Plains All American Pipeline, L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. PAA operates crude oil and NGL pipeline, gathering, transportation, storage, terminalling, processing and related businesses in the United States and Canada.
Financial performance and condition
| Metric | Q1 2023 | Q1 2022 / prior balance date |
|---|---|---|
| Total revenue | $12.341 billion | $13.694 billion |
| Operating income | $473 million | $293 million |
| Net income attributable to PAA | $422 million | $187 million |
| Net income per common unit, basic and diluted | $0.52 | $0.19 |
| Net cash provided by operating activities | $743 million | $340 million |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $715 million | $614 million |
| Implied DCF (non-GAAP) | $498 million | $438 million |
| Total debt | $7.996 billion | $8.446 billion at Dec. 31, 2022 |
| Cash and cash equivalents | $526 million | $401 million at Dec. 31, 2022 |
Product sales revenue declined 11%, principally reflecting lower commodity prices; service revenue rose 27%. The filing does not provide a consolidated operating-margin percentage. Segment Adjusted EBITDA was $517 million for Crude Oil, up 14%, and $192 million for NGL, up 19%. Management attributed the improvement to higher pipeline volumes and tariff escalations, favorable crude oil market opportunities, and higher NGL sales volumes and realized margins.
Operating cash flow increased year over year and benefited from positive working-capital changes, particularly lower inventory. Free Cash Flow was $823 million and Free Cash Flow after distributions was $581 million, compared with $200 million and $36 million, respectively, in Q1 2022; both are non-GAAP measures. Implied DCF available to common unitholders was $443 million versus $401 million, with $187 million of common-unit distributions paid in the quarter.
At March 31, PAA reported a $244 million working-capital deficit but approximately $3.069 billion of available liquidity, including cash and borrowing capacity, subject to covenant compliance. It reported covenant compliance. The $700 million of 3.85% senior notes due October 2023 remained outstanding; PAA said it expected to use operating cash flow, asset-sale proceeds and/or commercial-paper borrowings to repay them.
Material changes and unusual items
- PAA sold its 21% interest in the Keyera Fort Saskatchewan facility for approximately $270 million and recorded an approximately $140 million gain. Total Q1 asset-sale proceeds were $284 million.
- The Series A preferred unitholders elected a distribution-rate reset in January. The quarterly rate increased to approximately $0.615 per unit effective January 31; the May 2023 payment was prorated to approximately $0.585 per unit. The common-unit distribution remained $0.2675 per quarter ($1.07 annualized).
- Other income included a $58 million gain from settlement of the Series A distribution-rate reset embedded derivative; Q1 2022 included a $44 million loss. These fair-value effects are not core operating results.
- Q1 2022 results included $85 million of Line 901 incident costs, net of amounts considered recoverable from insurers; no such costs were recognized in Q1 2023.
- Q1 2023 net income attributable to PAA also reflected the asset-sale gain and derivative gain, partly offset by less favorable long-term inventory costing adjustments.
Outlook, risks and contingencies
- For 2023, PAA projected investment capital of approximately $420 million ($325 million net to its interest) and maintenance capital of $205 million ($195 million net to its interest), primarily funded with retained cash flow. These are capital-spending projections, not earnings guidance.
- Management stated it believed available liquidity, operating cash flow and borrowing capacity were sufficient for expected commitments, debt service and capital needs. The filing does not provide a clear full-year earnings or cash-flow guidance figure.
- For the 2015 Line 901 incident, PAA estimated aggregate total costs incurred or expected at approximately $740 million and reported a remaining gross liability of approximately $100 million. It recorded a long-term insurance receivable of approximately $225 million for amounts it believes probable of recovery. Insurers have disputed coverage for portions of the $230 million class-action settlement; arbitration and recovery timing and amount remain uncertain. PAA cautioned that an unfavorable resolution could materially affect results.
- Other risks include remaining Line 901 litigation, environmental remediation and operational incidents, commodity-price and market-structure changes, customer and counterparty credit or performance, competition, weather, regulation, cyber events, insurance availability and cost, and access to capital. PAA noted insurance may not cover all risks and that it self-insures certain exposures.
- PAA identified a Delaware lawsuit related to the 2021 sale of its Pine Prairie storage facility and said it believed the claims were without merit and not expected to have a material adverse effect.
Important facts for investors to verify
- Progress and funding plan for the $700 million notes due October 2023, and continued access to the stated credit facilities and commercial-paper program.
- Actual performance against the 2023 investment and maintenance capital projections and the expected ability to fund them from retained cash flow.
- Resolution, timing and collectability of the approximately $225 million Line 901 insurance receivable, including the coverage disputes and arbitration.
- Whether higher segment earnings and cash generation persist after adjusting for asset-sale gains, derivative valuation effects, working-capital movements and other selected items.
- The cash-flow, distribution and leverage implications of the Series A preferred distribution-rate reset.