Plains GP Holdings, L.P. (PAGP) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited. PAGP is a holding partnership whose cash-generating interests are primarily in Plains All American Pipeline, L.P. (PAA). Accordingly, the consolidated financial statements substantially reflect PAA’s assets and liabilities, and results attributable to noncontrolling interests are significant.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 |
|---|---|---|---|
| Total revenue | $16.359 billion | $30.053 billion | $9.930 billion and $18.313 billion, respectively |
| Operating income (loss) | $408 million | $699 million | $(239) million and $286 million |
| Net income (loss) | $239 million | $448 million | $(212) million and $181 million |
| Net income attributable to PAGP | $31 million | $53 million | $(69) million and $1 million |
| Net income per Class A share | $0.16 | $0.27 | $(0.35) and approximately $0.00 |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $615 million | $1.228 billion | $575 million and $1.118 billion |
- Revenue increased 66% year over year in both the quarter and half year, driven mainly by higher crude oil and NGL prices and volumes. Management notes that merchant sales and purchase costs generally rise together with commodity prices; revenue growth alone does not indicate comparable margin growth.
- Six-month Segment Adjusted EBITDA was $1.227 billion, versus $1.117 billion in 2021. Crude Oil segment EBITDA declined 8% to $946 million, while NGL segment EBITDA rose to $281 million from $90 million, reflecting stronger fractionation spreads and higher NGL prices.
- At June 30, cash was $270 million; total assets were $30.228 billion; and total partners’ capital was $14.059 billion. Total debt was $8.616 billion, down from $9.220 billion at year-end 2021. PAA redeemed $750 million of 3.65% notes in March.
- Working capital was negative $212 million. Reported available liquidity was approximately $2.821 billion, including cash and borrowing availability, subject to covenant compliance. PAA reported compliance with its debt covenants.
- For the six months, operating cash flow was $1.129 billion, investing cash outflow was $123 million, and financing cash outflow was $1.193 billion. Cash and restricted cash declined $186 million to $270 million. Capital expenditures were $251 million.
Material changes versus 2021
- Six-month PAGP-attributable net income increased to $53 million from $1 million; consolidated net income increased to $448 million from $181 million. The comparisons reflect stronger NGL results and higher crude pipeline volumes, partly offset by higher field costs and the absence of prior-year benefits.
- Prior-year results included a $475 million noncash impairment of natural gas storage facilities, partly offset by a $106 million gain on an asset exchange. Those facilities were sold in August 2021. The 2022 period included a $46 million net gain on asset sales and impairments.
- Other expense included a $103 million Q2 loss and $147 million six-month loss from the mark-to-market valuation of PAA’s Series A preferred distribution-rate reset option; the comparable 2021 periods included gains. This valuation item is noncash and contributed materially to reported other expense.
- Crude Oil segment performance faced the loss of natural gas storage earnings and 2021 contango-hedge and Winter Storm Uri benefits. Higher pipeline volumes—including Permian growth following formation of the Permian JV—partly offset those factors. NGL segment performance improved substantially on stronger realized fractionation spreads and NGL prices.
Outlook, risks and unusual items
- Management projected 2022 investment capital of approximately $330 million gross ($275 million net to PAGP’s interest) and maintenance capital of $220 million gross ($210 million net). It expected to fund these expenditures primarily with retained cash flow. No specific revenue or earnings guidance is provided in the filing.
- The quarterly PAGP distribution was $0.2175 per Class A share, unchanged from May 2022, or $0.87 annualized. The August payment was declared payable to holders of record July 29, 2022.
- For the 2015 Line 901 incident, estimated aggregate costs incurred or expected were approximately $725 million. A gross remaining liability of approximately $330 million and an insurance receivable of approximately $240 million were reported at June 30, 2022. The company expected to reach the $500 million limit of its applicable insurance program, assuming collection of amounts considered probable. A proposed $230 million class-action settlement remained subject to court approval; other claims and lawsuits remained pending. Actual costs could exceed estimates.
- Key risks include commodity-market and volume volatility, operational disruptions and environmental events, litigation and insurance limitations, inflation and supply-chain pressures, interest and currency movements, counterparty credit, and access to financing. The filing also describes sensitivity to commodity prices and interest rates. Management stated that disclosure controls were effective and that no material change in internal control occurred during the quarter.
Investor verification priorities
- Confirm the composition and durability of reported liquidity, including credit-facility availability, commercial paper usage, and covenant headroom.
- Track cash generation, debt reduction, capital spending, and the ability to sustain PAGP and PAA distributions.
- Assess whether improved NGL margins and higher crude pipeline volumes continue to offset the loss of natural gas storage earnings and other prior-year benefits.
- Monitor court approval, insurance recoveries, remaining liabilities, and potential additional costs related to the Line 901 incident.
- Reconcile GAAP earnings with non-GAAP Adjusted EBITDA, including the effects of derivative mark-to-market items, inventory adjustments, and noncontrolling interests.