Plains All American Pipeline, L.P. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. PAA operates crude oil and NGL transportation, facilities, and supply and logistics businesses across North America.
Financial performance and condition
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $8.383 billion | $8.269 billion |
| Operating income/(loss) | $526 million | $(2.773) billion |
| Net income/(loss) | $423 million | $(2.845) billion |
| Net income/(loss) attributable to PAA | $422 million | $(2.847) billion |
| Basic and diluted earnings/(loss) per common unit | $0.51 | $(3.98) |
| Net cash provided by operating activities | $791 million | $890 million |
| Free cash flow after distributions (non-GAAP) | $511 million | $(11) million |
| Total debt at period end | $9.592 billion | $10.213 billion at Dec. 31, 2020 |
- Revenue rose 1%; Supply and Logistics revenue increased, while Transportation and Facilities revenue declined. Segment Adjusted EBITDA (non-GAAP) fell to $546 million from $793 million; Implied DCF was $408 million versus $633 million.
- Transportation Segment Adjusted EBITDA was $388 million, down 12%; segment volumes fell 22%. Facilities Segment Adjusted EBITDA was $171 million, down 19%. Supply and Logistics Segment Adjusted EBITDA was $(13) million versus $141 million.
- Operating cash flow decreased year over year. Investing cash use was $108 million, versus $610 million, and financing cash use was $687 million, versus $192 million. The smaller investing outflow reflected lower investment and acquisition spending.
- Cash and cash equivalents were $30 million; working capital deficit was $254 million. PAA reported approximately $2.763 billion of available liquidity, including borrowing capacity, subject to covenant compliance. It was in compliance with debt covenants at quarter-end.
- Senior notes, net, totaled $9.073 billion. Short-term debt was $254 million, down from $831 million at year-end 2020. Net repayments under the commercial paper program and inventory facility contributed to the debt reduction.
Material changes and unusual items
- The swing from the prior-year loss was primarily due to Q1 2020 impairment charges: $2.515 billion of goodwill impairment, approximately $655 million of impairments on other assets and investments, and $232 million of inventory valuation adjustments. These charges were not repeated in Q1 2021.
- Q1 2021 results included a $67 million loss from marking the Series A Preferred Distribution Rate Reset Option to market, compared with a $26 million gain a year earlier. The option’s quarter-end fair-value liability was $81 million.
- Changes in crude oil and NGL derivative values and inventory costing materially affected reported results and comparisons. PAA reported a $275 million net loss from commodity derivative activity in earnings; management excludes selected timing-related derivative and inventory items from its non-GAAP segment measure.
- In early 2021 PAA shortened the estimated useful lives of certain pipeline, storage, terminal and rail assets. The change increased Q1 depreciation by approximately $18 million and is expected to increase annual depreciation by about $72 million prospectively.
- Winter Storm Uri had mixed effects: production shut-ins and lower transportation volumes hurt activity, while hedged power costs and natural gas storage hub activity provided benefits.
Outlook, risks and contingencies
- Management projected 2021 investment capital of $375 million and maintenance capital of $180 million. It targeted $750 million of asset sales for the year and expected to fund capital spending with retained cash flow and divestiture proceeds. These are plans, not guarantees.
- Management cited capital discipline, leverage reduction, portfolio optimization and free-cash-flow generation as strategic priorities, with a focus on evaluating non-core asset sales and partial-interest sales. PAA said it did not plan to issue common equity to fund near-term capital spending.
- Key risks include COVID-19-related demand and production effects, commodity-market volatility, competition and contract renewals, counterparty credit and performance, extreme weather, regulatory and environmental matters, access to financing, and execution or availability of planned divestitures.
- For the 2015 Line 901 oil release, PAA estimated total costs incurred or expected of approximately $485 million and a remaining undiscounted gross liability of $105 million at March 31, 2021. It had collected $250 million of approximately $360 million in estimated probable insurance recoveries and recorded a further receivable of about $110 million. Certain lawsuits and claims remained pending; actual costs could exceed estimates.
- Total environmental reserves were $160 million, with $114 million of recorded recovery receivables. Management cautioned that environmental and legal exposures may exceed recorded reserves.
- Common-unit distributions were $0.18 per unit for the quarter. PAA paid $130 million to common unitholders and $37 million to Series A preferred unitholders during the period; preferred distributions take priority over common distributions.
Most important facts for investors to verify
- Whether lower production and Transportation volumes persist, and how segment results develop after Winter Storm Uri.
- Whether projected 2021 asset sales and capital spending targets are achieved, and whether liquidity and debt continue to improve.
- How much of the reported earnings and cash generation reflects recurring operations versus derivative, inventory, working-capital and other timing effects.
- Developments in Line 901 litigation, remediation costs and insurance recoveries, including any changes to PAA’s estimates or reserves.
- The effect of the shorter asset lives on future depreciation and reported earnings, and the sustainability of distributions relative to cash flow.