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1Q20 results for Plains All American Pipeline

Published by
World Pipelines,


Plains All American Pipeline, L.P. (PAA) and Plains GP Holdings (PAGP) have reported the 1Q20 results and furnished updated 2020 guidance.

Summary

  • Reported a net loss for the period of US$2.8 billion including the impact of approximately US$3.2 billion of non-cash goodwill and asset impairment charges as a result of the current environment.
  • Delivered 1Q20 adjusted EBITDA of US$795 million, which was ahead of expectations.
  • Updated full-year 2020 guidance to reflect expected performance outlook during dynamic and uncertain market conditions.
  • Reiterated previously reduced 2020/2021 expansion capital program of US$1.55 billion.

“Our first-quarter adjusted operating results exceeded expectations. However, as the quarter progressed, the global response to the COVID-19 pandemic has led to an unprecedented energy supply and demand imbalance,” stated Willie Chiang, Chairman and CEO of Plains. “The North American energy supply chain has responded swiftly with significant reductions to refinery utilisation, drilling and completion activity and shut-ins of existing production in multiple areas.”

“In light of the challenging and uncertain environment, last month we announced a number of proactive steps to further strengthen our balance sheet and enhance our liquidity and long-term financial flexibility. These actions include significantly reducing our capital program and common distributions, progressing asset sales, and reducing costs across the supply chain, while remaining focused on operating safely and responsibly.”

1Q20 Transportation Segment Adjusted EBITDA increased by 11% over comparable 2019 results, primarily driven by higher volumes on PAA’s Permian Basin systems, including the Cactus II pipeline, which went into service in August 2019. These favourable results were partially offset by lower volumes on certain pipelines in the company’s Central Region as a result of lower production, competition in the region, and refinery downtime on certain of its demand-pull pipelines.

1Q20 Facilities Segment Adjusted EBITDA increased by 14% over comparable 2019 results, primarily driven by the collection of a deficiency payment on a multi-year contract.

1Q20 Supply and Logistics Segment Adjusted EBITDA decreased by 49% vs comparable 2019 results, primarily due to less favourable crude oil differentials and NGL margins.

In March 2020, PAA recorded approximately US$3.2 billion of non-cash impairment charges due to the current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both the decrease in demand caused by the COVID-19 pandemic and excess supply, as well as changing market conditions and expected lower crude oil production in certain regions:

Goodwill impairment charge of approximately US$2.5 billion (represents the full balance of goodwill).

Non-cash impairment charges of approximately US$0.7 billion on certain pipeline and other assets included in PAA’s Transportation and Facilities segments, along with certain of its investments in unconsolidated entities.

These charges are excluded from the calculation of Adjusted EBITDA and are treated as selected items impacting comparability in the calculation of Adjusted Net Income.

Factors related primarily to the COVID-19 pandemic and excess supply situation:

  • The continuation of a swift and material decline in global crude oil demand and crude oil prices for an uncertain period of time that correspondingly may lead to a significant reduction of domestic crude oil, 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 PAA’s assets and/or the reduction of commercial opportunities that might otherwise be available to the company.
  • Uncertainty regarding the length of time it will take for the US, Canada, and the rest of the world to slow the spread of the COVID-19 virus to the point where applicable authorities are comfortable easing current restrictions on various commercial and economic activities and the extent to which consumer demand rebounds once such restrictions are lifted; such restrictions are designed to protect public health but also have the effect of significantly reducing demand for crude oil.
  • 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 US and elsewhere, which in turn will likely affect demand for crude oil and therefore the demand for the midstream services PAA provides and the commercial opportunities available to the company.
  • The effect of an overhang of significant amounts of crude oil inventory stored in the US and elsewhere and the impact that such inventory overhang ultimately has on the timing of a return to market conditions that support a resumption of drilling and production activities in the US.
  • The refusal or inability of PAA’s customers or counter-parties to perform their obligations under their contracts with PAA (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.
  • The company’s inability to perform its obligations under its contracts, whether due to non-performance by third parties, including its 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 PAA’s employees, which may in turn make it more challenging to retain or recruit talented labour.
  • Disruptions to futures markets for petroleum products, which may impair PAA’s ability to execute its hedging strategies.
  • PAA’s 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 the company operates.
  • 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 PAA’s 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 PAA’s 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 the company’s credit rating and ability to receive open credit from its suppliers and trade counter-parties.
  • The occurrence of a natural disaster, catastrophe, terrorist attack (including eco-terrorist attacks) or other event, including cyber or other attacks on PAA’s electronic and computer systems.
  • The successful integration and future performance of acquired assets or businesses and the successful operation of joint ventures and joint operating arrangements PAA enters into from time to time, whether relating to assets operated by the company or by third parties.
  • Failure to implement or capitalise, or delays in implementing or capitalising, on expansion projects, whether due to permitting delays, permitting withdrawals or other factors.
  • Shortages or cost increases of supplies, materials or labour.
  • The impact of current and future laws, rulings, governmental regulations, accounting standards and statements, and related interpretations, including legislation or regulatory initiatives that prohibit, restrict or regulate hydraulic fracturing.
  • Tightened capital markets or other factors that increase PAA’s cost of capital or limit its ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness.
  • General economic, market or business conditions (both within the US and globally and including the potential for a recession or significant slowdown in economic activity levels) and the amplification of other risks caused by volatile financial markets, capital constraints and liquidity concerns.
  • The availability of, and PAA’s ability to consummate, divestitures, joint ventures, acquisitions or other strategic opportunities.
  • The currency exchange rate of the Canadian dollar.
  • Continued creditworthiness of, and performance by, PAA’s counter-parties, including financial institutions and trading companies with which it does business.
  • Inability to recognise current revenue attributable to deficiency payments received from customers who fail to ship or move more than minimum contracted volumes until the related credits expire or are used.
  • Non-utilisation of PAA’s assets and facilities.
  • Increased costs, or lack of availability, of insurance.
  • Weather interference with business operations or project construction, including the impact of extreme weather events or conditions.
  • The effectiveness of PAA’s risk management activities.
  • Fluctuations in the debt and equity markets, including the price of the company’s units at the time of vesting under its long-term incentive plans.
  • Risks related to the development and operation of PAA’s assets, including its ability to satisfy its contractual obligations to customers.
  • Other factors and uncertainties inherent in the transportation, storage, terminalling and marketing of crude oil, as well as in the storage of natural gas and the processing, transportation, fractionation, storage and marketing of NGL as discussed in the Partnerships' filings with the Securities and Exchange Commission.

Read the article online at: https://www.worldpipelines.com/business-news/06052020/1q20-results-for-plains-all-american-pipeline/

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