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Plains bracing for the worst, expects oil production volumes to drop in H2'16

Plains AllAmerican Pipeline LP's attempts to stabilize earnings through assetsales and cost reductions are helping the partnership offset production falloutin a low price environment.

Depressed activity levels from onshore producers contributedto Plains' decision to reduce its midpoint guidance for adjusted EBITDA byabout 4% to $2.175 billion, CEO Greg Armstrong said during the company's May 5earnings call.

"The critical driver for PAA's operating and financialperformance is lower 48 onshore crude oil production volumes, which are drivenby producer's drilling and completion activities," he said. "Unfortunatelyonshore crude oil drilling activity is lagging meaningfully below our 2016forecast assumptions and we anticipate that completions and production volumeswill fall off in the latter half of 2016."

In anticipation of prolonged depressed prices and reducedactivity, Plains is working to solidify its balance sheet and shore up liquidity.Part of that effort involves optimizing its assets for any conditions,according to Armstrong.

Plains Executive Vice President and COO — U.S. Willie Chiangnoted that the partnership announced plans to sell $500 million to $600 millionin assets for 2016. "We have completed four transactions for approximately$350 million since the beginning of the year," he said on the call. "Weare currently working on several additional transactions totaling approximately$150 million that are either under contract or in advanced stages ofnegotiation and are expected to close in the second quarter 2016."

Plains may market additional noncore assets later in theyear, Chiang said.

Plains GPHoldings LP owns an interest in the general partner and incentivedistribution rights of Plains All American.