PLAINS ALL AMERICAN PIPELINE, L.P. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. PAA operates crude oil and NGL transportation, storage, facilities, and supply and logistics businesses in the United States and Canada.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $10.776B | $5.833B | $29.089B | $17.327B |
| Operating income/(loss) | ($38M) | $253M | $252M | ($2.310B) |
| Net income/(loss) attributable to PAA | ($59M) | $143M | $143M | ($2.562B) |
| Net income/(loss) per common unit | ($0.15) | $0.13 | ($0.01) | ($3.72) |
| Adjusted EBITDA (non-GAAP) | $519M | $682M | $1.643B | $2.001B |
| Implied DCF (non-GAAP) | $374M | $502M | $1.216B | $1.493B |
| Net cash provided by operating activities | $336M | $282M | $1.361B | $1.256B |
Q3 2021 segment Adjusted EBITDA was $427M for Transportation, $114M for Facilities and negative $23M for Supply and Logistics. For the first nine months, the respective amounts were $1.248B, $425M and negative $31M. The filing does not provide a clear consolidated operating-margin measure; revenue includes high-volume, low-margin supply and logistics activity.
Nine-month Free Cash Flow was $1.830B and Free Cash Flow after distributions was $1.304B, both non-GAAP measures. Investing activities provided $478M net, primarily reflecting asset-sale proceeds; financing activities used $1.707B. Common-unit distributions were $0.18 per unit per quarter.
Balance sheet and liquidity
- At September 30, 2021, total debt was $9.196B, down from $10.213B at December 31, 2020. Cash and cash equivalents were $191M.
- Working capital was negative $523M. Management reported approximately $2.827B of total liquidity, including cash and available credit capacity, and stated that it was in compliance with debt covenants.
- In August, PAA replaced its revolving credit facility with a $1.35B facility maturing initially in August 2026, and renewed its $1.35B hedged inventory facility with an initial August 2024 maturity.
Material changes, outlook and unusual items
- Revenue rose substantially year over year, largely reflecting higher commodity prices and activity in Supply and Logistics; this did not translate into higher segment Adjusted EBITDA. Nine-month Adjusted EBITDA declined 18%, mainly due to less favorable crude oil market conditions and lower realized NGL margins, plus weaker Facilities results.
- Q3 included a $220M non-cash impairment of crude oil storage terminal assets. Nine-month results also included a $475M non-cash impairment on natural gas storage facilities held for sale, partly offset by a $106M asset-exchange gain. Total net losses on asset sales and impairments were $592M for the nine-month period. The prior-year nine-month loss included a $2.515B goodwill impairment and other significant write-downs.
- PAA sold its Pine Prairie and Southern Pines natural gas storage facilities in August for approximately $850M net proceeds and repaid $200M of related term loans. The 2021 period also included $878M of asset-sale proceeds.
- On October 5, 2021, after quarter-end, PAA completed a cashless, debt-free combination of Permian assets with Oryx Midstream. PAA owns 65%, operates the combined business and expects the transaction to be near-term free-cash-flow accretive. Initial accounting was not complete at filing.
- Management projected 2021 investment capital of $275M and maintenance capital of $180M, expected to be funded with retained cash flow and divestiture proceeds. No specific earnings or distribution guidance was provided in the filing.
- A change in estimated useful lives of certain assets is expected to increase annual depreciation expense by approximately $72M; the change increased nine-month 2021 depreciation by approximately $54M.
Risks and contingencies
- The 2015 Line 901 incident remains a material contingent exposure. PAA estimates total costs incurred or to be incurred at approximately $485M; $103M of gross liability remained at September 30, 2021. It had collected $250M of approximately $360M in release costs considered probable of insurance recovery and recognized a further $110M receivable. Some civil, commercial and derivative claims remain pending, and actual costs could exceed estimates.
- Other environmental liabilities, releases, litigation and regulatory matters may have material adverse effects. PAA reported $54M of environmental reserves excluding Line 901.
- Management identifies risks from lower crude oil demand or production, competition and capacity overbuild, asset under-utilization, counterparty credit or performance, commodity and currency volatility, extreme weather, regulation, financing conditions, and operational or environmental events. PAA also notes that cash flow deterioration could affect borrowing capacity and borrowing costs.
- Commodity derivatives had a net fair-value liability of $351M at quarter-end; derivative valuation and margin requirements can create earnings and liquidity volatility. PAA states that derivatives are used for risk management, not speculation.
Most important facts for investors to verify
- Whether operating cash generation and segment results recover, particularly Supply and Logistics margins and Facilities utilization.
- How the Oryx joint venture affects reported results, leverage, cash flow and the stated free-cash-flow outlook.
- Whether liquidity remains adequate despite the working-capital deficit, planned capital spending, distributions and debt maturities.
- Potential additional impairments and the remaining financial exposure from Line 901 and other environmental or legal matters.
- The impact of the higher prospective depreciation expense and the distinction between GAAP earnings and management’s non-GAAP EBITDA, DCF and free-cash-flow measures.