PLAINS GP HOLDINGS, L.P. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. PAGP is primarily a holding entity whose cash-generating assets are interests in Plains AAP and Plains All American Pipeline, L.P. (PAA). Substantially all consolidated assets and liabilities, apart from PAGP’s deferred tax asset, are those of PAA.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $13.694 billion | $8.383 billion | Up 63% |
| Operating income | $291 million | $524 million | Down 44% |
| Net income | $209 million | $392 million | Down 47% |
| Net income attributable to PAGP | $22 million | $70 million | Down 69% |
| Basic and diluted EPS | $0.11 | $0.36 | Down $0.25 |
| Operating cash flow | $339 million | $789 million | Down $450 million |
| Adjusted EBITDA (non-GAAP) | $690 million | $546 million | Up 26% |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $614 million | $543 million | Up 13% |
- Revenue and purchases both rose substantially, largely reflecting higher commodity prices and volumes; product sales revenue is high-volume, low-margin merchant activity. WTI averaged $95 per barrel versus $58 a year earlier.
- Segment Adjusted EBITDA was $453 million for Crude Oil, down 4%, and $161 million for NGL, up 133%. Crude Oil benefited from higher pipeline tariff volumes but was offset by the sale of natural gas storage facilities and the prior-year Winter Storm Uri benefit. NGL improved on higher realized fractionation spreads and sales prices, partly offset by lower sales volumes.
- Cash and cash equivalents were $117 million at March 31, 2022, versus $452 million at year-end 2021. Total debt was $8.886 billion, down from $9.220 billion. The quarter included redemption of $750 million of senior notes, partly funded by commercial paper borrowings.
- Management reported a $472 million working-capital deficit and approximately $2.401 billion of available liquidity, including cash and borrowing capacity, subject to covenant compliance. PAA was in compliance with its debt covenants at quarter-end.
- Net cash used in investing activities was $81 million; net cash used in financing was $596 million. Investment and maintenance capital expenditures were $136 million in total.
Material changes and management commentary
- GAAP net income fell despite higher revenue. Management cited derivative mark-to-market effects, the divestiture of natural gas storage facilities and higher field costs, including additional Line 901 incident estimates. These were partly offset by stronger NGL margins and higher pipeline tariff volumes.
- Commodity-derivative activity produced a $200 million net loss in Q1 2022, compared with a $275 million loss in Q1 2021. Derivative timing and inventory adjustments materially affect period-to-period GAAP results; management excludes selected items in its non-GAAP performance measures.
- Crude oil pipeline tariff volumes increased 32%, including growth in the Permian Basin. The Permian JV, formed in 2021, added contributed pipeline volumes, while 35% of its results are attributable to a noncontrolling interest.
- Management projected 2022 investment capital of approximately $330 million gross ($275 million net to its interest) and maintenance capital of $220 million gross ($210 million net). It expected to fund these expenditures primarily with retained cash flow.
- PAGP announced a quarterly distribution of $0.2175 per Class A share, or $0.87 annualized, payable May 13, 2022. This was a $0.0375 increase from the February payment.
Risks, contingencies and unusual items
- Line 901 incident: The company estimated total costs incurred or expected at approximately $725 million. A $230 million class-action settlement was agreed in principle, subject to final documentation and court approval; a separate derivative settlement was also subject to court approval. The remaining undiscounted gross liability was $335 million at March 31, 2022. The company estimated $500 million of costs were probably recoverable under its 2015 insurance program, had collected approximately $260 million and recorded a $240 million receivable. Actual costs, insurance recovery and outcomes of remaining claims may differ materially from estimates.
- Other environmental reserves, excluding Line 901, were $59 million. The company noted that releases, remediation obligations, litigation and insurance limitations could result in costs exceeding reserves or coverage.
- Liquidity and operating results remain exposed to energy prices, production and throughput volumes, market volatility, counterparty performance, competition, inflation, supply-chain and labor costs, weather, regulation, cybersecurity and access to capital. Commodity and interest-rate derivatives also create fair-value and margin requirements.
- The filing provides no full-year earnings or revenue guidance. Management cautioned that quarterly results should not be considered indicative of full-year results.
Key facts for investors to verify
- Track cash conversion and working-capital swings: operating cash flow declined to $339 million, and reported quarter-end cash was $117 million.
- Review PAA’s borrowing capacity, covenant compliance, upcoming maturities and dependence on commercial paper and credit facilities.
- Monitor Line 901 settlement approvals, remaining litigation, the $335 million gross liability and actual insurance collections against the recorded receivable.
- Assess whether improved NGL margins and increased pipeline volumes persist, and how those gains compare with the loss of natural gas storage earnings.
- Reconcile non-GAAP Adjusted EBITDA with GAAP results and assess the impact of derivative valuation, inventory adjustments and other selected items.
- Confirm execution and funding of 2022 capital plans and whether the increased distribution is supported by sustained cash generation.