Plains GP Holdings, L.P. — Q3 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2021, compared with the same 2020 periods. PAGP is a holding partnership whose cash-generating interests are primarily in Plains All American Pipeline (PAA); substantially all consolidated operating assets and liabilities are PAA’s. PAA operates crude oil and NGL transportation, facilities, and supply and logistics businesses.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $10.776 billion | $5.833 billion | $29.089 billion | $17.327 billion |
| Operating income/(loss) | ($40) million | $251 million | $246 million | ($2.317) billion |
| Net income/(loss) | ($50) million | $139 million | $130 million | ($2.417) billion |
| Net income/(loss) attributable to PAGP | ($24) million | $17 million | ($24) million | ($548) million |
| Basic and diluted loss per Class A share | ($0.12) | $0.09 income | ($0.12) | ($2.97) |
| Adjusted EBITDA, non-GAAP | $518 million | $681 million | $1.639 billion | $1.996 billion |
Revenue growth largely reflects higher commodity prices and greater Supply and Logistics activity; revenue is high-volume, low-margin and accompanied by substantial purchase costs. Q3 segment Adjusted EBITDA was $427 million in Transportation, $114 million in Facilities, and a loss of $23 million in Supply and Logistics. For the nine months, segment figures were $1.248 billion, $425 million, and a loss of $31 million, respectively.
Operating cash flow for the first nine months was $1.358 billion, versus $1.253 billion. Investing activities provided $478 million, primarily reflecting $878 million of asset-sale proceeds; financing used $1.704 billion. Cash and cash equivalents were $194 million at September 30, compared with $25 million at year-end 2020. Total debt was $9.196 billion, down from $10.213 billion. Current liabilities exceeded current assets by $522 million, but reported available liquidity was approximately $2.830 billion, including credit-facility availability and cash.
Material changes versus prior period
- Nine-month net income improved from a $2.417 billion loss to $130 million income. The 2020 loss included a $2.515 billion goodwill impairment and other impairments; 2021 included $592 million of net asset-sale and impairment losses.
- Adjusted EBITDA declined 18% for the first nine months. Management cited less favorable crude oil market conditions and lower realized NGL margins in Supply and Logistics, plus lower Facilities utilization, market rates, and contributions following asset sales. Transportation benefited from minimum-volume deficiency payments and lower costs.
- Q3 revenue rose 85% year over year, while Adjusted EBITDA fell 24%. For the nine months, Transportation Adjusted EBITDA was slightly higher, while Facilities and Supply and Logistics declined.
- PAGP recorded a $220 million non-cash impairment on crude oil storage terminals in 2021 and a $475 million non-cash impairment on natural gas storage assets before their sale. An asset exchange generated a $106 million gain.
Outlook, management commentary, risks and unusual items
- Management projected 2021 investment capital of $275 million and maintenance capital of $180 million, expected to be funded with retained cash flow and asset-sale proceeds. These are projections, not reported full-year results.
- In August 2021, PAA renewed its facilities: the unsecured revolver was reset at $1.35 billion with an initial August 2026 maturity; the secured hedged-inventory facility was reset at $1.35 billion with an initial August 2024 maturity. PAA reported covenant compliance at quarter-end.
- On October 5, 2021, after quarter-end, PAA and Oryx combined Permian assets in a debt-free joint venture. PAA owns 65%, operates it, and expects the transaction to be near-term free-cash-flow accretive; initial accounting was incomplete at filing.
- The 2021 change in estimated useful lives of certain assets is expected to increase annual depreciation by approximately $72 million. It increased nine-month depreciation by approximately $54 million.
- For the 2015 Line 901 spill, estimated total costs incurred or expected were approximately $485 million; the remaining gross liability was $103 million, and a $110 million insurance receivable was recorded. Pending class actions, claims, and a derivative lawsuit remain; actual costs could exceed estimates.
- Key risks include commodity-market and producer-volume changes, competition and underutilized capacity, counterparty credit, weather and operational disruptions, environmental liabilities, access to capital, and successful execution of divestitures and joint ventures. Management said the interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the post-quarter Plains Oryx joint venture delivers the expected cash-flow benefits and how its consolidation affects leverage and reported results.
- Whether asset impairments, utilization and market-rate pressures, and Supply and Logistics margins persist or reverse.
- Actual progress on the $275 million investment-capital and $180 million maintenance-capital projections, and whether cash generation supports distributions and debt reduction.
- Developments in Line 901 litigation, insurance recoveries, and the adequacy of the recorded liability and receivable.
- How the working-capital deficit, debt maturities, credit availability, and covenant compliance evolve; the reported $2.830 billion liquidity depends on continued access and compliance.