Business context and reporting period
Plains GP Holdings, L.P. (Nasdaq: PAGP) filed this Form 10-K for the fiscal year ended December 31, 2021. PAGP has no direct operating assets; its cash flows depend on distributions from Plains AAP, which in turn receives distributions from Plains All American Pipeline, L.P. (PAA). The consolidated financial statements therefore largely reflect PAA’s North American crude oil and natural gas liquids (NGL) midstream operations.
Beginning in the fourth quarter of 2021, management reported two segments—Crude Oil and NGL—in place of Transportation, Facilities and Supply and Logistics. Prior periods were recast. The change reflects supply-and-logistics activities increasingly supporting asset utilization rather than operating as a standalone earnings area.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $42.078 billion | $23.290 billion |
| Net income (loss), consolidated | $600 million | $(2.440) billion |
| Net income (loss) attributable to PAGP | $60 million | $(568) million |
| Basic net income (loss) per Class A share | $0.31 | $(3.06) |
| Adjusted EBITDA | $2.290 billion | $2.560 billion |
| Adjusted EBITDA attributable to PAA | $2.196 billion | $2.546 billion |
| Cash provided by operating activities | $1.991 billion | $1.510 billion |
Revenue rose 81%, largely reflecting higher commodity prices and volumes; product sales revenue and related purchase costs move together in PAA’s high-volume, generally low-margin merchant activities. Services revenue was $1.195 billion, down 3%. Segment Adjusted EBITDA was $1.909 billion for Crude Oil (down 14%) and $285 million for NGL (down 13%). The filing does not provide a single directly comparable consolidated operating-margin measure; reported revenue includes substantial pass-through commodity sales.
At December 31, 2021, consolidated cash and cash equivalents were $452 million, and working capital was negative $94 million. Reported available liquidity was approximately $3.054 billion, including $2.602 billion of borrowing capacity and cash, subject to continued covenant compliance. Consolidated debt was $9.220 billion on the balance sheet; the filing reports approximately $9.3 billion at face value. PAA was in compliance with its debt covenants. PAA’s senior notes were substantially fixed-rate.
Investing activities provided $386 million, including asset-sale proceeds; financing activities used $1.979 billion. Capital expenditures were $237 million for investment projects and $168 million for maintenance in 2021. Management projected 2022 investment capital of approximately $330 million ($275 million net to its interest) and maintenance capital of $220 million ($210 million net), expected to be funded primarily with retained cash flow.
Material changes versus the prior comparable period
- Consolidated net income returned to positive territory from a large 2020 loss, which included a $2.515 billion goodwill impairment. However, 2021 Adjusted EBITDA declined 11%, primarily from weaker crude oil merchant conditions, including lower contango margins and compressed regional differentials.
- Crude Oil Segment Adjusted EBITDA fell to $1.909 billion from $2.216 billion; higher pipeline volumes and lower field costs partly offset weaker merchant results and asset-sale impacts. NGL Segment Adjusted EBITDA fell to $285 million from $327 million, with higher power costs and lower wage subsidies partly offset by improved fractionation spreads.
- In October 2021, PAA combined most of its Permian Basin assets and activities with Oryx Midstream in a cashless, debt-free joint venture. PAA owns and operates 65% and consolidates the venture. The transaction added $3.256 billion of recognized noncontrolling interests and $1.247 billion of customer-relationship intangible assets; valuation remains preliminary, pending finalization of working capital.
- PAA sold its Pine Prairie and Southern Pines natural gas storage facilities for approximately $850 million net proceeds, after recording a $475 million noncash impairment. It also recorded a $220 million impairment of certain crude oil storage terminal assets. Total 2021 net losses on asset sales and impairments were $592 million, partly offset by a $106 million gain on an asset exchange.
- Depreciable useful lives for pipeline and storage-related assets were shortened prospectively. The change increased 2021 depreciation by approximately $72 million and reduced PAGP-attributable net income by approximately $15 million, or $0.08 per Class A share.
- Cash distributions to PAGP Class A shareholders totaled $140 million, or $0.72 per share, in 2021. The quarterly rate was $0.18 throughout 2021, unchanged from the reported quarterly rate in 2020; the distribution for fourth-quarter 2021 was paid in February 2022.
Outlook, risks, contingencies and unusual items
- Management said global crude oil demand was near pre-pandemic levels at year-end and expected demand to exceed 2019 levels by late 2022. It cited reduced upstream investment and OPEC discipline as factors that could support North American supply and expected significant positive free cash flow over multiple years. These are expectations, not guarantees.
- Key operating risks include competition and excess pipeline capacity, pressure on tariffs and contract renewals, production and throughput volatility, commodity-market structure and differentials, customer credit, inflation and supply-chain constraints, and the effects of COVID-19. Climate-related policy, permitting, environmental obligations, severe weather, operational incidents, cybersecurity and access to capital also present material risks.
- For the Line 901 California pipeline release, the company estimated aggregate costs incurred or expected at approximately $495 million and reported a remaining gross liability of $103 million at year-end. It had collected $250 million of approximately $355 million in release costs considered probably recoverable from insurers and recorded a $105 million receivable. Litigation remained pending, including a class-action trial scheduled for June 2022; actual costs could exceed estimates.
- Canadian tax authorities had issued reassessments totaling approximately $120 million, including penalties and interest, concerning historic transfer-pricing matters. The company had remitted approximately $101 million, disputed the assessments and reported no material uncertain-tax-position accrual for them.
- The 2021 results included substantial noncash and accounting items, including impairments, increased depreciation, derivative valuation effects and acquisition accounting. The auditor identified valuation of the Oryx business combination and customer relationships as a critical audit matter. The financial statements and internal controls received unqualified audit opinions.
Most important facts for investors to verify
- Confirm the distinction between PAGP-attributable earnings and consolidated PAA results, and how PAA distributions flow through AAP to PAGP and its shareholders.
- Review PAA’s leverage, covenant headroom and the composition and availability of the stated $3.054 billion liquidity, particularly given the working-capital deficit and dependence on PAA credit facilities.
- Assess whether the Permian JV’s projected volume, synergies and tiered distribution arrangement support the value recognized, and monitor completion of the acquisition valuation.
- Track whether operating performance improves despite lower 2021 segment Adjusted EBITDA, competitive capacity and commodity-market sensitivity; distinguish recurring cash generation from impairments and other adjustments.
- Monitor the Line 901 claims, insurance recoveries and Canadian tax dispute, as well as planned 2022 capital spending and the sustainability of the $0.18 quarterly PAGP distribution.