01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA) reported 2018 total revenues of $34,055 milliona and net income of $2,216 million, up from $858 million in 2017, with the increase driven by favorable regional crude oil differentials and higher lease gathering and NGL margins in its Supply and Logistics segment, net gains on asset sales (including a $200 million gain on the sale of a 30% interest in BridgeTex), and lower interest expense. Segment Adjusted EBITDA for Transportation was $1,508 million, Facilities $711 million and Supply and Logistics $462 million, and consolidated Adjusted EBITDA was $2,684 million. Implied DCF was $1,948 million, against $1,787 million of Implied DCF available to common unitholders and $871 million of common unit cash distributions paid.
The company reduced leverage under its Leverage Reduction Plan announced in August 2017 and states it remains on track to achieve its objectives in the first half of 2019. Total debt was $9,209 millionb at year-end 2018, down from $9,920 million, and liquidity was approximately $2.9 billion. The company invested about $1.9 billion in expansion capital, mainly Permian Basin takeaway pipelines, and plans roughly $1.1 billion of expansion capital in 2019.
Quarterly common distributions were held at $0.30c per unit throughout 2018, down from $0.55 in early 2017. The filing also highlights risks including crude oil volume declines, competition and pipeline overbuild in the Permian Basin, the Line 901 incident in California (with an estimated total cost of about $355 million and a pending criminal and civil litigation tail), a possible reversal of the idled Capline pipeline, and the possibility of a credit rating downgrade.
02—Key points
Key Highlights
- Net income rose to $2,216 million in 2018 from $858 million in 2017, and operating income rose to $2,277 million from $1,153 million.
- Consolidated Adjusted EBITDA was $2,684 million in 2018 versus $2,082 million in 2017; Implied DCF was $1,948 million.
- Total debt fell to $9,209 million at December 31, 2018 from $9,920 million, and liquidity was approximately $2.9 billion.
- Asset sales generated $1,334 million of proceeds in 2018, including the sale of a 30% interest in BridgeTex for $868 million with a $200 million gain.
- Expansion capital spending was $1,888 million in 2018, with about $1.1 billion planned for 2019, mostly Permian Basin takeaway and complementary projects.
- Common unit distributions were $0.30 per quarter throughout 2018 ($1.20 annualized), versus $1.95 declared for 2017.
- The Line 901 incident remains a material item: the company estimates total costs of about $355 million, with a remaining undiscounted gross liability of $76 million and ongoing lawsuits and investigations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Plains All American Pipeline kept $0.07.
- Revenue$34.05B100.0%
- Cost of revenue−$29.79B87.5%
- Gross profit$4.26B12.5%
- Operating costs−$1.99B5.8%
- Operating income$2.28B6.7%
- Interest, other & tax−$61.0M0.2%
- Net income$2.22B6.5%
Where FY2018 revenue went
$34.05B- Cost of revenue: $29.79B, 87% of revenue
- Net income: $2.22B, 6.5% of revenue
- Operating costs: $1.99B, 5.8% of revenue
Kept 6.5% as net incomeNet income $2.22B · 6.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $34.05B$26.22B | +29.9% |
| Cost of Revenue | $29.79B$22.98B | +29.6% |
| Gross Profit | $4.26B$3.24B | +31.6% |
| Operating Expenses | $31.78B$25.07B | +26.8% |
| Operating Income | $2.28B$1.15B | +97.5% |
| Interest Expense | $431.00M$510.00M | −15.5% |
| Net Income | $2.22B$856.00M | +158.9% |
05—Questions
Frequently Asked Questions
Why did net income more than double in 2018?
The filing attributes the increase to favorable regional crude oil differentials and higher lease gathering and NGL margins in the Supply and Logistics segment, more favorable mark-to-market impacts on derivatives, favorable Transportation results from Permian Basin pipelines, net gains on 2018 asset sales (including the BridgeTex gain of $200 million), and lower interest expense from reduced debt. These were partly offset by higher income tax expense from Canadian derivative valuations.
Is the company reducing its debt, and what is its leverage plan?
Yes. Total debt declined to $9,209 million at year-end 2018 from $9,920 million. Under the Leverage Reduction Plan announced in August 2017, the company says it made meaningful progress and remains on track to achieve its objectives in the first half of 2019, though it notes there is no assurance those objectives will be achieved. The plan included reduced distributions, about $800 million of preferred equity issuance, about $2 billion of divestitures and lower working capital.
How was the distribution policy affected?
Common unit distributions were held at $0.30 per quarter for all four quarters of 2018, totaling $1.20 per unit, compared with $1.95 declared in 2017 after the distribution was reduced to $0.30 in the third quarter of 2017. Total common unit cash distributions paid were $871 million in 2018, versus $1,386 million in 2017.
What are the main risks highlighted for investors?
Key risks include declines in crude oil and NGL volumes, competition and potential midstream overbuild (especially in the Permian Basin), market structure changes that can reduce Supply and Logistics margins, risk of a credit rating downgrade that could raise borrowing costs and reduce open credit, regulatory and environmental exposure, and litigation and fines related to the Line 901 release in California. The Capline pipeline may be impaired or retired if a reversal does not secure enough shipper interest.
06—Continue