Plains GP Holdings, L.P. — Q2 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2021. PAGP is a holding partnership whose cash-generating interests are primarily in Plains All American Pipeline (PAA); substantially all consolidated operating assets and liabilities are those of PAA. PAA operates crude oil and NGL transportation, facilities, and supply and logistics businesses.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $9.930bn | $3.225bn | $18.313bn | $11.494bn |
| Net income/(loss) | $(212)m | $137m | $181m | $(2.556)bn |
| Net income/(loss) attributable to PAGP | $(69)m | $16m | $1m | $(565)m |
| Adjusted EBITDA | $577m | $522m | $1.122bn | $1.316bn |
| Operating cash flow | Not separately presented | Not separately presented | $1.023bn | $972m |
- Revenue and margins: Revenue rose sharply, largely reflecting higher crude oil prices and supply-and-logistics activity; this segment is high-volume and low-margin, so revenue growth alone does not indicate improved profitability. No single consolidated operating margin is provided. Adjusted EBITDA rose 11% in Q2 but declined 15% in the first half.
- Segment Adjusted EBITDA: Q2 Transportation was $433m (up 25%), Facilities $140m (down 20%), and Supply and Logistics $5m (versus $3m). First-half results were $821m, $311m, and $(8)m, respectively; Supply and Logistics was $144m in the prior-year period.
- Cash flow and investment: First-half operating cash flow was $1.023bn; investing cash outflow was $283m and financing cash outflow was $772m. Investment capital was $142m, maintenance capital $73m, and acquisition capital $32m. Cash and restricted cash totaled $33m at June 30.
- Debt and liquidity: Total debt was $9.845bn, down from $10.213bn at December 31, 2020. PAGP reported a $485m working-capital deficit but approximately $2.557bn of available liquidity. PAA was in compliance with debt covenants at quarter-end. A $750m 3.65% senior note maturity was classified as short-term, due June 2022.
- Distributions: PAGP paid $0.18 per Class A share each quarter during the first half; $70m was paid to Class A shareholders over the six months. Total distributions to shareholders and noncontrolling interests were approximately $365m.
Material changes and unusual items
- First-half 2021 net income improved from the prior-year loss, which included a $2.515bn goodwill impairment and other impairment charges. In 2021, PAGP recorded a $475m noncash impairment on Pine Prairie and Southern Pines gas storage facilities held for sale; the facilities were sold on August 2 for $850m, subject to adjustments.
- Q2 net loss on asset sales and impairments was $369m, including the storage-facility impairment, partly offset by a $106m gain on an asset exchange.
- Management shortened the estimated useful lives of certain assets effective January 1, 2021. The change is expected to increase annual depreciation by approximately $72m; first-half depreciation increased by $36m.
- Management cited less favorable crude oil market conditions and lower realized NGL margins, weaker Facilities utilization and rates, and February’s Winter Storm Uri. Transportation benefited from minimum-volume deficiency revenue and lower operating costs.
Outlook, risks and contingencies
- Management projected 2021 investment capital of $325m and maintenance capital of $180m, to be funded with retained cash flow and asset-sale proceeds. These are projections, not guarantees.
- In July 2021, PAGP agreed to combine most of its Permian assets with Oryx Midstream in a debt-free, cashless joint venture. PAGP expects to own 65%, operate and consolidate the venture, and anticipates closing in Q4 2021 subject to approvals and other conditions. Management described it as near-term free-cash-flow accretive.
- Liquidity is exposed to operating cash flow, commodity and market volatility, counterparties, credit ratings, and access to credit facilities. Other cited risks include lower production or throughput, competition, underutilized assets, extreme weather, regulatory and environmental matters, and execution of divestitures and joint ventures.
- Environmental reserves were $159m at June 30, with $114m of related recovery receivables. For the 2015 Line 901 spill, estimated total costs were approximately $485m, with a remaining gross liability of $104m. Litigation and restitution matters remain pending; actual costs could exceed estimates.
- Commodity derivatives had a net fair-value liability of $395m before collateral netting. Derivative fair values and market movements can materially affect reported earnings; management uses derivatives for risk management, not speculation.
Important facts for investors to verify
- Whether the $850m storage-facility sale proceeds, related debt repayment, and resulting balance-sheet effects are reflected in subsequent-period filings.
- Whether the Oryx joint venture receives required approvals, closes on schedule, and delivers the expected cash-flow and credit benefits.
- How much of the $485m Line 901 estimated total cost remains uninsured or unrecovered, and whether pending claims change the reserve.
- Whether segment performance—especially Supply and Logistics—recovers, and how commodity-price movements and derivative timing affect GAAP results versus Adjusted EBITDA.
- Whether liquidity, covenant compliance, 2022 debt maturities, and distributions remain supportable under weaker operating conditions.