Plains All American Pipeline, L.P. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. The partnership transports, stores, terminals and markets crude oil and refined products, and processes, transports, stores and markets natural gas liquids; it also owns natural gas storage assets. Unless noted, amounts are in millions of dollars.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $10,295 | $9,786 | $20,915 | $19,004 |
| Operating income | $383 | $462 | $1,037 | $776 |
| Net income attributable to Plains | $292 | $378 | $821 | $609 |
| Diluted net income per limited partner unit | $0.57 | $0.93 | $1.84 | $1.44 |
| Adjusted EBITDA (non-GAAP) | $478 | $522 | $1,217 | $995 |
| Implied distributable cash flow (non-GAAP) | $342 | $390 | $904 | $732 |
Q2 segment profit was $160 for Transportation, $149 for Facilities and $176 for Supply and Logistics, versus $169, $114 and $274, respectively, a year earlier. Transportation segment profit per barrel was $0.49 (from $0.52); Facilities was $0.41 (from $0.35); Supply and Logistics was $1.89 (from $3.10). First-half segment profit rose 31% to $1,233, led by Supply and Logistics, up $208, and Facilities, up $96.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $1,337, compared with $348 in 2012. The company attributed the improvement in part to inventory reductions and proceeds from inventory sales; 2012 cash flow was affected by inventory increases.
- Investing cash outflow was $932, including $785 for property, equipment and other additions and $112 invested in unconsolidated entities. Financing cash outflow was $410. Cash ended the period at $16.
- At June 30, total debt was $7,215, down from $7,406 at year-end 2012. This included $902 of short-term debt and $6,313 of long-term debt. A $250 senior-note maturity was due in December 2013.
- Working capital deficit was $83. Management reported approximately $2,570 of available liquidity: $1,548 under PAA’s revolving facility, $802 under its hedged inventory facility, $204 under PNG’s revolver and $16 cash. The partnership said it was in compliance with its debt covenants and believed liquidity was sufficient.
- Partners’ capital totaled $7,629, compared with $7,146 at December 31, 2012. First-half common-unit and general-partner distributions paid were $384 and $175, respectively. A $0.5875 quarterly distribution per limited partner unit was declared for payment August 14, a year-over-year increase of approximately 10.3%.
Changes, outlook and material matters
- First-half results benefited from the BP NGL and USD Rail Terminal acquisitions, completed in 2012, stronger Supply and Logistics margins, and growth projects. Q2 earnings fell year over year as Supply and Logistics segment profit declined 36%; management cited fewer favorable crude oil margins as new infrastructure eased logistical constraints. Management expected margins in constrained producing regions to normalize further as infrastructure develops.
- Facilities growth reflected rail terminal activity, acquisitions and expansion projects. Transportation volumes and revenue were affected by pipeline expansions and tariff increases, but also by Canadian flooding, increased producer use of rail, and lower pipeline loss-allowance revenue.
- Management forecast 2013 expansion capital expenditures of $1,550–$1,700, subject to timing and scope changes. Named projects included the Mississippian Lime, Rainbow II, Gulf Coast, Cactus and White Cliffs pipelines and terminal expansions. No earnings or distribution guidance was provided in the supplied filing text.
- Environmental matters include estimated environmental reserves of $110 at June 30, up from $96 at year-end. The Kemp River releases in Alberta were estimated to require $15 of cleanup and remediation, accrued in field operating costs; the Bay Springs release cost approximately $6. Canadian regulators cited enforcement issues associated with the Rainbow and Rangeland releases; possible fines or penalties had not been assessed and were not estimable.
- Other risks highlighted include commodity-margin normalization, project execution and permitting, market and counterparty risks, access to capital, operating interruptions, weather, and environmental liabilities. The filing states that ordinary-course litigation was not expected to have a material adverse effect, though individual outcomes remain uncertain.
Most important facts for investors to verify
- Whether lower Q2 Supply and Logistics margins persist as new infrastructure reduces regional transportation constraints.
- Progress, costs and returns for the $1.55–$1.70 billion 2013 expansion-capital program, and whether projects meet expected schedules.
- Refinancing or repayment of the $250 million December 2013 note maturity and continued access to committed credit facilities.
- Changes in environmental reserves, insurance and indemnity recoveries, remediation costs, and potential regulatory penalties related to pipeline releases.
- Cash generation and distribution coverage: first-half implied DCF was $904, while the reported quarterly distribution increased to $0.5875 per unit.