Business context and reporting period
Plains GP Holdings, L.P. (PAGP) filed this unaudited Form 10-Q for the quarter ended March 31, 2024. PAGP’s principal cash-generating asset is its approximately 85% limited partner interest in Plains AAP L.P.; substantially all consolidated operating assets and liabilities are those of Plains All American Pipeline, L.P. (PAA). PAA operates crude oil and NGL midstream businesses.
Financial performance and liquidity
Amounts below are in millions, except per-share data. Income statement and cash-flow comparisons are for the three months ended March 31.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $11,995 | $12,341 |
| Operating income | $369 | $471 |
| Net income | $336 | $443 |
| Net income attributable to PAGP | $42 | $69 |
| Basic and diluted net income per Class A share | $0.21 | $0.35 |
| Adjusted EBITDA (non-GAAP) | $847 | $813 |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $718 | $715 |
| Cash provided by operating activities | $418 | $742 |
Services revenue rose 13% to $449 million, while product sales revenue fell 3% to $11.546 billion. Segment Adjusted EBITDA was $553 million for Crude Oil (up 7%) and $159 million for NGL (down 17%).
At March 31, cash and cash equivalents were $334 million; total debt was $7.862 billion, including $554 million short-term debt and $7.308 billion long-term debt. Senior notes were $7.244 billion, net. PAGP reported a $142 million working-capital deficit but approximately $2.452 billion of available liquidity, including cash available for this calculation of $319 million and borrowing capacity after commercial paper borrowings. PAA was in compliance with its debt covenants.
Investing activities used $261 million, including $157 million of property and equipment additions and $91 million for acquisitions. Financing activities used $272 million, including $387 million of distributions to Class A shareholders and noncontrolling interests, partly offset by $107 million of net commercial-paper borrowings. Cash declined by $119 million during the quarter.
Material changes versus the prior comparable period
- Net income fell 24%, and net income attributable to PAGP declined 39%. The 2023 comparison benefited from a $154 million net gain on asset sales, primarily the Keyera Fort Saskatchewan sale, and a $58 million gain from a preferred-unit embedded derivative; neither benefit recurred in Q1 2024.
- Operating cash flow decreased by $324 million. Management cited unfavorable working-capital movements, principally hedging margin requirements, in 2024; Q1 2023 benefited from inventory reductions.
- Crude Oil segment performance improved on higher pipeline volumes, tariff escalations and acquisition contributions, partly offset by fewer market-based opportunities. NGL performance weakened, principally from lower realized frac spreads, lower sales volumes and lower operating-cost recoveries.
- Consolidated commodity derivative activity produced a $189 million loss in Q1 2024 versus a $20 million loss in Q1 2023. Adjusted EBITDA is a non-GAAP measure and excludes selected items, including certain derivative and inventory effects.
- Total debt increased $111 million from year-end 2023. Investment, maintenance and acquisition capital expenditures totaled $254 million, versus $128 million in Q1 2023.
Outlook, management commentary, risks and contingencies
Management projected 2024 investment capital of approximately $465 million ($375 million net to PAGP’s interest) and maintenance capital of approximately $250 million ($230 million net to its interest), expected to be funded primarily with retained cash flow. No specific earnings or revenue guidance is provided in the filing. PAGP’s quarterly distribution was unchanged at $0.3175 per Class A share, or $1.27 annualized; the Q1 distribution was payable May 15, 2024.
Management stated it believes liquidity and borrowing capacity are sufficient for commitments and anticipated capital expenditures, subject to ongoing covenant compliance. It cautioned that prolonged cash-flow declines, market volatility, energy-price changes and credit-rating deterioration could affect borrowing capacity and costs. Other disclosed risks include changes in crude oil and NGL production, volumes, commodity spreads, competition, weather, regulation, operational interruptions, cyber events, insurance availability and execution of acquisitions or projects. NGL results are also sensitive to weather-related demand.
The 2015 Line 901 release remains a significant contingency. PAGP estimates aggregate incident costs of approximately $750 million and reported a remaining gross liability of approximately $90 million. It had collected approximately $280 million of costs it considers recoverable from insurers and recognized a long-term insurance receivable of approximately $225 million. Insurers have denied coverage for $185 million of remaining disputed coverage; another insurer’s position on $40 million was unresolved. Recovery is subject to arbitration and could be delayed or reduced, with an unfavorable outcome potentially materially affecting results. Several related lawsuits remain pending, including matters scheduled for trial in July and October 2024. Excluding Line 901, environmental reserves were $56 million. A separate Hartree dispute was scheduled for trial in May 2024.
The filing states that the SEC’s climate disclosure rules adopted in March 2024 were stayed in April pending legal challenges; PAGP was evaluating their disclosure impact. Management concluded disclosure controls were effective as of March 31, 2024, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether operating cash flow and working capital normalize, particularly the cash effects of hedging margin requirements.
- Progress in resolving Line 901 insurance coverage disputes, the timing and amount of any recoveries, and developments in remaining litigation.
- Whether Crude Oil segment volume and tariff gains persist and whether NGL frac spreads and volumes recover.
- Execution of the 2024 capital program, acquisition contributions, and funding through retained cash flow versus borrowings.
- PAA’s covenant compliance, credit ratings, refinancing plans for its $750 million 3.60% notes due November 2024, and PAGP’s ability to sustain distributions.