Plains All American Pipeline, L.P. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. PAA operates crude oil and NGL pipeline, gathering, transportation, terminalling, storage and processing assets in the U.S. and Canada.
Financial performance
| Metric (millions, except per-unit data) | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $12,071 | $14,336 | $36,014 | $44,390 |
| Operating income | $234 | $626 | $1,085 | $1,330 |
| Net income attributable to PAA | $203 | $384 | $918 | $774 |
| Net income per common unit | $0.20 | $0.48 | $1.04 | $0.89 |
| Adjusted EBITDA attributable to PAA | $662 | $623 | $1,974 | $1,851 |
| Net cash from operating activities | Not stated for quarter | Not stated for quarter | $1,716 | $2,074 |
- Revenue and profit: Q3 revenue fell 16% and PAA-attributable net income fell 47% year over year. For the first nine months, revenue declined 19%, while PAA-attributable net income rose 19%.
- Segment performance: Crude Oil Segment Adjusted EBITDA was $553 million in Q3 and $1.600 billion year to date, up 3% and 8%, respectively. NGL Segment Adjusted EBITDA was $99 million in Q3 and $352 million year to date, up 15% in Q3 but down 4% year to date.
- Cash and distributions: Nine-month Free Cash Flow was $1.088 billion, down from $1.615 billion; Free Cash Flow after distributions was $350 million versus $1.046 billion. Implied DCF available to common unitholders was $1.245 billion, up 5%; common distributions were $560 million, leaving $685 million of implied DCF excess.
- Capital spending: Nine-month investment, maintenance and acquisition capital expenditures were $285 million, $169 million and $295 million, respectively. Management projected 2023 investment capital of approximately $420 million ($325 million net to PAA’s interest) and maintenance capital of $225 million ($210 million net).
Balance sheet and liquidity
- At September 30, 2023, cash and cash equivalents were $260 million; total debt was $8.006 billion, compared with $8.446 billion at year-end 2022. Debt included $710 million of short-term debt.
- Working capital was negative $275 million. PAA reported approximately $2.811 billion of available liquidity, including credit-facility capacity and cash, and stated it was in compliance with debt covenants.
- In August, PAA extended facility maturities to August 2026 for its hedged inventory facility and August 2028 for extending lenders on its revolving facility. It redeemed $700 million of 3.85% notes on October 16, 2023, after quarter-end.
Material changes, outlook and risks
- Lower commodity prices reduced product sales revenue and related purchase costs. Management attributed higher service revenue and crude oil segment results to higher pipeline tariff volumes, tariff escalations and acquisitions. Q3 WTI averaged $82 per barrel versus $91 a year earlier.
- Nine-month results benefited from a $140 million gain on the Keyera Fort Saskatchewan asset sale and a $58 million gain associated with settlement of the Series A preferred distribution-rate reset option. The prior-year comparison included $85 million of Line 901 incident costs. Q3 results were affected by unfavorable derivative mark-to-market movements, particularly in NGL operations.
- The Permian JV acquired the remaining 43% interest in OMOG and related gathering assets in Q3 for $294 million in aggregate ($191 million attributable to PAA’s 65% interest); PAA recognized a $29 million gain on remeasurement of its previously held interest. On November 1, 2023, PAA acquired a Northern Delaware Basin gathering system for approximately $135 million, subject to adjustments.
- Common-unit distributions remained $0.2675 per quarter ($1.07 annualized). On November 3, management announced its intention to recommend a $0.20-per-unit annualized increase for the fourth-quarter 2023 distribution, subject to board approval and declaration. The filing provides no specific earnings or EBITDA guidance.
- Line 901: PAA estimated total incident costs of approximately $740 million and reported a remaining gross liability of approximately $94 million. It recorded a $225 million long-term insurance receivable for amounts it believes are recoverable; insurers have disputed substantial portions of the class-action settlement coverage, and arbitration is underway. PAA cautioned that unfavorable developments could materially affect results.
- Other principal risks include commodity-price and market-structure volatility, operating interruptions, environmental and legal exposure, insurance limitations, counterparty performance, and access to capital. Management said disclosure controls were effective and reported no material third-quarter change in internal control over financial reporting.
Key facts for investors to verify
- Whether the proposed common distribution increase is approved and declared, and how future distributions compare with cash generation.
- Progress, timing and ultimate recoverability of the disputed Line 901 insurance claims, along with any changes to incident liabilities or remaining litigation.
- Debt and liquidity after the October $700 million note redemption, including facility usage, borrowing costs and covenant compliance.
- Whether crude oil tariff-volume growth offsets commodity-driven revenue changes, and whether NGL volumes and segment performance recover from turnarounds and the Keyera divestiture.
- Execution, integration and returns from the OMOG transaction and subsequent Northern Delaware Basin acquisition, and delivery of projected 2023 capital spending.