Plains All American Pipeline, L.P. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results; comparisons are with Q1 2023. PAA operates crude oil and NGL transportation, storage, gathering, processing and related businesses across the U.S. and Canada.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $11.995 billion | $12.341 billion | Down 3% |
| Operating income | $370 million | $473 million | Down $103 million |
| Net income attributable to PAA | $266 million | $422 million | Down 37% |
| Basic and diluted net income per common unit | $0.29 | $0.52 | Down $0.23 |
| Adjusted EBITDA | $847 million | $813 million | Up 4% |
| Adjusted EBITDA attributable to PAA | $718 million | $715 million | Approximately flat |
| Implied DCF | $534 million | $498 million | Up 7% |
| Net cash provided by operating activities | $419 million | $743 million | Down $324 million |
Revenue declined mainly because of lower product sales; services revenue rose 13%, reflecting higher pipeline volumes, tariff escalations and acquisitions. GAAP net income was lower partly because Q1 2023 included asset-sale gains and a $58 million gain on the preferred distribution rate reset option. Q1 2024 also included a $189 million net loss from commodity derivative activity, versus a $20 million loss in Q1 2023; timing and inventory-related adjustments are among the items excluded from management’s segment performance measure.
Segments and operating trends
- Crude Oil: Segment Adjusted EBITDA increased 7% to $553 million. Higher pipeline volumes, tariff escalations and acquisitions more than offset fewer market-based opportunities. Average crude pipeline tariff volumes rose 4% to 8.6 million barrels per day.
- NGL: Segment Adjusted EBITDA declined 17% to $159 million, primarily due to lower realized frac spreads. NGL fractionation volumes fell 11% and propane and butane sales volumes fell 7%.
Cash, debt and capital
- Operating cash flow was $419 million; management attributed the year-over-year decrease in part to working-capital changes and margin requirements related to hedging. Investing activities used $261 million and financing activities used $273 million.
- Adjusted Free Cash Flow was $70 million, compared with $823 million in Q1 2023; Adjusted Free Cash Flow after distributions was negative $217 million, versus positive $581 million. Q1 2023 included $284 million of asset-sale proceeds, versus $3 million in Q1 2024.
- Total debt was $7.862 billion at March 31, 2024, including $540 million of commercial paper at a 5.7% weighted-average rate. Cash and cash equivalents were $331 million. Working capital was negative $143 million.
- Management reported approximately $2.449 billion of available liquidity and compliance with debt covenants. A $750 million senior note maturity in November 2024 was classified as long-term based on management’s ability and intent to refinance it long-term.
- Q1 investment, maintenance and acquisition capital expenditures were $104 million, $57 million and $93 million, respectively. For full-year 2024, PAA projected investment capital of approximately $465 million ($375 million net to its interest) and maintenance capital of approximately $250 million ($230 million net), primarily funded with retained cash flow.
- The quarterly common-unit distribution was $0.3175 per unit, or $1.27 annualized, unchanged from the prior quarter. No common-unit repurchases occurred during the quarter.
Outlook, risks and contingencies
The filing provides capital-spending projections but no specific full-year earnings or cash-flow guidance. Management said it expects to meet financial commitments using operating cash flow and borrowing capacity, while warning that prolonged cash-flow weakness, energy-price volatility, market disruption or credit-rating changes could affect borrowing capacity and costs. Other highlighted risks include production and throughput changes, commodity differentials, competition, weather, regulation, operational incidents, insurance availability and acquisition or project execution.
For the 2015 Line 901 spill, PAA estimated aggregate costs incurred or expected of approximately $750 million and reported a remaining gross liability of approximately $90 million. It recognized a long-term insurance receivable of approximately $225 million for costs it believes are recoverable. Insurers have disputed coverage for $185 million of remaining program coverage; coverage for another $40 million has not been accepted or denied. PAA is pursuing arbitration. The filing cautions that an unfavorable outcome or higher-than-estimated claims and legal costs could materially affect results. Several related lawsuits remained pending, including matters scheduled for trial in 2024. Management believes its defenses are strong.
Other notable items include a $56 million reserve for environmental liabilities excluding Line 901. Management stated that disclosure controls were effective at March 31, 2024 and that there were no materially significant changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Q1’s weak operating cash flow and negative free cash flow after distributions reflect temporary working-capital and margin timing or a sustained trend.
- Refinancing progress for the $750 million November 2024 notes and continued access to credit facilities and commercial paper.
- Resolution and timing of the disputed Line 901 insurance recoveries, remaining claims and litigation exposure.
- Whether lower NGL frac spreads and volumes improve, and whether crude-oil volume and tariff growth continues.
- Execution and funding of the projected 2024 capital program while maintaining distributions and covenant compliance.