Plains All American Pipeline, L.P. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter financial results. PAA operates crude oil and natural gas liquids (NGL) pipelines, storage, terminals, processing and related marketing businesses in the U.S. and Canada.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $42.078 billion | $23.290 billion |
| Operating income (loss) | $851 million | $(2.375) billion |
| Net income (loss) attributable to PAA | $593 million | $(2.590) billion |
| Basic net income (loss) per common unit | $0.55 | $(3.83) |
| Adjusted EBITDA attributable to PAA* | $2.196 billion | $2.546 billion |
| Net cash from operating activities | $1.996 billion | $1.514 billion |
| Company-defined Free Cash Flow* | $2.369 billion | $423 million |
| Free Cash Flow after distributions* | $1.654 billion | $(430) million |
*Non-GAAP measures; definitions and reconciliations are in the filing. Revenue increased mainly with higher commodity prices and volumes, while purchases and related costs rose alongside sales. Because commodity sales are high-volume, generally low-margin activities, revenue growth alone is not a measure of operating improvement.
- Adjusted EBITDA declined 11% to $2.290 billion; Adjusted EBITDA attributable to PAA declined 14%. Crude Oil segment Adjusted EBITDA was $1.909 billion, down 14%; NGL segment Adjusted EBITDA was $285 million, down 13%.
- Management attributed lower segment results principally to less favorable crude oil market conditions, including reduced contango margins and compressed regional differentials. NGL results were pressured by higher power costs and reduced Canadian wage subsidies, partly offset by improved fractionation spreads.
- Net income rebounded from 2020’s loss, which included a $2.515 billion goodwill impairment. 2021 included $592 million of net losses on asset sales and impairments, including a $475 million impairment on natural gas storage facilities classified as held for sale and about $220 million of crude oil terminal impairments.
- At year-end, cash was $449 million; the company reported $3.051 billion of total available liquidity, including borrowing capacity. Working capital was negative $95 million.
- Reported debt was $9.220 billion on the balance sheet; face-value consolidated debt was approximately $9.3 billion. PAA reported approximately $8.5 billion of face-value long-term debt and $0.8 billion of short-term debt. It was in covenant compliance at year-end and said substantially all senior notes bear fixed rates.
Changes, capital allocation and outlook
- In October 2021, PAA and Oryx Midstream combined their Permian Basin businesses in a cashless, debt-free joint venture. PAA owns 65%, operates and consolidates the JV; Oryx owns 35%. The accounting involved significant fair-value estimates, including $1.247 billion assigned to customer relationships, and the purchase-price allocation remained preliminary at year-end.
- PAA reorganized reporting from Transportation, Facilities, and Supply and Logistics into Crude Oil and NGL segments. Prior periods were recast, and the definition of Segment Adjusted EBITDA was revised to exclude noncontrolling interests; comparisons should be read on that recast basis.
- Management said it reduced debt by about $1 billion in 2021, lowered capital expenditures by $230 million versus initial 2021 guidance, and exceeded its asset-sale target. Asset-sale proceeds were $875 million. PAA repurchased 18.1 million common units for $178 million; $272 million remained under the $500 million repurchase authorization at year-end.
- Common-unit distributions were $0.18 per quarter in both 2021 and 2020. The fourth-quarter 2021 distribution, paid in February 2022, was $0.18 per unit ($0.72 annualized). Preferred distributions rank ahead of common distributions.
- For 2022, PAA projected approximately $330 million of gross investment capital ($275 million net to its interest) and $220 million of maintenance capital ($210 million net). It expected to fund these primarily with retained cash flow. The filing states a target leverage profile of 3.75x–4.25x, calculated using total debt plus 50% of preferred units divided by Adjusted EBITDA attributable to PAA.
- Management expected global oil demand to exceed 2019 levels by late 2022, with the Permian driving most U.S. production growth, and anticipated significant positive free cash flow over multiple years. These are outlook statements, not guarantees; the filing does not provide a clear numerical 2022 earnings or cash-flow forecast.
Risks, contingencies and unusual items
- Key business risks include oil and NGL supply and demand changes, competition and excess pipeline capacity, contract renewal and shipper concentration, customer credit, commodity-market structure, and the effects of COVID-19, inflation and supply-chain constraints.
- Environmental, pipeline-safety, climate and other regulation may raise costs, delay projects or constrain operations. The company cited self-insured or limited insurance coverage for certain risks, including cybersecurity, gradual pollution and named windstorms.
- The 2015 Line 901 release remains a material contingency. PAA estimated total costs incurred or expected at approximately $495 million; the remaining gross liability was $103 million and the recognized insurance receivable was approximately $105 million at December 31, 2021. Civil claims and appeals remained pending, and actual costs could exceed estimates.
- Canadian tax authorities reassessed cross-border financing matters for approximately $120 million, including penalties and interest. PAA had remitted approximately $101 million and contested the reassessments, stating its position was more likely than not to be sustained.
- Other notable operating costs include 2021 integrity-program expenditures: approximately $21 million for U.S. pipeline integrity requirements, $10 million for voluntary U.S. initiatives and $66 million for pipeline, facility and cavern integrity activities. Preliminary 2022 estimates were $30 million, $15 million and $96 million, respectively.
- The 2021 annual report includes a critical audit matter concerning valuation of the Oryx business combination. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective internal controls as of year-end.
Important facts for investors to verify
- Review the full cash-flow and debt notes, including the distinction between reported debt, face-value debt and working-capital borrowings, and the terms and covenant availability of credit facilities.
- Assess whether lower segment Adjusted EBITDA, compressed crude differentials and competitive capacity affect the expected cash-flow and leverage trajectory.
- Check the 2022 capital plan, Permian JV distribution-sharing tiers, and whether planned retained cash flow can support investment, debt reduction, repurchases and distributions.
- Monitor resolution and potential additional costs for Line 901 claims, insurance recoveries and the Canadian tax reassessments.
- Evaluate the assumptions behind impairments and the Permian JV valuation, including projected volumes, market multiples, discount rates and future amortization.
- Consider customer concentration, preferred-unit distribution priority and partnership tax consequences when evaluating common-unit cash returns.