Plains GP Holdings, L.P. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts are in U.S. dollars; financial figures are in millions unless noted. PAGP is a holding partnership whose cash flows are primarily derived from its indirect investment in Plains All American Pipeline, L.P. (PAA); substantially all consolidated operating assets and liabilities are PAA’s.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $3,225 | $8,253 | $11,494 | $16,628 |
| Net income/(loss) | $137 | $426 | $(2,556) | $1,340 |
| Net income/(loss) attributable to PAGP | $16 | $66 | $(565) | $213 |
| Basic earnings/(loss) per Class A share | $0.09 | $0.41 | $(3.08) | $1.32 |
| Adjusted EBITDA (non-GAAP) | $522 | $783 | $1,316 | $1,643 |
| Segment Adjusted EBITDA | $523 | $782 | $1,316 | $1,643 |
- For the six-month period, the $2.5 billion net loss primarily reflected a $2.515 billion goodwill impairment, alongside $618 million of net asset-sale and impairment losses, $232 million of inventory valuation adjustments, and investment impairments. These charges were largely non-cash.
- Q2 Segment Adjusted EBITDA by segment was Transportation $346 million (down 16% year over year), Facilities $174 million (up 1%), and Supply and Logistics $3 million (versus $200 million). Management cited reduced producer volumes, weaker crude differentials and NGL margins, and unfavorable derivative effects; storage activity supported Facilities results.
- Six-month operating cash flow was $972 million, down from $1.468 billion. Investing cash outflow was $858 million, including $654 million of expansion capital and $308 million for acquisitions, partly offset by asset-sale proceeds. Cash and restricted cash totaled $106 million at June 30.
- Total debt was $10.122 billion, compared with $9.691 billion at year-end 2019. The balance included $729 million of short-term debt and $9.393 billion of long-term debt. PAA issued $750 million of 3.80% senior notes due 2030 in June, with proceeds intended in part to refinance 5.00% notes due February 2021.
- Working capital deficit was $471 million. Management reported $2.930 billion of total available liquidity, including $2.888 billion of facility availability and $42 million cash; access is subject to covenant compliance. PAA reported covenant compliance at quarter-end.
Material changes and management outlook
- COVID-19-related demand contraction and excess supply drove market volatility, producer shut-ins, and the first-half impairments. Management said market uncertainty could persist, with effects in 2021 potentially more pronounced than in 2020.
- Since April, the partnership reduced its 2020/2021 capital program by $850 million, or 37%, to approximately $1.45 billion. It targeted approximately $1.0 billion of 2020 expansion capital, including $654 million invested in the first half.
- PAGP’s quarterly Class A distribution was reduced 50% from $0.36 per share paid in February to $0.18 for the following payments, or $0.72 annualized. Management described the reduction as supporting balance-sheet strength and liquidity.
- Completed asset sales included NGL terminals for approximately $163 million and a 10% Saddlehorn interest for approximately $78 million. A sale of certain Los Angeles Basin terminals for approximately $195 million remained pending, with closing expected in the second half of 2020, subject to conditions.
- In February, PAA acquired a Delaware Basin crude oil gathering system for approximately $300 million. Management said it remained focused on cost control, asset sales, capital discipline, and safe operations; further reductions or sales might be needed, with no assurance they could be achieved.
Risks, contingencies, and unusual items
- Key risks include a prolonged or uneven demand recovery, further production declines, high inventories, commodity-price and basis volatility, customer credit deterioration or nonperformance, financing-market disruption, and the ability to complete planned capital cuts and divestitures.
- For the 2015 Line 901 oil release, the filing estimated aggregate costs incurred or to be incurred at approximately $455 million. The remaining gross liability was $140 million; a proposed Consent Decree, subject to court approval, would require $24 million in civil penalties and $22.325 million for natural-resource damages. The filing cautions that additional costs could arise. The broader environmental liability reserve was $192 million, with $126 million of probable insurance and third-party recovery receivables recorded.
- Line 901 and most of Line 903 remained out of service, with no restart timeline established. The filing also disclosed pending class and derivative litigation and other claims related to the incident. Federal criminal charges were not brought before the statute of limitations expired in May 2020.
- Management stated it had not experienced material operating constraints or significant additional operating costs from the pandemic by quarter-end. It warned that estimates and assumptions could be affected as the pandemic and market conditions evolve.
Important facts for investors to verify
- Whether PAA’s operating cash generation and available credit capacity remain sufficient if demand, volumes, or counterparty credit quality weaken further.
- Execution and timing of the reduced capital program and pending Los Angeles Basin asset sale, and the resulting effect on debt and liquidity.
- Future distribution decisions and cash available to PAGP through its ownership interests in AAP and PAA.
- Potential changes to impairment assumptions, including commodity prices, production volumes, and asset cash-flow forecasts.
- Court approval of the Line 901 Consent Decree, insurance recoveries, and the ultimate cost of outstanding claims and remediation obligations.