Plains GP Holdings, L.P. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. PAGP is a holding partnership whose cash-generating assets are its interests in Plains AAP and Plains All American Pipeline, L.P. (PAA); substantially all consolidated operating assets and liabilities are those of PAA.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $8.383 billion | $8.269 billion |
| Operating income/(loss) | $524 million | $(2.775) billion |
| Net income/(loss) | $392 million | $(2.692) billion |
| Net income/(loss) attributable to PAGP | $70 million; $0.36 per Class A share | $(581) million; $(3.18) per share |
| Adjusted EBITDA (non-GAAP) | $545 million | $794 million |
| Operating cash flow | $789 million | $889 million |
| Capital expenditures | $120 million: $85 million investment and $35 million maintenance | $711 million, including $308 million acquisition capital |
| Total debt | $9.592 billion | $10.213 billion at Dec. 31, 2020 |
At March 31, cash and cash equivalents were $32 million, current assets $4.426 billion, and current liabilities $4.679 billion, a working-capital deficit of $253 million. Reported available liquidity was approximately $2.765 billion, including facility capacity and cash. PAA was in compliance with its debt covenants. Class A distributions were $0.18 per share; the filing reports $35 million paid during the quarter and a further $35 million payable in May.
Segment Adjusted EBITDA was $388 million for Transportation, $171 million for Facilities, and $(13) million for Supply and Logistics, compared with $442 million, $210 million, and $141 million, respectively, in Q1 2020. Transportation Adjusted EBITDA per barrel rose to $0.76 from $0.67; Facilities declined to $0.49 from $0.55; Supply and Logistics fell to $(0.11) from $1.00. Adjusted EBITDA is a non-GAAP measure and is not directly comparable to GAAP net income.
Material changes versus the prior period
- Return to GAAP profitability chiefly reflects the absence of Q1 2020 charges: $2.515 billion goodwill impairment, approximately $655 million of asset and investment impairments, and $232 million of inventory valuation adjustments. These non-cash items materially affected the prior-year loss.
- Despite slightly higher revenue, Adjusted EBITDA declined 31% to $545 million. Supply and Logistics was affected by weaker crude oil conditions, lower production-related volumes and lower realized NGL margins; its comparable-period result also benefited from different derivative and inventory adjustments.
- Transportation volumes declined 22% year over year, reflecting the COVID-19 production reset and production shut-ins during February’s Winter Storm Uri. Fee and minimum-volume-commitment effects partly offset lower volumes.
- Facilities Adjusted EBITDA declined 19%, including effects of 2020 asset sales and the absence of a prior-year deficiency payment; natural gas storage margins benefited from Winter Storm Uri.
- Debt decreased by $621 million from year-end, with net repayments under PAA’s commercial paper and credit facilities of $576 million during the quarter.
- The company shortened the estimated useful lives of certain pipeline and storage-related assets. This increased Q1 depreciation by approximately $18 million and is expected to increase annual depreciation by approximately $72 million prospectively.
Outlook, commentary and risks
- Management projected 2021 investment capital of $375 million and maintenance capital of $180 million. It targeted $750 million of asset sales for 2021 and expected to fund capital spending with retained cash flow and divestiture proceeds.
- Management described its current strategic focus as capital discipline, leverage reduction, portfolio optimization and free-cash-flow generation. No earnings or Adjusted EBITDA guidance is provided in the supplied filing text.
- Management cited COVID-19-related energy-market disruption, production and throughput levels, commodity-market volatility, competition, weather, counterparty credit/performance, access to capital and insurance, and regulatory and environmental matters as risks. It cautioned that quarterly results are not necessarily indicative of full-year results.
- Environmental reserves were $160 million at quarter-end, with $114 million of recorded receivables for probable insurance or third-party recovery. For the 2015 Line 901 spill, estimated aggregate costs incurred or expected were approximately $485 million; remaining gross liability was $105 million. Management warned estimates could rise and litigation and claims remain pending.
- The Preferred Distribution Rate Reset Option generated a $67 million Q1 loss in other expense, compared with a $26 million gain in Q1 2020. The option’s fair-value liability was $81 million at March 31.
- Commodity derivative activity produced a net loss of $275 million in earnings during Q1; timing-related derivative and inventory adjustments are treated differently in management’s segment measure. The filing also notes continuing exposure to commodity, interest-rate and Canadian-dollar exchange-rate risks.
Key facts for investors to verify
- Whether the projected $750 million of 2021 divestitures and $375 million investment-capital plan are achieved, and how proceeds affect leverage.
- Whether operating volumes and segment profitability recover after COVID-19-related production reductions and Winter Storm Uri.
- How much of the $2.765 billion reported liquidity remains available after working-capital, margin and other borrowing needs, and whether covenant compliance continues.
- Potential additional costs, insurance recoveries and litigation outcomes related to Line 901 and other environmental or legal matters.
- The cash-flow and earnings effects of derivative settlements, inventory movements, preferred-option remeasurement and the revised depreciation estimates.