesn't impact those. This was a Midland Basin acquisition. So basically, it's something we already operate, so gross volumes flow straight into Midland. There's no intra-basin component to it.
As far as -- I think your second question was overall expectations for the Permian. What I would say is the first part of the year, we're exceeding expectations. The last few months have been behind a bit. The activity so far this year has been largely in line, I'd say it's trending a little bit below at this point, but productive capacity is still to get there. So it's going to be a function of timing of completions through the second half of the year.
Wilfred C.W. Chiang
And Spiro, you're aware that we ended up with some weather problems in the back half of June and July. It was really weather-related, hot weather. There were some gas plant issues and the producers have been very disciplined not to flare. Also, we had a lower flat price in that period of time. So there's probably not as much incentive to try to produce. So we think we're through that. Oil prices have been more constructive highlighted by the OPEC decisions today with a little more support behind it.
So as we think about the rest of the year, we've incorporated all of this into our outlook on guidance. We actually have Permian guidance -- volume guidance just a little bit below our 500. But even with that, we still think we're going to be at the high end of the range.
Brian Patrick Reynolds
Great. I appreciate all that color. And then maybe as a follow-up, can you just give us an update on the minimum volume commitments that are being worked through in 2023? And how we should think about that as we look ahead into 2024? Will those be fully worked through? And could that be a tailwind as we think about 2024 early numbers?
Jeremy L. Goebel
The way I would look at it is there's two pipelines that are accruing deficiencies. I would say that the time period to work through those deficiencies, they're still accruing some on the pipelines. So I would view it as something that's going to take a few years to work through. Just because of the other commitments on the pipeline, you have to look at it as the -- using deficiency credits is the last barrel that's shipped -- the barrels that are committed, ship first, any spot barrels or next and then deficiency.
So from a capacity standpoint, working through the deficiency barrels on a space available basis, so that takes time to get through it. It will take probably a couple of years to do that.
Wilfred C.W. Chiang
And Brian, our outlook hasn't changed. We still expect the spreads to strengthen as capacity shrinks with increasing production. As you probably know, we've chatted about on the Permian takeaway capacity on the Gulf Coast, we've essentially made sales and contracts to kind of protect that for the next -- predominantly for this year and '24. So that gives us a little bit of buffer, and we would expect that the rates between Permian and the Gulf Coast should expand out to ultimately incremental transportation costs.
Operator
The next question comes from Gabriel Moreen with Mizuho.
Gabriel Philip Moreen
I was wondering if you can maybe speak to your CapEx outlook for this year in light of a little bit of the tweaking to the Permian outlook. You're running a little bit late, I think, of your guidance, if you, I guess, annualize it. So I'm just wondering, is there a possibility -- you coming to the lower end of the CapEx range given that Permian volume outlook?
Wilfred C.W. Chiang
Gabe. Chris Chandler will cover that. There's a lot of work that we go through to keep capital discipline across the company. Chris?
Christopher R. Chandler
Yes. Gabe, we do continue to optimize our spend for 2023. Speaking in buckets, for our gathering system projects, we're pacing our investment timing with our customer schedules. And Willie mentioned some color there with leaving a period of some adverse weather and lower prices, we expect that to kind of pick up in the second half of the year.
On Permian infrastructure investments, we do have complete projects as needed to match expected production growth in the different regions of the Permian. So we try to time that appropriately.
And then remember, we just announced a new NGL project at Fort Sask and we're going to be able to fund the 2023 portion of that project within our existing guidance of $325 million net to Plains for 2023. So there are some moving parts there, but we're reiterating our current guidance for the year.
Gabriel Philip Moreen
Understood. And then maybe on this M&A deal and a little bit of a 2-parter. One is, to what extent when you do these gathering deals within the JV. Are you either extending or renewing further downstream commitments? I realize that may be a commercially sensitive question to ask and then just kind of lay the land in terms of getting more of these gathering acquisition? And kind of done at what it's looking like.
Jeremy L. Goebel
Sure. The way I look at it is if we're buying from a producer, generally, there's an improvement in the contractual relationship. We had one as being partners with them, but we converted it a bit to something that was more appropriate for us not being business partners and us being the owner and then being the shipper or the producer.
So there is a -- the terms were strengthened to reflect that relationship. We have a great relationship with Diamondback and look forward to growing with them in this area.
Operator
The next question comes from Michael Blum with Wells Fargo.
Michael Jacob Blum
So I just wanted to stay on this tuck-in acquisition here and just get your thoughts on whether this is kind of as a one-off opportunity? Or do you think there's going to be other potential kind of tuck-in deals here that we should expect to see over the next couple of years?
Wilfred C.W. Chiang
So Michael, this is Willie. I mean, the way we look at this is we've got a great [France rise] across North America, particularly around the Permian. And if there's anyone that can extract synergies in these opportunities, it should be us. But we're going to remain very, very disciplined as we approach this. And so when you think about what we might do, it's things like these Bolt-On acquisitions, bite size Bolt-On acquisitions that make a lot of sense to us.
So I would expect that we are going to continue to look at opportunities there. And if there are strong return projects that are strategic and meet the hurdle rates of our returns, we are going to consider them. But we've got to stay disciplined and we look at a lot of things, and we end up with a few. Jeremy, anything to add on this?
Jeremy L. Goebel
No. Michael, I would just say that it's consistent with the Advantage transaction, the West, [purchased] -- the West's interest in Cactus II last year and this one. So this is a trend, but it's something like Willie said, it's got to fit for us. It's got to work for them. We're going to be very disciplined. As we said, we look at a lot, but it's got to compete for capital with the rest of our potential uses.
Michael Jacob Blum
Okay. Great. That helps. And then just in light of today's announcement on the Canada investment that you're going to be making. Just wanted to confirm that your long-term kind of annual capital spend rates are unchanged.
Wilfred C.W. Chiang
I'll take that one. Absolutely. We expect to stay between the $300 million to $400 million range as we go forward. We've said average, I guess, there could be some lumpiness in some of the timing around the projects, but you can expect us to stay within that range for a number of years.
Operator
The next question comes from Keith Stanley with Wolfe Research.
Keith T. Stanley
I wanted to stay on the frac expansion project. And so, just want to clarify, the project is EBITDA neutral in 2025 and beyond because of the existing contract rolling off. I assume that existing contract you have is in the money or favorable in some way. Could you just give more color on the dynamics there on why the EBITDA from the project itself would be offset?
Jeremy L. Goebel
Sure, Keith. This is Jeremy. So that contract was entered into in about 25 years ago, and so we're changing the relationship that we have with that counterparty unit. So I view this is -- depends on how your view of commodity exposure is. We gave you a sense for where it is at $0.50, it would be in the money at $0.70, it wouldn't be. But you have to look at the $200 million as a series of projects. It's gathering projects is connectivity between facilities. The frac expansion is just a small portion. That's the uniqueness of the brownfield expansion.
So this is a series of projects with diverse customer bases for very long term. So we're excited about the durability of the cash flow and predictability. So it's basically taking 1/3 of our frac spread exposure and converting it to a durable cash flow but we are changing the contractual nature that we have servicing this customer as part of this process.
Wilfred C.W. Chiang
And Keith, maybe to add one thing. This just reinforces the integrated system we have, but when you really look at it, we talk about our saddle and the seasonality of it. It goes back to trying to increase a portion of our cash flow to the fee-based side and it should flatten that saddle as we go forward. So we think that predictable more durable earnings long term should help as far as we think about valuation for our units.
Keith T. Stanley
Got it. And sorry, I'm going to stick with NGLs for my second question. Just -- obviously, frac spreads came down a lot in Q2, although propane is kind of coming back with oil now. Can you comment at all on where you stand on 2024 exposure? And how open you are to pricing? And then relatedly, just looking at NGLs in 2024, these turnarounds seem like they have a pretty big impact this year, $50 million in Q2. So should we assume that turnaround impact would reverse and be a benefit in 2024 looking forward? Or how should we think about that?
Jeremy L. Goebel
Sure. There's two questions there. On the turnaround, I don't think we have any material turnaround projected for next year. And I don't think the impact was quite that big for this year. So I would view it from a capital standpoint, yes, there substantial maintenance capital that goes into them. But -- so from a cash flow standpoint, you won't have the maintenance capital and you'll have some additional production. But I don't think the impact is in the neighborhood of $50 million. Your other question can you repeat that?
Wilfred C.W. Chiang
Really, frac spread exposure, and I'll take this. Keith, we don't disclose what we're going to do on frac spread exposure. You're right, frac spread exposure were high. They've come off significantly. They're coming back. And what I would tell you is we look at -- we try to time and be very thoughtful about how we do hedge forward. And as we go forward into 2024, we'll probably share -- we'll definitely share more at the end of the year, but the market is improving as far as the frac spread environment for 2024.
Operator
The next question comes from Neal Dingmann with Truist Securities.
Neal David Dingmann
Can you just talk about twofold, one on the '24 CapEx, expand a little more detail. And then secondly, just on capital allocation around that [3.5] target?
Wilfred C.W. Chiang
Al? The first question was on capital. Neal?
Neal David Dingmann
For '24.
Wilfred C.W. Chiang
For '24? I would -- $300 million to $400 million is what we're going to stick with for the next number of years. And your second one, could you -- ask your second question? Neal, are you still there?
Neal David Dingmann
I'm sorry, I just got cut off for one second.
Wilfred C.W. Chiang
Did you hear my comment on '24 CapEx? '24 CapEx will be $300 million to $400 million, consistent with our targets across the years. And then could you ask your second question on capital allocation?
Neal David Dingmann
Yes, just on -- I know you've got the 3.5 target. So I'm just wondering, would you -- if you keep -- what we have for free cash flow, you can get below that? Would you keep taking it below? Or how do you think about sort of payout versus taking that debt load?
Al P. Swanson
Yes. At this point in the year, our guidance is that we expect to be a little below the 3.5x at year-end. Clearly, a function of that will be what is our working capital requirements in the back half of this year that can move it a little bit. Our stated range still remains 3.75% to 4.25%. And as we've articulated over the last few quarters, we intend to operate below that for the near term.
And so really, there's no really other moving part. If we get a little extra cash flow will reduce debt in the back half. But the rest of the capital allocation is lined out. Clearly, if we're successful with another Bolt-On acquisition, that can change the dynamic a little bit. But we do still expect to be at that 3.5x or below.
Wilfred C.W. Chiang
Neal, does that answer your question?
Operator
The next question comes from Neel Mitra with Bank of America.
Indraneel Mitra
Willie, I think you alluded to some of the issues in the second quarter with just Permian growth and seeing that in your slides with gathering, intra-basin and intra-basin. And I was wondering if you could just speak to some of the issues that were faced in the second quarter. I think some of your peers alluded to this, but just wanted to understand what underpinned some of the production issues that are now resolved?
Wilfred C.W. Chiang
Yes. In my earlier comments, Neel, it really was a lot of hot weather issues that affected gas processing. And what we've seen is the producers have remained very disciplined around not wanting to flare and you also had a lower price environment that probably didn't give people an incentive to try to push any harder. So there's capital discipline and the producers had. And it was really back half of June and July. And since then, it's kind of improved. I don't know if there's more that you were looking for, I don't know. Jeremy, do you have anything to add?
Jeremy L. Goebel
Yes. I would say a lot of that led to producers not completing wells into that environment. So they're going to produce what they had, they throttle wells that they had, maybe not complete all the wells that they were intending to, that push completions into the August and forward time period.
Indraneel Mitra
Okay. Perfect. And then for my second question, I wanted to understand how you're looking at recontracting Cactus II, maybe with, when it extends ahead of possibly a competitor coming out with an open season or if that affects how you look at recontracting. I know that the forward curve has improved. So just your general thoughts on the long-haul type recontracting.
Jeremy L. Goebel
Sure, Neel, what I would say is we continue to have constructive dialogue with our customers. The back end of the view of prospective rates hasn't been nearly as volatile at the front end. So those discussions continue. There's options to extend on the Cactus II pipeline at attractive rates for our customers. So that one is pretty clear. I'd say for Cactus I and others, our integrated business model and asset base provides us unique advantages and aligns us with our customers for long periods of time. So we fully expect to do that as a function of when and timing and we'll update you guys when we have more information.
Operator
The next question comes from Sunil Sibal with Seaport Global.
Sunil K. Sibal
So I just wanted to understand a little bit better about Bolt-On acquisition. So it seems like those volumes are already reported as part of your gathering volumes and just that will get better economics on those? And if you could talk about kind of return on this kind of bolt-on acquisition.
Wilfred C.W. Chiang
Jeremy?
Jeremy L. Goebel
Sure. You're correct. Because we operated the asset and had over 50% interest that was consolidated and the gross gathering volumes wouldn't change. That specific asset doesn't impact long-haul or intra-basin. I think we said it before, it just further aligns us with -- they want to drill well and be in it. They feel very comfortable with the relationship with us as operators. So it makes sense for us to acquire that position. And Diamondback can recycle that into however it wants to use this capital.
Sunil K. Sibal
Okay. And then second is a little bit broader question on capital allocation. So it seems like the bond maturity you have coming up in the second half, you should be able to take care of that. And it seems like you still want to target higher than where you will end up in 2023, in terms of the leverage metrics. So I'm just kind of curious, is this geared towards more of -- kind of creating capacity for perhaps taking out perhaps over a longer period of time? Or what are the kind of longer-term thought process in terms of that leverage goal of [3.75% to 4.25%]?
Wilfred C.W. Chiang
Sunil, this is Willie. I'll give you my thoughts on capital allocation, and then Al can certainly add to it. As we think about capital allocation, there's two primary things. One, we need to drive free cash flow. You don't -- you can't do anything if you're not driving free cash flow. And the second one is really around disciplined around everything we do, but particularly on CapEx. So as we think of the order and what we -- how we allocate going forward.
One, we want to protect our commitment to return capital to the unitholders. We laid out this capital allocation framework. So that's going to be high on the list. And then we go to strategic high-return Bolt-On projects that we will consider that makes sense to help us efficiently grow the business, opportunistic buybacks and the [press] are probably further down the list because we want to maintain financial flexibility and a strong balance sheet.
So that's what we kind of juggle back and forth. But as you think about the priority and the way I see it, that's kind of the way that the order. Al?
Al P. Swanson
Yes. No, that is accurate, Willie. I would add, yes, the note we have coming up in October, $700 million. We exited June with $900 million of cash, so that will be repaid out of that. Again, as I commented on an earlier question, we've left our leverage target the same at [3.75% to 4.25%] and intend to operate at the low end or below. And that is partially to have some capacity on our balance sheet to be able to weather through the industry ups and downs as well as be able to fund things as we need to.
Ultimately, at some point in the future, we will look to address the press, but there's no near-term plan to do that. But over time, we would expect that would be a good use of some of that capacity. And hopefully, it would be taking those out with that. We don't believe we should be using common equity at this time due to the valuation.
Operator
I show no further questions at this time. I would now like to turn the call back to the company for closing remarks.
Wilfred C.W. Chiang
Thanks. Well, listen, everyone, thanks for your time and joining us this morning. We hope to see you soon and have a nice weekend.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
