Plains All American Pipeline and Plains GP Holdings Report Third-Quarter 2020 Results

HOUSTON–(BUSINESS WIRE)–Plains All American Pipeline, L.P. (NYSE: PAA) and Plains GP Holdings (NYSE: PAGP) today reported third-quarter 2020 results and furnished updated 2020 guidance in addition to several other significant updates, which are highlighted below.

Summary Highlights

  • Reported net income for the quarter of $143 million
  • Delivered third-quarter 2020 Adjusted EBITDA of $682 million
  • Completed the sale of LA Basin Terminals (closed October 15, 2020) for approximately $200 million (brings year-to-date asset sales proceeds to approximately $450 million)
  • Increased full-year 2020 Adjusted EBITDA guidance to +/- $2.585 billion (increase of $85 million, or 3%)
  • Provided preliminary estimate for 2021 Adjusted EBITDA of +/- $2.2 billion (assumes a $50 million contribution from the Supply & Logistics segment, and is net of the LA Basin Terminals sale and $600 million or more of additional asset sales targeted in 2021)
  • Provided preliminary estimate for 2021 Free Cash Flow after distributions of roughly $300 million, or $900 million or more when including the benefit of proceeds from additional asset sales targeted in 2021
  • Announced $500 million Common Equity Repurchase Program intended to be utilized as an additional method of returning capital to investors

“We delivered third-quarter results favorable to our expectations and raised our full-year 2020 guidance, which is now in-line with our beginning of the year pre-COVID expectations,” stated Willie Chiang, Chairman and CEO of Plains. “We have continued to execute across each of our key initiatives: operating safely and reliably, maximizing Free Cash Flow after distributions, reducing leverage, minimizing capital investment, optimizing our assets, streamlining our organization and reducing costs throughout the business.”

Mr. Chiang continued, “Our current equity valuation does not reflect the strength of our asset base or the long-term durability of our business, and we have reached an inflection point where we expect to generate meaningful levels of Free Cash Flow after distributions. Given the combination of these factors, today we announced a $500 million common equity repurchase program to be used as an additional method of returning capital to investors. In addition to reducing debt, we believe it is appropriate to allocate a portion of our Free Cash Flow after distributions to invest in our equity.”

Plains All American Pipeline

Summary Financial Information (unaudited)

(in millions, except per unit data)

 

 

 

Three Months Ended
September 30,

 

%

 

 

Nine Months Ended
September 30,

 

%

GAAP Results

 

2020

 

2019

 

Change

 

 

2020

 

 

2019

 

Change

Net income/(loss) attributable to PAA (1)

 

$

143

 

 

$

449

 

 

(68

)

%

 

 

$

(2,562

)

 

 

$

1,865

 

 

(237

)

%

Diluted net income/(loss) per common unit

 

$

0.13

 

 

$

0.55

 

 

(76

)

%

 

 

$

(3.72

)

 

 

$

2.28

 

 

(263

)

%

Diluted weighted average common units outstanding (2)

 

728

 

 

800

 

 

(9

)

%

 

 

728

 

 

 

800

 

 

(9

)

%

Net cash provided by operating activities

 

$

282

 

 

$

314

 

 

(10

)

%

 

 

$

1,256

 

 

 

$

1,778

 

 

(29

)

%

Distribution per common unit declared for the period

 

$

0.18

 

 

$

0.36

 

 

(50

)

%

 

 

 

 

 

 

 

____________________________________

(1)

Reported results for the nine months ended September 30, 2020 include aggregate non-cash goodwill and asset impairments and the write-down of certain of our investments in unconsolidated entities totaling $3.3 billion representing a nine-month net loss of $4.55 after tax per common unit.

(2)

For the three and nine months ended September 30, 2019, includes all potentially dilutive securities (our Series A preferred units and equity-indexed compensation awards) outstanding during the period. See the “Computation of Basic and Diluted Net Income/(Loss) Per Common Unit” table attached hereto for additional information.

 

 

Three Months Ended
September 30,

 

%

 

 

Nine Months Ended
September 30,

 

%

Non-GAAP Results (1)

 

2020

 

2019

 

Change

 

 

2020

 

2019

 

Change

Adjusted net income attributable to PAA

 

$

382

 

 

$

430

 

 

(11)

%

 

 

$

1,070

 

 

$

1,546

 

 

(31)

%

Diluted adjusted net income per common unit

 

$

0.46

 

 

$

0.52

 

 

(12)

%

 

 

$

1.26

 

 

$

1.88

 

 

(33)

%

Adjusted EBITDA

 

$

682

 

 

$

731

 

 

(7)

%

 

 

$

2,001

 

 

$

2,377

 

 

(16)

%

Implied DCF per common unit and common equivalent unit

 

$

0.63

 

 

$

0.63

 

 

%

 

 

$

1.84

 

 

$

2.21

 

 

(17)

%

Free cash flow

 

$

73

 

 

$

(79)

 

 

**

 

 

$

195

 

 

$

535

 

 

**

Free cash flow after distributions

 

$

(95)

 

 

$

(378)

 

 

**

 

 

$

(466)

 

 

$

(343)

 

 

**

____________________________________

**

Indicates that variance as a percentage is not meaningful.

(1)

See the section of this release entitled “Non-GAAP Financial Measures and Selected Items Impacting Comparability” and the tables attached hereto for information regarding certain selected items that PAA believes impact comparability of financial results between reporting periods, as well as for information regarding non-GAAP financial measures (such as Adjusted EBITDA, Implied DCF, Free Cash Flow and Free Cash Flow After Distributions) and their reconciliation to the most directly comparable measures as reported in accordance with GAAP.

Segment Adjusted EBITDA for the third quarter and first nine months of 2020 and 2019 is presented below:

Summary of Selected Financial Data by Segment (unaudited)

(in millions)

 

 

Segment Adjusted EBITDA

 

Transportation

 

Facilities

 

Supply and

Logistics

Three Months Ended September 30, 2020

$

444

 

 

$

176

 

 

$

61

 

Three Months Ended September 30, 2019

$

462

 

 

$

173

 

 

$

92

 

Percentage change in Segment Adjusted EBITDA versus 2019 period

(4)

%

 

2

%

 

(34)

%

 

 

 

 

 

 

 

Segment Adjusted EBITDA

 

Transportation

 

Facilities

 

Supply and

Logistics

Nine Months Ended September 30, 2020

$

1,233

 

 

$

560

 

 

$

205

 

Nine Months Ended September 30, 2019

$

1,271

 

 

$

529

 

 

$

571

 

Percentage change in Segment Adjusted EBITDA versus 2019 period

(3)

%

 

6

%

 

(64)

%

Third-quarter 2020 Transportation Segment Adjusted EBITDA decreased 4% versus comparable 2019 results due to reductions in tariff volumes in multiple regions resulting from lower crude oil prices, reduced drilling and completion activity and compressed regional basis differentials, partially offset by the benefit of minimum volume commitment deficiency payments associated with second quarter deficiencies.

Third-quarter 2020 Facilities Segment Adjusted EBITDA increased 2% versus comparable 2019 results primarily due to operational cost savings, increased spot activity at certain of our West Coast crude oil storage terminals and increased capacity at certain of our Mid-Continent and Gulf Coast crude oil storage terminals, partially offset by decreased activity at certain of our rail terminals resulting from less favorable market conditions and the impact of asset sales.

Third-quarter 2020 Supply and Logistics Segment Adjusted EBITDA decreased 34% versus comparable 2019 results due to less favorable crude oil differentials in both the Permian Basin and Canada, partially offset by the benefit of contango-based margin opportunities.

2020 Full-Year Guidance

The table below presents our full-year 2020 financial and operating guidance:

Financial and Operating Guidance (unaudited)

(in millions, except volumes, per unit and per barrel data)

 

 

Twelve Months Ended December 31,

 

2018

 

2019

 

2020 (G)

 

 

 

 

 

+ / –

Segment Adjusted EBITDA

 

 

 

 

 

Transportation

$

1,508

 

 

$

1,722

 

 

$

1,620

 

Facilities

711

 

 

705

 

 

715

 

Fee-Based

$

2,219

 

 

$

2,427

 

 

$

2,335

 

Supply and Logistics

462

 

 

803

 

 

250

 

Adjusted other income/(expense), net

3

 

 

7

 

 

 

Adjusted EBITDA (1)

$

2,684

 

 

$

3,237

 

 

$

2,585

 

Interest expense, net of certain non-cash items (2)

(419)

 

 

(407)

 

 

(415)

 

Maintenance capital

(252)

 

 

(287)

 

 

(215)

 

Current income tax expense

(66)

 

 

(112)

 

 

(50)

 

Other

1

 

 

(55)

 

 

20

 

Implied DCF (1)

$

1,948

 

 

$

2,376

 

 

$

1,925

 

Preferred unit distributions paid (3)

(161)

 

 

(198)

 

 

(200)

 

Implied DCF Available to Common Unitholders

$

1,787

 

 

$

2,178

 

 

$

1,725

 

 

 

 

 

 

 

Implied DCF per Common Unit and Common Equivalent Unit (1)

$

2.38

 

 

$

2.91

 

 

$

2.35

 

 

 

 

 

 

 

Distributions per Common Unit (4)

$

1.20

 

 

$

1.38

 

 

$

0.90

 

Common Unit Distribution Coverage Ratio

2.05

x

 

2.17

x

 

2.63

x

 

 

 

 

 

 

Diluted Adjusted Net Income per Common Unit (1)

$

1.88

 

 

$

2.51

 

 

$

1.59

 

 

 

 

 

 

 

Operating Data

 

 

 

 

 

Transportation

 

 

 

 

 

Average daily volumes (MBbls/d)

5,889

 

 

6,893

 

 

6,380

 

Segment Adjusted EBITDA per barrel

$

0.70

 

 

$

0.68

 

 

$

0.69

 

 

 

 

 

 

 

Facilities

 

 

 

 

 

Average capacity (MMBbls/Mo)

124

 

 

125

 

 

124

 

Segment Adjusted EBITDA per barrel

$

0.48

 

 

$

0.47

 

 

$

0.48

 

 

 

 

 

 

 

Supply and Logistics

 

 

 

 

 

Average daily volumes (MBbls/d)

1,309

 

 

1,369

 

 

1,290

 

Segment Adjusted EBITDA per barrel

$

0.97

 

 

$

1.61

 

 

$

0.53

 

 

 

 

 

 

 

Investment Capital

$

1,888

 

 

$

1,340

 

 

$

950

 

 

Fourth-Quarter Adjusted EBITDA as Percentage of Full Year

35

%

27

%

23

%

____________________________________

(G)

2020 Guidance forecasts are intended to be + / – amounts.

(1)

See the section of this release entitled “Non-GAAP Financial Measures and Selected Items Impacting Comparability” and the Non-GAAP Reconciliation tables attached hereto for information regarding non-GAAP financial measures and, for the historical 2018 and 2019 periods, their reconciliation to the most directly comparable measures as reported in accordance with GAAP. We do not provide a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures on a forward-looking basis as it is impractical to forecast certain items that we have defined as “Selected Items Impacting Comparability” without unreasonable effort, due to the uncertainty and inherent difficulty of predicting the occurrence and financial impact of and the periods in which such items may be recognized. Thus, a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures could result in disclosure that could be imprecise or potentially misleading.

(2)

Excludes certain non-cash items impacting interest expense such as amortization of debt issuance costs and terminated interest rate swaps.

(3)

Cash distributions paid to our preferred unitholders during the year presented. Distributions on our Series A preferred units were paid-in-kind for the February 2018 quarterly distribution. Distributions on our Series A preferred units have been paid in cash since the May 2018 quarterly distribution. Distributions on our Series B preferred units are payable in cash semi-annually in arrears on May 15 and November 15.

(4)

Cash distributions per common unit paid during 2018 and 2019. 2020 (G) reflects the annualized distribution rate of $1.44 per common unit paid in February and the decreased annualized distribution rate of $0.72 per common unit for the remainder of the year.

Plains GP Holdings

PAGP owns an indirect non-economic controlling interest in PAA’s general partner and an indirect limited partner interest in PAA. As the control entity of PAA, PAGP consolidates PAA’s results into its financial statements, which is reflected in the condensed consolidating balance sheet and income statement tables included at the end of this release. Information regarding PAGP’s distributions is reflected below:

 

Q3 2020

 

Q2 2020

 

Q3 2019

Distribution per Class A share declared for the period

$

0.18

 

 

$

0.18

 

 

$

0.36

 

Q3 2020 distribution percentage change from prior periods

 

 

%

 

(50)

%

 

Conference Call

PAA and PAGP will hold a joint conference call at 4:30 p.m. CT on Monday, November 2, 2020 to discuss the following items:

  1. PAA’s third-quarter 2020 performance;
  2. Capitalization and liquidity; and
  3. Financial and operating guidance.

Conference Call Webcast Instructions

To access the internet webcast, please go to https://event.webcasts.com/starthere.jsp?ei=1378562&tp_key=8945f97d3b.

Alternatively, the webcast can be accessed on our website (www.plainsallamerican.com) under Investor Relations (Navigate to: Investor Relations / either “PAA” or “PAGP” / News & Events / Quarterly Earnings). Following the live webcast, an audio replay in MP3 format will be available on our website within two hours after the end of the call and will be accessible for a period of 365 days. A transcript will also be available after the call at the above referenced website.

Non-GAAP Financial Measures and Selected Items Impacting Comparability

To supplement our financial information presented in accordance with GAAP, management uses additional measures known as “non-GAAP financial measures” in its evaluation of past performance and prospects for the future and to assess the amount of cash that is available for distributions, debt repayments and other general partnership purposes.

The primary additional measures used by management are earnings before interest, taxes, depreciation and amortization (including our proportionate share of depreciation and amortization of unconsolidated entities), gains and losses on asset sales and asset impairments, goodwill impairment losses and gains on and impairments of investments in unconsolidated entities, adjusted for certain selected items impacting comparability (“Adjusted EBITDA”), Implied distributable cash flow (“DCF”), Free Cash Flow and Free Cash Flow After Distributions.

Our definition and calculation of certain non-GAAP financial measures may not be comparable to similarly-titled measures of other companies. Adjusted EBITDA, Implied DCF and certain other non-GAAP financial performance measures are reconciled to Net Income/(Loss), and Free Cash Flow and Free Cash Flow After Distributions are reconciled to Net Cash Provided by Operating Activities, (the most directly comparable measures as reported in accordance with GAAP) for the historical periods presented in the tables attached to this release, and should be viewed in addition to, and not in lieu of, our Condensed Consolidated Financial Statements and notes thereto. In addition, we encourage you to visit our website at www.plainsallamerican.com (in particular the section under “Financial Information” entitled “Non-GAAP Reconciliations” within the Investor Relations tab), which presents a reconciliation of our commonly used non-GAAP and supplemental financial measures.

Performance Measures

Management believes that the presentation of Adjusted EBITDA and Implied DCF provides useful information to investors regarding our performance and results of operations because these measures, when used to supplement related GAAP financial measures, (i) provide additional information about our core operating performance and ability to fund distributions to our unitholders through cash generated by our operations and (ii) provide investors with the same financial analytical framework upon which management bases financial, operational, compensation and planning/budgeting decisions. We also present these and additional non-GAAP financial measures, including adjusted net income attributable to PAA and basic and diluted adjusted net income per common unit, as they are measures that investors, rating agencies and debt holders have indicated are useful in assessing us and our results of operations. These non-GAAP measures may exclude, for example, (i) charges for obligations that are expected to be settled with the issuance of equity instruments, (ii) gains and losses on derivative instruments that are related to underlying activities in another period (or the reversal of such adjustments from a prior period), gains and losses on derivatives that are related to investing activities (such as the purchase of linefill) and inventory valuation adjustments, as applicable, (iii) long-term inventory costing adjustments, (iv) items that are not indicative of our core operating results and business outlook and/or (v) other items that we believe should be excluded in understanding our core operating performance. These measures may further be adjusted to include amounts related to deficiencies associated with minimum volume commitments whereby we have billed the counterparties for their deficiency obligation and such amounts are recognized as deferred revenue in “Other current liabilities” on our Condensed Consolidated Financial Statements. Such amounts are presented net of applicable amounts subsequently recognized into revenue. Furthermore, the calculation of these measures contemplates tax effects as a separate reconciling item, where applicable. We have defined all such items as “selected items impacting comparability.” Due to the nature of the selected items, certain selected items impacting comparability may impact certain non-GAAP financial measures, referred to as adjusted results, but not impact other non-GAAP financial measures. We do not necessarily consider all of our selected items impacting comparability to be non-recurring, infrequent or unusual, but we believe that an understanding of these selected items impacting comparability is material to the evaluation of our operating results and prospects.

Although we present selected items impacting comparability that management considers in evaluating our performance, you should also be aware that the items presented do not represent all items that affect comparability between the periods presented. Variations in our operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions, acquisitions, divestitures, investment capital projects and numerous other factors. These types of variations may not be separately identified in this release, but will be discussed, as applicable, in management’s discussion and analysis of operating results in our Quarterly Report on Form 10-Q.

Liquidity Measures

Management also uses the non-GAAP financial measures Free Cash Flow and Free Cash Flow After Distributions to assess the amount of cash that is available for distributions, debt repayments and other general partnership purposes. Free Cash Flow is defined as Net Cash Provided by Operating Activities, less Net Cash Used in Investing Activities, which primarily includes acquisition, investment and maintenance capital expenditures, investments in unconsolidated entities and the impact from the purchase and sale of linefill and base gas, net of proceeds from the sales of assets and further impacted by distributions to, contributions from and proceeds from the sale of noncontrolling interests. Free Cash Flow is further reduced by cash distributions paid to preferred and common unitholders to arrive at Free Cash Flow After Distributions.

Forward-Looking Statements

Except for the historical information contained herein, the matters discussed in this release consist of forward-looking statements that involve certain risks and uncertainties that could cause actual results or outcomes to differ materially from results or outcomes anticipated in the forward-looking statements. These risks and uncertainties include, among other things, the following:

Factors Related Primarily to the COVID-19 Pandemic and Excess Supply Situation:

  • further declines in global crude oil demand and crude oil prices that correspondingly lead to a significant reduction of domestic crude oil, natural gas liquids (“NGL”) and natural gas production (whether due to reduced producer cash flow to fund drilling activities or the inability of producers to access capital, or both, the unavailability of pipeline and/or storage capacity, the shutting-in of production by producers, government-mandated pro-ration orders, or other factors), which in turn could result in significant declines in the actual or expected volume of crude oil and NGL shipped, processed, purchased, stored, fractionated and/or gathered at or through the use of our assets and/or the reduction of commercial opportunities that might otherwise be available to us;
  • uncertainty regarding the length of time it will take for the United States, Canada, and the rest of the world to contain the spread of the COVID-19 virus to the point where restrictions on various commercial and economic activities are lifted and the extent to which consumer demand and demand for crude oil rebound once such restrictions are lifted;
  • uncertainty regarding the future actions of foreign oil producers such as Saudi Arabia and Russia and the risk that they take actions that will prolong or exacerbate the current over-supply of crude oil;
  • uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the midstream services we provide and the commercial opportunities available to us;
  • the effect of an overhang of significant amounts of crude oil inventory stored in the United States and elsewhere and the impact that such inventory overhang ultimately has on the timing of a return to market conditions that are more conducive to an increase in drilling and production activities in the United States and a resulting increase in demand for the midstream services we provide;
  • the refusal or inability of our customers or counterparties to perform their obligations under their contracts with us (including commercial contracts, asset sale agreements and other agreements), whether justified or not and whether due to financial constraints (reduced creditworthiness, liquidity issues or insolvency), market constraints, legal constraints (including governmental orders or guidance), the exercise of contractual or common law rights that allegedly excuse their performance (such as force majeure or similar claims) or other factors;
  • our inability to perform our obligations under our contracts, whether due to non-performance by third parties, including our customers or counterparties, market constraints, third-party constraints, legal constraints (including governmental orders or guidance), or other factors;
  • operational difficulties due to physical distancing restrictions and the additional demands such restrictions may place on our employees;
  • disruptions to futures markets for crude oil, NGL and other petroleum products, which may impair our ability to execute our commercial and hedging strategies;
  • our inability to reduce capital expenditures to the extent forecasted, whether due to the incurrence of unexpected or unplanned expenditures, third-party claims or other factors;
  • the inability to complete forecasted asset sale transactions due to governmental action, litigation, counterparty non-performance or other factors;

General Factors:

  • the effects of competition, including the effects of capacity overbuild in areas where we operate;
  • negative societal sentiment regarding the hydrocarbon energy industry and the continued development and consumption of hydrocarbons, which could influence consumer preferences and governmental or regulatory actions in ways that adversely impact our business;
  • unanticipated changes in crude oil and NGL market structure, grade differentials and volatility (or lack thereof);
  • environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves;
  • fluctuations in refinery capacity in areas supplied by our mainlines and other factors affecting demand for various grades of crude oil, NGL and natural gas and resulting changes in pricing conditions or transportation throughput requirements;
  • maintenance of our credit rating and ability to receive open credit from our suppliers and trade counterparties;
  • the occurrence of a natural disaster, catastrophe, terrorist attack (including eco-terrorist attacks) or other event, including cyber or other attacks on our electronic and computer systems;

Contacts

Roy Lamoreaux

Vice President, Investor Relations, Communications and Government Relations

(866) 809-1291

Brett Magill

Director, Investor Relations

(866) 809-1291

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