Plains All American Pipeline, L.P. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2023. PAA operates crude oil and NGL pipeline, gathering, transportation, storage, terminalling and related businesses across the United States and Canada.
Financial results and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $11.602 billion | $16.359 billion | $23.943 billion | $30.053 billion |
| Operating income | $378 million | $411 million | $850 million | $704 million |
| Net income attributable to PAA | $293 million | $203 million | $715 million | $390 million |
| Net income per common unit | $0.32 | $0.22 | $0.84 | $0.41 |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $597 million | $615 million | $1.312 billion | $1.228 billion |
| Net cash from operating activities | $888 million | $792 million | $1.631 billion | $1.132 billion |
Q2 revenue declined 29%, mainly reflecting lower commodity prices and lower product sales revenue; services revenue increased 14%. Net income attributable to PAA rose 44% in Q2 and 83% for the first half. Six-month results also benefited from higher crude pipeline volumes, market opportunities, the Keyera facility sale gain and a favorable change in the preferred distribution reset option’s mark-to-market result. The prior-year first half included $85 million of Line 901 costs, net of expected insurance recoveries.
Q2 Segment Adjusted EBITDA was $529 million for Crude Oil, up 7%, and $62 million for NGL, down 48%. First-half amounts were $1.046 billion for Crude Oil, up 11%, and $254 million for NGL, down 10%. The company reported no separate gross-margin figure in the supplied filing text.
For the first half, free cash flow was $1.474 billion and free cash flow after distributions was $985 million; these are non-GAAP measures defined by PAA. Implied DCF available to common unitholders was $814 million, compared with $801 million a year earlier. Common-unit distributions were $374 million for the period.
At June 30, cash and cash equivalents were $933 million; total debt was $7.997 billion, down from $8.446 billion at year-end 2022. Total current assets and liabilities were $4.657 billion and $4.652 billion, respectively. PAA reported approximately $3.488 billion of available liquidity, including facility availability and cash, and stated it was in compliance with debt covenants.
Material changes and management commentary
- Crude oil pipeline tariff volumes rose 13% in Q2, including a 16% increase in the Permian Basin. Management cited higher volumes, tariff escalations and favorable Canadian market opportunities.
- NGL segment performance weakened in Q2 amid lower propane sales volumes, facility and third-party turnarounds, deferred sales and the absence of weather-related benefits seen in Q2 2022.
- PAA sold its 21% interest in the Keyera Fort Saskatchewan facility for approximately $270 million and recorded a gain of approximately $140 million in Q1 2023.
- On July 28, 2023, after quarter-end, PAA acquired the remaining 43% of OMOG for approximately $225 million ($145 million net to its Permian JV interest), bringing its ownership to 100%.
Outlook, capital allocation and risks
- For 2023, PAA projected investment capital of approximately $420 million ($325 million net to its interest) and maintenance capital of $205 million ($195 million net). It expected to fund these primarily from retained cash flow.
- PAA intended to use operating cash flow, asset-sale proceeds and commercial-paper borrowings to repay its $700 million, 3.85% senior notes due October 2023. The $400 million, 2.85% notes due January 2023 had been redeemed.
- The common-unit distribution for the quarter was $0.2675 per unit, unchanged from May 2023, or $1.07 annualized. The Series A preferred distribution rate reset in January to approximately $0.615 per unit quarterly.
- Line 901 incident costs were estimated at approximately $740 million in total. PAA reported a remaining gross liability of approximately $98 million and a long-term insurance receivable of approximately $225 million. Some insurers disputed coverage of the $230 million class-action settlement; arbitration and recovery timing remain uncertain. An unfavorable resolution could materially affect results.
- Other key exposures include environmental incidents, litigation and insurance limitations; commodity-price, market-structure and interest-rate changes; operating disruptions and extreme weather; competition and volume changes; and access to capital. Management cautioned that actual results may differ from forward-looking statements.
Important facts for investors to verify
- Progress and funding for repayment or refinancing of the $700 million October 2023 maturity, and subsequent debt and liquidity levels.
- Developments in Line 901 insurance disputes, arbitration, remaining claims and the adequacy of recorded liabilities and receivables.
- Whether crude oil volume growth and market-based opportunities persist, and whether NGL volumes and segment earnings recover.
- Actual 2023 investment and maintenance capital spending, cash generation after distributions, and the effect of the OMOG acquisition.
- Distribution coverage and the effect of the higher Series A preferred distribution rate on cash available to common unitholders.