Plains All American Pipeline, L.P. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. PAA operates crude oil and NGL pipelines, gathering, storage, terminal and related midstream assets across the U.S. and Canada. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $16,359 | $9,930 | $30,053 | $18,313 |
| Operating income/(loss) | $411 | ($236) | $704 | $290 |
| Net income/(loss) attributable to PAA | $203 | ($220) | $390 | $202 |
| Net income/(loss) per common unit | $0.22 | ($0.37) | $0.41 | $0.14 |
| Adjusted EBITDA attributable to PAA (non-GAAP) | $615 | $575 | $1,228 | $1,118 |
| Operating cash flow | $792 | $235 | $1,132 | $1,026 |
| Free cash flow after distributions (non-GAAP) | $473 | ($132) | $509 | $379 |
- Q2 revenue rose 65%, largely reflecting higher commodity prices and volumes; product sales and related purchase costs both increased. Management describes merchant activity as high-volume and low-margin, so revenue growth alone does not indicate improved margins.
- Q2 Segment Adjusted EBITDA was $494 million for Crude Oil, down 11%, and $120 million for NGL, up from $21 million. For the first half, the respective amounts were $946 million (down 8%) and $281 million (up from $90 million).
- Management attributed first-half improvement to stronger NGL margins and higher crude pipeline volumes. Comparisons were weighed down by the 2021 sale of natural gas storage facilities, prior-year contango hedge and Winter Storm Uri benefits, and higher 2022 field costs. The Permian JV contributed to higher volumes, with 35% of its results attributable to its noncontrolling owner.
- Operating cash flow was $1.132 billion for the first half, versus $1.026 billion a year earlier. Free cash flow after distributions, a company-defined non-GAAP measure, was $509 million versus $379 million.
- At June 30, cash was $267 million; total debt was $8.616 billion, down from $9.220 billion at year-end 2021. PAA redeemed $750 million of 3.65% notes in March. Current liabilities exceeded current assets by $213 million, but reported available liquidity was $2.818 billion, including cash and borrowing capacity. PAA reported covenant compliance.
- The quarterly common-unit distribution was $0.2175 per unit, unchanged from the May payment. PAA repurchased 7.3 million common units for $74 million in the first half; $198 million remained under the repurchase program at quarter-end.
Outlook, notable items and risks
- No specific earnings or revenue guidance is provided. For 2022, PAA projected investment capital of approximately $330 million ($275 million net to its interest) and maintenance capital of $220 million ($210 million net), expected to be funded primarily with retained cash flow.
- Q2 other expense included a $103 million loss from remeasuring the Series A Preferred Distribution Rate Reset Option; the first-half loss was $147 million. The option’s recorded liability was $147 million at quarter-end, making reported earnings sensitive to valuation assumptions.
- For the 2015 Line 901 release, PAA estimated total costs incurred or expected at approximately $725 million and a remaining gross liability of approximately $330 million. It recorded a $240 million insurance receivable, subject to collection, and expects to reach the applicable $500 million insurance-program limit. The $230 million class-action settlement remained subject to court approval; other claims and appeals remained pending. PAA cautioned that actual costs could exceed its estimates.
- A separate Hartree lawsuit relating to the 2021 sale of a natural gas storage facility was filed July 19, 2022. PAA said it considers the claims without merit.
- Key risks identified include commodity and market volatility, changes in producer activity and pipeline throughput, competition, inflation and supply constraints, financing and credit-rating access, weather or operational incidents, environmental liabilities and litigation, insurance limitations, and joint-venture or project execution. PAA uses derivatives to manage commodity, interest-rate and currency exposures; these instruments can also create earnings volatility.
Important facts for investors to verify
- Whether reported growth in volumes and NGL segment earnings is sustained, and how much is offset by lost storage-facility earnings, higher operating costs and noncontrolling interests.
- The assumptions, court approval and insurance recoveries underlying the Line 901 cost estimate, remaining liability and settlement, plus exposure from unresolved matters.
- Liquidity availability and covenant headroom under the credit facilities, particularly given the working-capital deficit and commodity-related funding needs.
- The non-GAAP reconciliations and the impact of derivative and preferred-option fair-value movements when assessing recurring earnings and distributable cash.
- Execution of the 2022 capital program, maintenance requirements, and the capacity to sustain distributions and unit repurchases from retained cash flow.