PLAINS GP HOLDINGS, L.P. (PAGP) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. PAGP is a holding partnership whose principal cash-generating asset is its approximately 81% limited partner interest in AAP, which owns an interest in Plains All American Pipeline (PAA). PAGP consolidates PAA and AAP; substantially all reported assets and liabilities are PAA’s, apart from PAGP’s deferred tax asset. Creditors of PAA and AAP generally have no recourse to PAGP’s general credit.
Key financial results
| Metric (millions, except per-share amounts) | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $12,341 | $13,694 | Down 10% |
| Operating income | $471 | $291 | Up 62% |
| Net income | $443 | $209 | Up 112% |
| Net income attributable to PAGP | $69 | $22 | Up 214% |
| Basic and diluted earnings per Class A share | $0.35 | $0.11 | Up $0.24 |
| Adjusted EBITDA (non-GAAP) | $813 | $690 | Up 18% |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $715 | $614 | Up 16% |
| Net cash provided by operating activities | $742 | $339 | Up $403 |
Revenue and purchases fell primarily because average WTI prices were lower ($76/barrel versus $95); management noted that merchant sales and purchases generally move with commodity prices and do not imply equivalent changes in margins. Operating results improved with stronger NGL margins, increased crude pipeline earnings and more favorable crude market opportunities. Adjusted EBITDA is a non-GAAP measure and should be read alongside GAAP results.
Segments: Crude Oil Segment Adjusted EBITDA increased 14% to $517 million, supported by higher pipeline volumes, tariff escalations and Canadian market opportunities. NGL Segment Adjusted EBITDA increased 19% to $192 million, primarily on higher sales volumes and realized margins; higher utility costs and the Keyera asset sale partly offset gains.
Cash flow and investment: Operating cash flow was $742 million, aided by positive working-capital movements, particularly reduced inventory. Investing activities provided $158 million, including $284 million of asset-sale proceeds, against $122 million of additions to property, equipment and other. Financing activities used $775 million, including $400 million to repay senior notes and $320 million of cash distributions to Class A shareholders and noncontrolling interests.
Balance sheet and liquidity (March 31, 2023): Cash and cash equivalents were $529 million; total debt was $7.996 billion, down from $8.446 billion at year-end 2022. Current liabilities exceeded current assets by $243 million. Management reported approximately $3.072 billion of available liquidity, including $2.556 billion of facility availability and $516 million of cash, excluding restricted cash. PAA was in compliance with debt covenants. The $700 million of 3.85% senior notes due October 2023 remained outstanding; PAA expected to repay them using operating cash flow, asset-sale proceeds and/or commercial paper borrowings.
Material changes, outlook and notable items
- Asset sale: In February, PAA sold its 21% interest in the Keyera Fort Saskatchewan facility for approximately $270 million and recognized a gain of approximately $140 million. Total first-quarter asset-sale proceeds were $284 million.
- Nonrecurring/valuation effects: Other income included a $58 million gain when PAA’s Series A preferred unitholders exercised the distribution-rate reset option; the comparable 2022 period included a $44 million loss. The reset increased the quarterly Series A distribution rate to approximately $0.615 per unit, effective January 31, 2023. Long-term inventory costing adjustments were less favorable year over year. The 2022 period also included $85 million of Line 901 incident costs, net of expected insurance recoveries; no such costs were recognized in Q1 2023.
- Capital spending outlook: 2023 investment capital was projected at approximately $420 million ($325 million net to PAGP’s interest); maintenance capital was projected at $205 million ($195 million net). Management expected to fund these expenditures primarily with retained cash flow. No full-year earnings or revenue guidance is stated in the provided filing text.
- Distributions: PAGP declared a quarterly distribution of $0.2675 per Class A share, unchanged from February ($1.07 annualized), payable May 15, 2023. PAA’s common-unit distribution was also $0.2675 per unit; preferred-unit distributions are separately payable.
- Line 901 exposure: The filing estimates aggregate costs from the 2015 incident at approximately $740 million and reports a remaining gross liability of approximately $100 million. PAGP had recognized a long-term insurance receivable of approximately $225 million for amounts it considers probable of recovery, but certain insurers denied coverage for parts of the $230 million class-action settlement; arbitration is underway. Recovery timing and amount are uncertain, and an unfavorable resolution could materially affect results.
- Other risks: The business is exposed to commodity prices and differentials, volumes and producer activity, weather and operating interruptions, environmental liabilities, insurance limitations, counterparty credit, interest rates, regulation, and capital-market access. The filing describes ongoing Line 901-related litigation and a separate Hartree lawsuit, which management believes is without merit. PAGP’s disclosure controls were assessed as effective, with no material Q1 change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash flow and reported liquidity remain sufficient after working-capital movements, distributions, capital spending and the October 2023 $700 million note maturity.
- Whether the $225 million Line 901 insurance receivable is recovered, and whether litigation, arbitration or other claims change the estimated $740 million total incident cost or $100 million remaining liability.
- How much of Q1’s earnings improvement reflects recurring segment performance versus the $140 million asset-sale gain and $58 million preferred-option gain, and how non-GAAP adjustments affect comparisons.
- Whether higher Crude Oil and NGL volumes, margins and tariffs continue, and whether utility costs, commodity spreads or weaker production offset those benefits.
- Whether the projected 2023 capital program, asset-sale proceeds and distributions evolve as management expected; the filing cautions that interim results are not necessarily indicative of full-year results.