Plains All American Pipeline, L.P. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the provided filing text does not give standalone fourth-quarter financial results.
Business context and reporting period
PAA is a North American midstream partnership focused on crude oil and natural gas liquids (NGL). Its two segments, Crude Oil and NGL, gather, transport, store, process, fractionate and market hydrocarbons through an integrated network in the United States and Canada. The filing presents audited consolidated financial statements for 2022, 2021 and 2020.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $57.342 billion | $42.078 billion | +36% |
| Net income attributable to PAA | $1.037 billion | $593 million | +75% |
| Net income per common unit | $1.19 | $0.55 | +$0.64 |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $2.510 billion | $2.196 billion | +14% |
| Net cash from operating activities | $2.408 billion | $1.996 billion | +$412 million |
| Free cash flow (non-GAAP) | $1.610 billion | $2.369 billion | −$759 million |
| Free cash flow after distributions (non-GAAP) | $828 million | $1.654 billion | −$826 million |
- Segment Adjusted EBITDA was $2.504 billion, versus $2.194 billion: Crude Oil contributed $1.986 billion (+4%) and NGL contributed $518 million (+82%).
- Crude oil pipeline tariff volumes averaged 7.565 million barrels per day, up 22%; NGL fractionation averaged 137,000 barrels per day, up 6%.
- Revenue growth largely reflected higher commodity prices and volumes. Product sales revenue rose 37%, while purchases and related costs rose 38%; revenue growth alone therefore does not indicate equivalent growth in underlying margins. The filing text does not provide a clear consolidated margin figure.
- At year-end, total assets were $27.892 billion and partners’ capital was $13.325 billion. Cash and cash equivalents were $401 million on the balance sheet; liquidity disclosure reports $378 million of cash and approximately $2.976 billion of total liquidity, including available credit capacity.
- Consolidated debt was $8.446 billion: $7.287 billion long-term and $1.159 billion short-term. The filing describes substantially all long-term debt as fixed-rate; no variable-rate debt was outstanding at year-end. A $750 million senior-note maturity was repaid in March 2022.
- Working capital was negative $536 million. PAA reported compliance with debt covenants and no restriction on distributions as of year-end.
- Cash distributions paid to common unitholders totaled $584 million in 2022; common-unit distributions paid during the year were $0.8325 per unit. The fourth-quarter distribution was $0.2675 per unit, paid in February 2023.
Material changes versus 2021
- Higher NGL fractionation spreads and increased NGL mix production were the main drivers of NGL segment EBITDA growth. Crude Oil segment results benefited from higher pipeline volumes, Canadian differentials and loss-allowance revenue.
- Crude oil tariff volumes increased partly because of the Permian JV, formed in October 2021, and new connections. PAA owns 65% and consolidates the venture.
- In November 2022, PAA acquired another 5% of Cactus II, bringing its ownership to 70% and resulting in consolidation. The transaction generated a $370 million remeasurement gain on its previously held interest; this is a material non-operating item in reported earnings.
- 2022 included a $330 million non-cash impairment of California crude oil assets. 2021 included substantial impairments related to natural gas storage assets that were subsequently sold. Net losses on asset sales and impairments were $269 million in 2022 and $592 million in 2021.
- Operating cash flow increased, but free cash flow fell, partly reflecting higher investment and maintenance spending and $298 million of distributions to noncontrolling interests, compared with $14 million in 2021. 2021 free cash flow also benefited from significant asset-sale proceeds.
- Common-unit distributions increased during 2022: quarterly amounts for the first three quarters were $0.2175 per unit, followed by $0.2675 for the fourth quarter.
Outlook, commentary, risks and unusual items
- Management expects North American supply, particularly Permian production, to remain important to global demand. It expects to generate significant positive free cash flow over multiple years, while prioritizing distributions, disciplined investment, investment-grade credit and lower leverage. These are forward-looking expectations, not guarantees.
- 2023 capital guidance was approximately $420 million of investment capital ($325 million net to PAA) and $205 million of maintenance capital ($195 million net to PAA), expected to be funded primarily with retained cash flow. Estimates may vary with project costs, permitting, labor, materials and weather.
- PAA targets a leverage multiple averaging 3.75x–4.25x, calculated using debt plus 50% of preferred units divided by Adjusted EBITDA attributable to PAA. Actual year-end leverage under that target measure is not clearly stated in the provided text.
- The Line 901 spill remains a significant contingency. PAA estimates aggregate incident costs of approximately $740 million and recorded a $225 million long-term insurance receivable at year-end. Insurers denied coverage for a substantial portion of the remaining claim; PAA disputes the denials and considers recovery probable. A $105 million gross liability remained. An unfavorable insurance or litigation outcome could materially affect results.
- The Series A preferred unitholders elected a distribution-rate reset in January 2023. Effective January 31, 2023, the annual rate became 9.375% of the original issue price, increasing preferred distributions. The 2022 results also included a $189 million non-cash loss on the embedded rate-reset derivative.
- Other risks include pipeline competition and capacity overbuild, commodity-market and volume changes, customer concentration (ExxonMobil represented 20% of 2022 revenue), operational incidents, cyber threats, insurance limitations, environmental and climate regulation, and access to capital. PAA temporarily suspended Line 2000 in California in 2022 after an inspection; it returned to service in the first quarter of 2023.
- The filing reports an independent auditor’s unqualified opinion on the financial statements and effective internal control over financial reporting as of December 31, 2022.
Most important facts for investors to verify
- Reconcile reported earnings growth with the $370 million Cactus II remeasurement gain, the California impairment and other excluded or non-cash items; compare GAAP earnings with non-GAAP Adjusted EBITDA and cash generation.
- Review the Line 901 insurance receivable, insurer coverage denials, remaining claims and the $105 million gross liability for potential changes in recovery timing or estimated costs.
- Confirm debt maturities and refinancing progress, including the $400 million notes redeemed in January 2023 and $700 million notes due in October 2023, and monitor liquidity and covenant headroom.
- Assess the sustainability of segment performance, particularly NGL spreads, Permian throughput, contract renewals and the contribution of merchant activities versus fee-based services.
- Evaluate the effect of the Series A distribution reset and floating-rate Series B preferred distributions on cash available to common unitholders, alongside planned capital spending and distributions.