01—Abstract
Summary
Summary of the 10-K filed March 1, 2021. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA) reported a 2020 net loss of $2.580 billiona, compared with net income of $2.180 billion in 2019, driven primarily by a $2.515 billion goodwill impairment, approximately $914 million of other non-cash impairment charges on pipeline and long-lived assets, equity investments and assets held for sale, and approximately $233 million of inventory valuation adjustments. Total revenues fell to $23.290 billion from $33.669 billion, and Adjusted EBITDA was $2.560 billion versus $3.237 billion in 2019. The filing describes a 2020 COVID-19 demand shock and a crude oil price collapse, with the Lower 48 rig count down 75% from its March 2020 peak and drilling activity still at a fraction of pre-pandemic levels as of the filing date.
Management expects a continued drag on the business in 2021 from muted production growth and excess pipeline capacity. Management responded by cutting the 2020/2021 capital program by $950 million, halving the common unit distribution to $0.18b per quarter, completing roughly $450 million of asset sales, and authorizing a $500 million common equity repurchase program, of which $50 million was used in 2020. Liquidity was about $2.2 billion at year end, and the company states it was in compliance with its covenants.
Senior unsecured debt remained rated investment grade by S&P and Fitch, and the company targets a long-term debt-to-Adjusted EBITDA multiple of 3.0x to 3.5x. Total debt was $10.213 billionc at December 31, 2020, and the company reported a working capital deficit of $588 million.
For investors, the central question is whether the fee-based Transportation and Facilities segments, which the company says should comprise more than 90% of segment results absent material Supply and Logistics outperformance, can sustain distributions and deleveraging through a slow recovery in Permian and other North American drilling. The filing also flags Line 901 litigation, with total estimated costs of about $460 milliond, and regulatory and tax contingencies, including Canadian transfer pricing reassessments of approximately $91 million.
02—Key points
Key Highlights
- 2020 net loss of $2.580 billion versus 2019 net income of $2.180 billion, driven mainly by a $2.515 billion goodwill impairment, with the entire goodwill balance written off.
- Total revenues declined to $23.290 billion from $33.669 billion, and Adjusted EBITDA declined to $2.560 billion from $3.237 billion.
- Common unit distribution was cut 50% to $0.18 per quarter beginning May 2020, reducing annualized distributions by $525 million.
- The 2021 investment capital plan totals $425 million, down from $921 million invested in 2020, with the company expecting minimal 2021 contribution and growth in 2022 and beyond.
- A $500 million common equity repurchase program was authorized in November 2020, with $50 million used in 2020 and $450 million of remaining capacity at year end.
- Liquidity was about $2.2 billion at December 31, 2020, against total debt of $10.213 billion and a working capital deficit of $588 million; the company states it was in covenant compliance.
- Approximately 97% of long-term debt consists of publicly traded senior notes, and the company targets an average long-term debt-to-Adjusted EBITDA multiple of 3.0x to 3.5x while maintaining an investment grade profile.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2020, Plains All American Pipeline lost $0.11.
- Revenue$23.29B100.0%
- Cost of revenue−$20.43B87.7%
- Gross profit$2.86B12.3%
- Operating costs−$5.23B22.5%
- Operating income−$2.38B10.2%
- Interest, other & tax−$215.0M0.9%
- Net income−$2.59B11.1%
04—Financials
Financial Highlights
Figures from 10-KFY2020filed March 1, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $23.29B$33.67B | −30.8% |
| Cost of Revenue | $20.43B$29.45B | −30.6% |
| Gross Profit | $2.86B$4.22B | −32.2% |
| Operating Expenses | $25.66B$31.68B | −19.0% |
| Operating Income | -$2.38B$1.99B | −219.5% |
| Interest Expense | $436.00M$425.00M | +2.6% |
| Net Income | -$2.59B$2.17B | −219.3% |
05—Questions
Frequently Asked Questions
What drove the swing from net income to a net loss in 2020?
The filing attributes the net loss of $2.580 billion mainly to a $2.515 billion goodwill impairment recorded in the first quarter of 2020 after market capitalization declined significantly. Non-cash impairment charges of approximately $914 million related to pipeline and other long-lived assets, certain equity investments and assets held for sale, and about $233 million of inventory valuation adjustments also weighed on results.
How did management respond to the market downturn?
Management reduced the 2020/2021 capital program by $950 million, or 41%, cut the common unit and PAGP Class A distributions by 50%, completed approximately $450 million of asset sales, and reduced costs. It also authorized a $500 million common equity repurchase program in November 2020.
What is the outlook for the business in 2021?
The filing expects oil and gas drilling to remain below pre-pandemic levels, slowing production growth and leaving excess pipeline capacity in most operating areas. Management states it expects this to have a negative impact on the business relative to pre-pandemic levels, with impacts in 2021 more pronounced than in 2020.
How strong is the balance sheet and is the distribution secure?
Total debt was $10.213 billion at year end, with about $2.2 billion of liquidity and a working capital deficit of $588 million. Senior unsecured debt remained investment grade at S&P and Fitch, and the company states it was in covenant compliance. Distributions are paid only after reserves are set by the general partner and are prohibited while a default exists; the company reports 2020 distributions to common unitholders of $655 million.
What are the main legal and regulatory exposures?
The Line 901 incident in California carries estimated total costs of about $460 million, including emergency response, natural resource damages, fines and third-party settlements, with a remaining undiscounted gross liability of $86 million at year end. The company also disputes Canadian tax reassessments of approximately $91 million related to transfer pricing, and it notes evolving climate, pipeline safety and tribal jurisdiction regulations.
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