01—Abstract
Summary
Summary of the 10-K filed February 25, 2016. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA) reported 2015 net income attributable to PAA of $903 milliona, down from $1.384 billion in 2014, with total revenues of $23.15 billion. The decline was driven by lower Supply and Logistics segment results, which fell to $381 million in segment profit from $782 million, reflecting compressed differentials and increased competition, along with costs and lost revenue from the Line 901 incident in May 2015. Adjusted EBITDA was $2.17 billion versus $2.20 billion in 2014, and implied distributable cash flow was $1.47 billion, leaving a DCF shortage of $240 million after distributions paid of $1.71 billion.
The partnership executed a $2.2 billionb capital program in 2015 and has a 2016 expansion capital plan of about $1.5 billion. In January 2016 it raised approximately $1.6 billion through the sale of about 61.0 million Series A Convertible Preferred Units at $26.25 per unit, which carry an 8% annual distribution. Management expects long-term debt-to-adjusted EBITDA to be above its target range near term.
Total debt was $11.37 billionc at year-end, and liquidity was approximately $2.3 billion. The filing discloses substantial legal and regulatory exposure tied to the Line 901 release, including an estimated aggregate cost of $269 million, a remaining undiscounted gross liability of $116 million, PHMSA and DOJ investigations, and multiple class action and derivative lawsuits. No fines or penalties have been assessed by the agencies to date, but the filing states they could be imposed.
02—Key points
Key Highlights
- Net income attributable to PAA fell 35% to $903 million in 2015 from $1.384 billion in 2014; diluted net income per common unit was $0.77 versus $2.38.
- Supply and Logistics segment profit fell to $381 million from $782 million, driven by compressed differentials, increased competition and overbuilt infrastructure.
- Line 901 incident (May 2015): estimated aggregate total costs of $269 million, with $83 million recognized in 2015 net of expected insurance reimbursements.
- In January 2016 the partnership sold about 61.0 million Series A Convertible Preferred Units for approximately $1.6 billion net proceeds, with an 8% annual distribution rate.
- Total debt of $11.37 billion at December 31, 2015, with approximately $2.3 billion of liquidity available; long-term debt-to-adjusted EBITDA is expected to remain above the target range near term.
- Distributions of $0.70 per common unit were paid in February 2016, a year-over-year increase of approximately 3.7%; 2015 distribution coverage was described as approximately 88%.
- Planned 2016 expansion capital of approximately $1.5 billion, including Red River, Diamond, Saddlehorn and Permian Basin pipeline projects, with maintenance capital of $190 to $210 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Plains All American Pipeline kept $0.04.
- Revenue$23.15B100.0%
- Cost of revenue−$19.73B85.2%
- Gross profit$3.43B14.8%
- Operating costs−$2.16B9.3%
- Operating income$1.26B5.5%
- Interest, other & tax−$359.0M1.6%
- Net income$903.0M3.9%
Where FY2015 revenue went
$23.15B- Cost of revenue: $19.73B, 85% of revenue
- Net income: $903.0M, 3.9% of revenue
- Operating costs: $2.16B, 9.3% of revenue
- Interest, other & tax: $359.0M, 1.6% of revenue
Kept 3.9% as net incomeNet income $903.0M · 3.9%Interest, other & tax $359.0M · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 25, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $23.15B$43.46B | −46.7% |
| Cost of Revenue | $19.73B$39.50B | −50.1% |
| Gross Profit | $3.43B$2.29B | +49.5% |
| Operating Expenses | $21.89B$41.66B | −47.5% |
| Operating Income | $1.26B$1.80B | −29.8% |
| Interest Expense | $432.00M$348.00M | +24.1% |
| Net Income | $903.00M$1.38B | −34.8% |
| EPS (Basic) | $0.78$2.39 | −67.4% |
| EPS (Diluted) | $0.77$2.38 | −67.6% |
05—Questions
Frequently Asked Questions
Why did PAA's net income decline significantly in 2015?
The filing attributes the 35% decline in net income attributable to PAA ($903 million versus $1.384 billion) primarily to lower Supply and Logistics segment results from compressed crude oil differentials and increased competition, costs and lost revenue from the Line 901 incident, and higher depreciation and interest expense from the growing asset base. These were partially offset by lower income tax expense tied to Canadian derivative mark-to-market fluctuations.
What is the status of the Line 901 incident and its potential financial impact?
The estimated aggregate total costs are $269 million as of December 31, 2015, with a remaining undiscounted gross liability of $116 million. Insurance recoveries of approximately $186 million are considered probable, of which $31 million was collected through year-end and $69 million more in January 2016. Clean-up is substantially complete, though Lines 901 and 903 have no restart timeline. PHMSA, the DOJ, the EPA and state authorities are investigating, and the filing states that fines or penalties could be imposed, but none had been assessed as of the filing date.
Why did PAA issue preferred units in January 2016, and what are their key terms?
The partnership said it raised $1.6 billion to fund its ongoing capital program and maintain a solid capital structure amid disrupted capital markets. The preferred units carry an 8% annual distribution ($2.10 per unit) on a $26.25 issue price, may be paid in kind through 2017, are convertible into common units on a one-for-one basis after the second anniversary, and rank senior to common units in distributions and liquidation.
What are PAA's 2016 capital spending plans?
The partnership expects expansion capital of $1.4 to $1.6 billion in 2016, with a $1.5 billion project plan that includes Red River Pipeline ($290 million), Diamond Pipeline ($260 million), Fort Saskatchewan facility projects ($190 million), Permian Basin area pipeline projects ($185 million) and Saddlehorn Pipeline ($155 million). Maintenance capital is projected at $190 to $210 million. The majority of 2016 funding is expected to come from the January 2016 preferred unit proceeds.
Is PAA's distribution at risk given its 2015 coverage and leverage?
The filing reports 2015 distribution coverage of approximately 88% and a DCF shortage of $240 million, which was funded from reserves, cash on hand and borrowings. The partnership paid $0.70 per common unit in February 2016 and reduced the general partner's incentive distributions by $5.0 million per quarter in 2016. Management states it expects leverage to improve as the industry recovers and its investments contribute EBITDA, but the filing also notes that borrowing costs and capital market access could be affected by credit rating changes.
06—Continue