PLAINS GP HOLDINGS LP quarterly report, Q3 FY2020

PLAINS GP HOLDINGS, L.P. — Q3 2020 Form 10-Q

Reporting period: Three and nine months ended September 30, 2020. PAGP is principally a holding company whose cash-generating interests are in Plains All American Pipeline, L.P. (PAA); substantially all consolidated operating assets and liabilities are those of PAA. Amounts below are in U.S. dollars unless noted.

Key financial results

MetricQ3 2020Q3 2019Nine months 2020Nine months 2019
Revenue$5.833 billion$7.886 billion$17.327 billion$24.515 billion
Operating income/(loss)$251 million$490 million$(2.317) billion$1.651 billion
Net income/(loss)$139 million$431 million$(2.417) billion$1.771 billion
Net income/(loss) attributable to PAGP$17 million$70 million$(548) million$283 million
Adjusted EBITDA$681 million$730 million$1.996 billion$2.373 billion
Net cash from operating activitiesNot provided for quarterNot provided for quarter$1.253 billion$1.774 billion

Basic and diluted earnings per Class A share were $0.09 for Q3 2020, versus $0.41 a year earlier; for the nine-month period, the loss per share was $2.97 versus earnings of $1.73. The filing does not provide a single overall operating-margin measure.

  • Segments: Q3 Segment Adjusted EBITDA was $444 million in Transportation (down 4%), $176 million in Facilities (up 2%), and $61 million in Supply and Logistics (down 34%). Nine-month totals were $1.233 billion, $560 million, and $205 million, respectively.
  • Balance sheet at September 30: Cash and cash equivalents were $27 million; total current assets were $3.407 billion and current liabilities $3.805 billion, a $398 million working-capital deficit. Total debt was $10.171 billion, compared with $9.691 billion at year-end 2019. Total assets were $25.693 billion.
  • Liquidity: Management reported approximately $2.775 billion available, including facility capacity and cash, subject to covenant compliance. PAA was in compliance with its covenants at quarter-end.

Material changes and notable items

  • Revenue declined year over year, primarily reflecting lower Supply and Logistics activity and commodity-linked sales, as well as lower Transportation volumes. Transportation volumes were down 14% in Q3; Supply and Logistics volumes were down 3%.
  • The nine-month net loss was driven principally by a $2.515 billion non-cash impairment that eliminated all goodwill. The period also included approximately $815 million of non-cash impairments of certain long-lived assets, investments and assets held for sale, and $233 million of inventory valuation adjustments related mainly to lower commodity prices.
  • Q3 included a $91 million loss on investments in unconsolidated entities, including an impairment of STACK Pipeline. Nine-month investment impairments were $202 million, partly offset by a $21 million gain from selling a 10% interest in Saddlehorn.
  • Operating cash flow fell to $1.253 billion from $1.774 billion. The filing attributes cash-flow movements in part to inventory build and related hedging-margin requirements, funded with short-term debt; the prior-year period benefited from inventory sales.
  • Capital spending for the first nine months totaled $1.252 billion, including $310 million for acquisitions, $785 million of investment capital and $157 million of maintenance capital. The Felix Midstream acquisition added a Delaware Basin gathering system for approximately $300 million.

Outlook, capital actions and risks

  • Management said demand, refinery utilization and crude prices improved from early-2020 lows, but elevated inventories, subdued drilling and uncertainty around demand recovery could weigh on the business; impacts in 2021 could be more pronounced than in 2020. It expects eventual demand recovery but gave no earnings or revenue guidance.
  • The 2020/2021 investment-capital program was reduced by $850 million, or 37%, to approximately $1.45 billion. 2020 investment capital was projected at approximately $950 million. Management also cited cost reductions and asset sales as measures to strengthen liquidity and flexibility.
  • PAA and PAGP reduced their common-unit and Class A share distributions by 50% from the February 2020 level. The November 2020 quarterly distribution was $0.18 per unit/share. A $500 million buyback authorization announced November 2 covers PAA common units and/or PAGP Class A shares; it is discretionary and does not require purchases.
  • PAA issued $750 million of 3.80% senior notes due 2030. After quarter-end, on November 3, PAA redeemed $600 million of 5.00% notes due February 2021.
  • COVID-19, oil-market volatility, reduced producer activity, counterparty credit risk, access to capital and the ability to complete planned asset sales remain risks. Management reported no material operating constraints from the pandemic; its Canadian subsidiary received approximately $20 million in wage subsidies.
  • Line 901 incident: Estimated total costs were approximately $455 million, with a remaining gross liability of $134 million and an insurance receivable of approximately $112 million at quarter-end. The October 2020 Consent Decree requires $24 million in civil penalties, $22.325 million for natural-resource damages and injunctive relief. Pending claims and litigation could cause costs to exceed estimates.
  • Environmental liabilities totaled $188 million, partly offset by $120 million of recorded insurance and third-party recovery receivables. The filing warns actual remediation costs may exceed reserves.

Important facts for investors to verify

  • Whether demand, production volumes and segment performance recover as management expects, especially in 2021.
  • The assumptions and sensitivity behind the goodwill and asset impairment valuations, and the potential for further impairments.
  • Available borrowing capacity, covenant compliance, debt maturities and the effect of inventory and margin-funding needs on liquidity.
  • Whether Line 901 and other environmental claims, litigation and insurance recoveries remain within current estimates.
  • Execution of planned capital reductions and asset sales, and the sustainability of distributions; the buyback authorization is not a commitment to repurchase shares or units.