Plains All American Pipeline, L.P. — Q1 2022 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. PAA operates crude oil and NGL pipelines, gathering, storage, terminalling and related merchant businesses across the U.S. and Canada. All dollar amounts below are in millions unless stated otherwise.
Financial performance and position
- Revenue: $13,694, up 63% from $8,383. Product sales rose 66% to $13,381, largely reflecting higher commodity prices and volumes; service revenue increased 4% to $313.
- Profit: Operating income was $293 versus $526; net income attributable to PAA was $187 versus $422, down 56%. Net income per common unit was $0.19 versus $0.51. PAA reported a $40 gain on sale of California land and buildings.
- Segment performance: Crude Oil Segment Adjusted EBITDA decreased 4% to $453; higher pipeline tariff volumes partly offset the sale of natural gas storage assets and prior-year Winter Storm Uri-related benefits. NGL Segment Adjusted EBITDA increased 133% to $161, primarily on higher fractionation spreads and sales prices, partly offset by lower sales volumes. Total Segment Adjusted EBITDA was $614 versus $543.
- Cash flow: Operating cash flow was $340 versus $791, with Q1 2022 negatively affected by working-capital changes; Q1 2021 benefited from inventory liquidation. Investing cash outflow was $81. Free Cash Flow, a company-defined non-GAAP measure, was $200 versus $678; Free Cash Flow after distributions was $36 versus $511.
- Margins and distributions: Implied DCF was $438 versus $408; Implied DCF available to common unitholders was $401 versus $371. Common-unit cash distributions paid in the quarter were $127. PAA announced a May distribution of $0.2175 per common unit, up from $0.18, equivalent to $0.87 annualized.
- Debt and liquidity: Total debt was $8,886 at quarter-end, down from $9,220 at year-end 2021. Cash was $114; working capital deficit was $473. PAA reported approximately $2.4 billion of available liquidity and covenant compliance. It redeemed $750 of 3.65% senior notes due June 2022, partly funding the repayment with commercial paper; quarter-end commercial paper borrowings were $382.
- Capital: Q1 investment and maintenance capital expenditures totaled $136. Management projected 2022 investment capital of approximately $330 ($275 net to PAA) and maintenance capital of $220 ($210 net to PAA), expected to be funded primarily with retained cash flow.
Material changes and notable items
- Net income attributable to PAA fell mainly because of derivative mark-to-market impacts, the divestiture of natural gas storage facilities, and higher field costs, including additional estimated Line 901 incident costs. Favorable NGL margins and increased pipeline tariff volumes partly offset these effects.
- Commodity derivative activity produced a net loss of $200 in Q1 2022 versus $275 in Q1 2021. These derivatives are not designated as accounting hedges, so fair-value changes can affect reported earnings in periods different from the underlying commercial activity.
- In October 2021, PAA combined certain Permian assets with Oryx Midstream in a joint venture; PAA owns 65%, with Oryx holding 35%. The contributed assets increased reported pipeline volumes, while the noncontrolling interest reduces amounts attributable to PAA.
- Common units repurchased and canceled totaled 2.4 million for $25 during Q1; $247 remained available under the repurchase program at quarter-end.
Outlook, risks and contingencies
- Management described liquidity and financial resources as sufficient for expected commitments, debt service and capital needs, while noting exposure to energy-price volatility, financial-market disruption and macroeconomic and geopolitical conditions. The filing does not provide earnings or cash-flow guidance.
- Line 901: PAA estimated total costs incurred or expected at approximately $725, with a remaining gross liability of $335 at March 31, 2022. The estimate includes an agreed-in-principle $230 class-action settlement, subject to final documentation and court approval. PAA had recognized a $240 insurance receivable and expected to reach the $500 limit of its applicable 2015 insurance program, assuming collection of costs considered recoverable. Further claims, litigation, legal costs or adverse outcomes could increase costs beyond current estimates.
- Other risks include environmental releases and remediation, litigation, insurance limitations, operational interruptions, commodity and interest-rate exposure, counterparty performance, competition and capacity overbuild, regulation, and the ability to execute projects or strategic transactions. PAA reported $59 of environmental reserves excluding Line 901.
- Reported liquidity depends on continued covenant compliance and access to credit facilities and commercial paper. PAA noted that a prolonged material cash-flow decline could weaken borrowing capacity and increase borrowing costs.
Important facts for investors to verify
- Whether operating cash flow and free cash flow recover from Q1’s working-capital impact, and whether distributions remain supported by recurring cash generation.
- How much of earnings volatility reflects derivative accounting and inventory adjustments versus underlying segment economics.
- Progress, court approval and actual cash impact of the Line 901 settlements, remaining claims and insurance recoveries.
- Debt maturities, commercial-paper usage, liquidity availability and covenant headroom as market conditions evolve.
- Delivery of projected 2022 capital spending and the expected operating contribution from Permian JV assets and completed projects.