01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA) reported 2017 total revenues of $26.22 billiona, operating income of $1.15 billion and net income attributable to PAA of $856 million, up from $726 million in 2016. The filing attributes the year-over-year increase to contributions from recent acquisitions and expansion projects, partially offset by less favorable crude oil and NGL market conditions and margin compression from competition. Segment adjusted EBITDA was $1.29 billion for Transportation and $734 million for Facilities, while Supply and Logistics fell to $60 million from $359 million.
Total adjusted EBITDA was $2.08 billionb and implied distributable cash flow was $1.31 billion, compared with $1.41 billion in 2016, and the filing notes Implied DCF Shortage of $79 million after common unit distributions of $1.39 billion. The balance sheet and capital plan were central to the filing. Total debt was $9.92 billion at December 31, 2017, and management disclosed a Leverage Reduction Plan announced in August 2017 that includes resetting the annualized common distribution to $1.20 per unit, roughly $1.4 billion of targeted debt reduction through March 31, 2019, and asset sales of about $1.1 billion closed in 2017.
The company issued $788 millionc of net proceeds from 6.125% Series B preferred units and raised about $1.66 billion from common unit sales. Liquidity was about $3.0 billion at year end, and the company expects 2018 expansion capital of approximately $1.4 billion, led by the Permian Basin takeaway projects including Cactus II, which is expected in service in the second half of 2019. The filing also highlights risk factors investors should weigh.
Moody's downgraded the company's senior unsecured debt to below investment grade in August 2017, and further downgrades by S&P or Fitch could raise borrowing costs and reduce open credit from counterparties. The company recorded $152 milliond of non-cash rail and terminal asset write-downs in 2017, and the Line 901 incident in California carries an estimated aggregate total cost of about $335 million, with ongoing legal and regulatory proceedings, including a 2016 indictment on state charges.
02—Key points
Key Highlights
- Net income attributable to PAA rose to $856 million in 2017 from $726 million in 2016, driven by recent acquisitions and expansion projects.
- Supply and Logistics segment adjusted EBITDA fell to $60 million from $359 million, reflecting crude oil and NGL margin compression and competition.
- Transportation segment adjusted EBITDA increased to $1.29 billion from $1.14 billion, while Facilities segment adjusted EBITDA rose to $734 million from $667 million.
- Implied DCF was $1.31 billion for 2017 versus $1.41 billion for 2016, and the filing shows an Implied DCF shortage of $79 million after common unit distributions.
- Leverage Reduction Plan targets roughly $1.4 billion of debt reduction through March 31, 2019 and resets the annualized common distribution to $1.20 per unit.
- Moody's downgraded senior unsecured debt below investment grade in August 2017; S&P and Fitch still rate it investment grade, with further downgrades a stated risk.
- Line 901 incident estimated aggregate total costs of about $335 million, with a remaining undiscounted gross liability of $94 million and ongoing investigations, lawsuits and a California criminal indictment.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Plains All American Pipeline kept $0.03.
- Revenue$26.22B100.0%
- Cost of revenue−$22.98B87.7%
- Gross profit$3.24B12.3%
- Operating costs−$2.08B8.0%
- Operating income$1.15B4.4%
- Interest, other & tax−$297.0M1.1%
- Net income$856.0M3.3%
Where FY2017 revenue went
$26.22B- Cost of revenue: $22.98B, 88% of revenue
- Net income: $856.0M, 3.3% of revenue
- Operating costs: $2.08B, 8.0% of revenue
- Interest, other & tax: $297.0M, 1.1% of revenue
Kept 3.3% as net incomeNet income $856.0M · 3.3%Interest, other & tax $297.0M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $26.22B$20.18B | +29.9% |
| Cost of Revenue | $22.98B$17.23B | +33.4% |
| Gross Profit | $3.24B$2.95B | +9.8% |
| Operating Expenses | $25.07B$19.19B | +30.7% |
| Operating Income | $1.15B$994.00M | +16.0% |
| Interest Expense | $510.00M$467.00M | +9.2% |
| Net Income | $856.00M$726.00M | +17.9% |
05—Questions
Frequently Asked Questions
How did Plains All American's profitability change in 2017?
Net income attributable to PAA increased to $856 million from $726 million in 2016. The filing attributes the increase to contributions from recently completed acquisitions and expansion projects and favorable mark-to-market derivative variances, partially offset by less favorable crude oil and NGL market conditions and margin compression from competition. Higher depreciation and amortization, interest expense and a $40 million loss on early senior note redemptions also weighed on results.
Why did the Supply and Logistics segment decline so sharply?
Segment adjusted EBITDA fell to $60 million from $359 million. The filing cites lower unit margins from continued and intensifying competition, largely from overbuilt infrastructure underwritten with volume commitments, which reduced arbitrage opportunities. Net revenues from NGL operations also decreased due to higher supply costs, tighter differentials and warmer weather in early 2017.
What is the company doing to reduce leverage and protect its distribution?
Under the Leverage Reduction Plan announced August 25, 2017, the company reset its annualized common distribution to $1.20 per unit starting with the November 2017 payment, closed about $700 million of non-core asset sales since August 2017, issued $800 million of Series B preferred units, and retired $950 million of senior notes due 2018 and 2019. It intends to reduce total debt by about $1.4 billion through March 31, 2019, but the filing states that achieving these objectives is not assured.
What growth projects are planned for 2018 and beyond?
The 2018 expansion capital plan totals approximately $1.4 billion, of which $765 million is for Permian Basin takeaway pipelines, including the Cactus II pipeline system, with in-service dates in 2019. Cactus II will have initial capacity of 585,000 barrels per day and is fully committed under long-term contracts. Other projects include $375 million of complementary Permian projects, $50 million of selected facilities and $210 million of other projects.
What credit and legal risks should investors watch?
Moody's downgraded the senior unsecured debt below investment grade in August 2017, and further downgrades by S&P or Fitch could raise borrowing costs and reduce open credit from suppliers. The Line 901 release in California remains subject to PHMSA, DOJ and EPA investigations, class actions and a May 2016 state indictment, with the company estimating aggregate costs of about $335 million and stating that fines or penalties could be higher.
06—Continue