Q3 2024 Plains All American Pipeline LP Earnings Call
Thank you everyone and thank you for joining us. Plains delivered another solid operational quarter as our business continued to strengthen.
Based on year-to-date performance and our outlook for the balance of the year, we now expect to be toward the top end of our 2024 Adjusted EBITDA Guidance Range of $2.725 billion to $2.775 billion, as we show on slide 4.
Permian volume growth remains on track with our original forecast of 200 to 300,000 barrels a day range for 2024, that's exit to exit, and we're seeing producer efficiencies offsetting lower than forecasted horizontal rig counts.
Regarding our NGL business, we're on track to complete our Fort Saskatchewan fractionation expansion project on schedule and on budget in the first half of 2025.
Additionally, we continue to pursue opportunities to advance our efficient growth strategy through bolt-on acquisitions and we recently acquired the Five Stones Permian Gathering System from Rappler Midstream.
As shown on slide five, we continue to execute on what we believe is a long runway of bolt-on opportunities across our portfolio.
Consistent with our investment framework, these transactions complement our existing base, creating incremental growth opportunities and enhance our financial profile.
Before turning the call over to Al, I'd like to provide an update on our efforts to resolve the remaining contingencies related to our 2020-15 oil spill in California.
We recently settled two lawsuits and we have booked a charge of $120 million to our overall Line 901 accrual.
With these two settlements, we believe we have resolved all material Line 901 claims against planes.
With respect to our $225 million claim for reimbursement of a prior class action settlement from our insurance carriers, we expect a majority of the claim, $175 million, to be resolved in the first quarter of 2025, which we continue to believe that we are entitled to reimbursement.
Overall, we view this settlement as prudent risk management, providing us with more certainty regarding our future cash flow, which allows us to more confidently focus.
al: forward on our strategic priorities. With that, I'll turn the call over to Al.
al: Thanks, Willie. We reported third quarter adjusted EBITDA net to PAA of $659 million.
al: This reflects the benefit of higher permeant volumes across our gathering, intrabasin, and long-haul footprints, and provides momentum for our crude oil segment as we exit 2024. Slides 6 and 7 in today's presentation contains walks that provide details on our third quarter performance.
al: A summary of our updated 2024 guidance is on slide A.
al: Shifting to capital allocation, as illustrated on slide 9, for 2024, we expect to generate approximately $1.45 billion.
al: of adjusted free cash flow, excluding changes in assets and liabilities, and including $140 million of bolt-on acquisitions with approximately $1.15 billion to be allocated to common and preferred distributions.
al: Please note that our adjusted free cash flow guidance has been updated to reflect our recent bolt-on announcement, charges associated with the previously mentioned legal settlements, and our updated commentary on full-year guidance.
Speaker Change: As Willie mentioned, we continue to advance our efficient growth strategy while maintaining financial flexibility. Our efforts were recently recognized by Moody's, resulting in an upgrade to BAA2 with a stable outlook.
Speaker Change: With the upgrade we have now achieved our target of having a mid Triple B rating at all three credit rating agencies with that. I'll turn the call back to Willie. Thanks, Al
Willie: Well, we are optimistic on the future of the U.S. energy industry.
Speaker Change: which we expect to benefit from improved energy policy, regulatory framework, and hopefully streamlined permitting, all critical to U.S. energy security and our industry's ability to meet global energy needs safely, reliably, and responsibly.
Speaker Change: Our plan's portfolio is more resilient based on the work over the past several years, the investments we've made, and our focus on improving the durability of our earnings, which positions us well to navigate through a volatile macro environment with geopolitical unrest, potential OFAC supply changes, uncertainty around China, and broader economic activity.
Speaker Change: Our company remains well positioned and our strategy is proven. We've made tangible progress across the three key tenets of our strategy, generate significant multi-year free cash flow,
Speaker Change: Maintain capital discipline and return capital to our investors while preserving financial flexibility.
Speaker Change: The Plains team continues to deliver on our goals and initiatives, and our improved outlook provides us more confidence in the trajectory of our business and long-term focus on increasing return of capitals to unit holders.
Speaker Change: With that, I'll turn the call over to Blake to lead us into Q&A.
Blake: Thanks, Willie. As we enter the Q&A session, please limit yourself to one question and one follow-up. For those with additional questions, please feel free to return to the queue.
Blake: This will allow us to address questions from as many participants as possible in our available time this morning. The IR team will also be available after the call to address any additional questions you may have. Tawanda, we're ready to open the call for questions, please.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 1 1 on your telephone and then wait to hear your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Thank you.
Speaker Change: Our first question comes from the line of Michael Bloom with Wells Fargo. Your line is open.
Speaker Change: Hi, Michael. Thanks. Hi. Good morning. Everybody. I want to ask about your Permian gathering volumes this quarter. They were pretty.
Speaker Change: particularly strong to us, and I wanted to understand better how much of that is being driven organically versus contributions from acquisitions, and is there anything you call out in terms of special items this quarter?
Speaker Change: Michael, this is Jeremy. Good morning. We haven't split those out, but we've seen substantial growth on the organic side. That's probably the primary driver. Year over year, there was some modest growth from the acquisitions, but a substantial portion was organic growth from completions across the system.
Okay, great. Thanks for that.
Speaker Change: So, wondering, you know, what that means going forward. Do you think you may lower the target range for leverage? You've got excess capacity here for additional capital return. Yeah, just trying to think through the different options you have as leverage ticks below your target.
Thanks.
Speaker Change: Yeah Michael, this is Willie. Thanks for the acknowledgement of the lower leverage. We don't intend to lower our leverage range which is 325 to 375X.
Speaker Change: any lower. We're pleased where we are and what we've really done is with the announcement of this settlement on our California litigation, it gives us more confidence to kind of execute against our strategy. And what is that? Maximizing free cash flow. We've got a lot of self-help that's going on but as we've shared we did before in the group.
Speaker Change: which is around optimizing our assets, our margins, working with our customers to kind of get win-wins.
Speaker Change: And with that allows us to execute on our, kind of the pillar of, the second pillar of our mission.
Efficient Growth Strategy, which is really around bolt-on acquisitions.
I return opportunities for the unit holders.
Speaker Change: We've done a number of those, as you've seen, we continue to want to do more, and we think we're going to be able to certainly evaluate them, but we're going to stay very disciplined on what we pay for it.
Speaker Change: because we want to stay true to not just growing, but growing the returns. Financial flexibility remains there. And then back to the last bullet point as we think about returning cash back to shareholders, that's ultimately where we want to get, we want to focus on and get to over multiple years. So it gives us lots of flexibility to do many things.
Speaker Change: Also things like kind of re-optimizing our balance sheet and if we aren't able to find opportunities for bolt-ons, you know, we will look a little bit more towards some of those options.
Hopefully that helps.
Thank you.
Thank you. Please stand by for our next question.
Speaker Change: Our next question comes from the line of Spiro Dunis with Citi. Your line is open.
Spiro Dunis: Thanks, operator. Morning, team. Maybe we want to go back to volumes if we could. So I imagine you're in discussions now with producers as we head into the 2025 budget season and perhaps not ready to provide a final view on 25. Just curious how these early conversations are going, if you give us a sense of how the year is shaping up here.
Willie: Spiro, this is Willie. You know, we haven't, obviously we'll give guidance in February. The high-level comment I would make, and then Jeremy can add in as he see fits, you know, 200 to 300,000 barrels a day in the Permian is our, was our estimate this year. We expect to be within that range. It was more back-end weighted, and going forward, although we don't have specifics, we would expect similar ranges.
Speaker Change: Spero, I would agree with that. What I would say is that producer forecasts are matching that from our initial dialogue, but they don't set their budgets until a little bit later and we won't. We'll tie those into our forecasts for next year.
Speaker Change: We'll wait on that then. And maybe just go back to capital allocation.
Speaker Change: I'm from a different perspective maybe I guess we've seen some healthy kind of public valuation markers out there over the last three months or so And I guess I'm just curious specifically around the crude pipeline side. I guess I'm just curious. What does that do the bid at spread?
Speaker Change: from here as you approach some of these bolt-on deals, and maybe as we think about it the other way, what are the currents thinking about the value of your stock here relative to some of those public markers and what that means for buybacks and the attractiveness here?
producer forecasts, etc.
Speaker Change: So one asset doesn't necessarily set the market for everything. It does say that midstream assets are highly valued and we're very happy with the assets that we own.
We'll be disciplined. We take a very...
Speaker Change: and I don't think it impacts our valuation with respect to how we look at assets and our cash flow requirements.
Speaker Change: But we're certainly pay attention to that We understand the markets and we understand the dynamics of each asset and we'll look at them each individually as far as the valuation question I'll turn that to Willie
Willie Spiro: So that adds to the comments that Jeremy talks about on our view that we should be able to, really at any valuation, be able to capture more value than others on the bolt-ons. As far as the valuation for planes, I'll give you a short answer. We think it's slower than it should be, and it's our efforts to drive the value higher.
Speaker Change: Yep, fair enough. I'll leave it there. Have a good week. Good weekend, gentlemen. Thanks, Gerald.
Will you stand by for our next question?
Speaker Change: Our next question comes from the line of Jeremy Tonette with J.P. Morgan Securities. Your line is open.
Hi, good morning.
Good morning, Jeremy.
Speaker Change: I just wanted to touch base a little bit more on the bolt-ons if I could and you know just wanted
Speaker Change: important part of you know the activity in the Permian and just wondering is that a line of business where you could see activity going forward or just doesn't fit your business profile?
Speaker Change: Well, Jeremy, this is Willie. I'm not going to comment on specifics.
You know, for us, the tenants are...
Can we offer synergies on the business around water?
Speaker Change: We don't have any real exposure to it now. If there was an asset and something that would fit well into our business, we would actually look at it. We've tended not to get into that because we've been focusing more on our own asset base and tending to the knitting a little bit. We don't not look at it, but nothing really to share with you specifics on whether we would or wouldn't get into the business.
Speaker Change: Do you see, you know, more growth initiatives beyond what's announced, be it bolt-ons or organic or how do you see yourself, I guess, within the competitive landscape there?
[inaudible]
Speaker Change: Well, I'll start. We have, if you think about the Canadian business, we've really done, our team's done a lot, quite a bit of work up there to focus the efforts around two big core areas, one in Edmonton and another one over in Eastern Canada, and optimize around that. The expansion of our Port Saskatchewan is critical to improving our fee-based
Speaker Change: Durability of cash flow there, we're shifting more to fee-based versus margin-related. There are some other opportunities up there that we would put the same lens on if it's something that is around the integration benefit that we can get synergies on. We're definitely open to that, but the focus right now is to get the Fort Saskatchewan project complete on schedule and on budget.
Speaker Change: Got it. Very helpful. I'll leave it there. Thanks. Thanks, Jeremy.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Neil Mitra with Bank of America. Your line is open.
Speaker Change: Hi, thanks for taking my question. I guess this is directed to Jeremy.
Speaker Change: I just wanted to understand how maybe some of the crew flows are changing with left heavies coming down to the Gulf Coast.
Speaker Change: how that's impacting basin, you know, your cooking, storage assets, and maybe even the rock use, just your entire system, if there's changes at all.
Speaker Change: Thank you, Neil. So, TMX startup that's looking like it's running close to 400,000 barrels a day.
50,000 to 100,000 barrels a day light.
Speaker Change: 150,000 to 200,000 barrels a day, so that's been the impact on the heavy side.
Speaker Change: Through pushing through the summer, we're all-time records, so our specific facility and our refinery focus assets.
Speaker Change: and types in and out are close to record, so we haven't seen much impact to our assets there.
Speaker Change: On the light side, the combination of the light barrels being exported, plus reductions in some of the DJ and Rockies flows, has actually improved basin flows, and you saw that in the quarter, and we expect that to continue.
As permeate production grows and those dynamics continue.
All right, we're good.
Okay, perfect. I wanted to ask a general question.
Speaker Change: whether you can actually create an integrated system there or does the customer kind of choose the pipeline? And I understand in your case, you know, your biggest exposure is to Corpus, so people would want to go there, but
Speaker Change: Is it all like the NGL business or does every customer get to choose?
Willie Spiro: Hey Neil, this is Willie. Let me ask you to clarify, were you asking about Canadian integrated NGL or crude oil in Permian?
Willie Spiro: correct their barrels on or do you have some optionality to move the barrels for them?
Willie Spiro: So it's a good question. It's a function of who the customer is and who the shippers are on the lines connected to the gathering system.
Speaker Change: And so the answer is, it depends, but in many cases Plains Marketing is the shipper on a lot of our assets and we can structure that to where we're the first purchaser or we buy and sell and give it back to that customer.
Speaker Change: at different locations. So we purchase it there, we move it to market, and then we give them another barrel back at a different location.
Speaker Change: So, there's lots of flexibility, and that's one of the benefits of our assets. We don't force anyone to go anywhere. We have substantial liquidity to fill our pipes and most of everyone else's. So, the uniqueness of our asset is we don't force them to a destination. They can get to Midland, Crane, or any of the other export destinations, and they get to any of the pipes out of the basin.
Speaker Change: So I think one of the uniqueness that allows us to grow our position is not forcing anyone to a specific location and having substantial equity to keep our pipelines full and do that.
Speaker Change: You know, Neil, I'll thank you in advance. You helped us with our calling card with our customers. It's flow assurance, reliability, quality control, and access to multiple markets. So we think we have the ability to be able to offer customers all those things and perhaps differentiates us from some of our other competitors.
Okay, yeah, that's a great answer. I really appreciate it.
Thank you, Neal.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of AJ O'Donnell with TPH. Your line is open.
Speaker Change: Morning everyone. Just a quick question for me, a couple questions for me. First starting with the CapEx budget. Looks like it came down a bit for 2024. I was just wondering if you could maybe expand on some of the details of driving the change there. Is it related to anything with project timing, cost savings, or something else?
Speaker Change: Morning, AJ. This is Chris Chandler. So yeah, we did lower our guidance from $375 to $360 million net to planes. This was primarily driven by a deferral of spending for several projects in the development phase.
Speaker Change: This, as you heard earlier, does not change the timing of our Fort Sask expansion project that's currently in field construction and on track.
Speaker Change: to begin in the first half of 2025. I'd also note that while spending is being deferred to 2025, we still expect 2025 to be within the previously stated investment capital range of $300 million to $400 million net to Plains.
All right. Thank you.
Speaker Change: Okay, great. Thanks for that. Maybe just one more on oil growth in the Permian. Now that we're most of the way through the year, I'm just curious if you can give us some guidelines about how much you've seen so far this year, and maybe how much more we could expect in Q4 now that we have incremental gas egress online from Matterhorn.
Speaker Change: Muted some of the growth this year because you had a real reduction in January of this year But since July we've seen steady growth across our system and other systems in the basin And we certainly feel confident in the two to three hundred thousand barrel a day range
Great, appreciate the detail. Thanks guys.
Thanks, A.J.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Manas Gupta with UBS. Your line is open. Good morning guys. A quick question. Last quarter you did raise the guidance. Now obviously you have indicated you're coming in to the top end of that guidance. So help us understand a few things which are going your way which have allowed you to kind of raise guidance for two quarters in a row now.
Speaker Change: Yeah, this is Al. Just basically, we're seeing slightly better performance across...
Speaker Change: across our business, both on the crude side and the NGL side. Volumes have been a little bit stronger than we had assumed on the Permian.
Speaker Change: and the NGL business as well, better recoveries off the fracs.
And so it's no one thing, and...
Speaker Change: What I would say is it's a fairly small, you know, percentage type of change. If you look...
Speaker Change: and take the high-end, we're kind of indicating trending towards the high-end, the high-end relative to beginning-of-the-year guidance is 3.7%. But there's no one attribute, it's across both segments and multiple areas inside of each of the segments.
Speaker Change: Perfect. My quick follow-up is can you get some more commentary around the five-stone gathering system acquisition? Why was it the right fit and the benefits of this deal?
Speaker Change: Sure, this is just bread and butter for us. It's an asset that was already connected to us. The mainline intrabasin flows flew to us and it got us closer to the Rattler guys. We do some on-call business with them and it integrated the barrels into the system. So this was very similar to many of the other ones done but just on a smaller scale.
Thank you. I'll turn it over.
Thanks, Bernal.
Please stand by for our next question.
Thank you. Thank you. Thank you.
Speaker Change: Our next question comes from the line of John McKay with Goldman Sachs. Your line is open.
Speaker Change: Hey, good morning. Thanks for the time. I wanted to circle back maybe just on the capital efficiency side. I know you guys aren't giving 25 guidance here, but I guess just high level as we continue to see the producers.
Speaker Change: Basically be able to be more efficient in the Permian longer laterals, etc. Does that mean for planes you're kind of effective?
Speaker Change: gathering CapEx per barrel can continue to decline from here. I'm just trying to think about framing that up versus your, you know, high level 300 to 400 million run rate, whether that can kind of come down further over time.
Speaker Change: Sure, I think there's two components to it. One is higher recoveries is fewer connection points and less wells to chase. The second is larger developments. Four to eight well pads versus historical one to two well pads. They want fewer emissions points.
Speaker Change: They want higher recoveries. That's aligned with connecting fewer locations for us. So it might be bigger batteries, which.
Speaker Change: That's fine for us. The other piece of this, fewer emissions points means they come back in behind existing well sites. One perfect example of that is historically
Speaker Change: When it was all Virgin Territory, it's each location you'd connect one or two wells and everyone's a new connection. Now close to 40% of all of our connections in the Permian are behind pipe.
Speaker Change: Meaning, we've already got facilities, we're just rotating out pumps and meters based on size, but the facilities are already there. So that capital efficiency is something we've been seeing for five years and we'll continue to do that. And Chris and his team evolved how they do business to manage the changes in the producers.
Speaker Change: Yeah, John, this is Willie. Just one thing to add, obviously, for us.
More volume that's stable is better for companies like us.
Speaker Change: So, my expectations are, as continued progress goes on efficiency and technology, we hopefully avoid large, large new wells coming on, big declines, and anything that smooths that out obviously has advantages and allows us to be more capital efficient and help our producer partners.
Speaker Change: That's great, that's helpful, thank you. Maybe just second one going back to I think
Speaker Change: Neil's question, you know, we're a few years out now from the Oryx acquisition, standing up the big JV. Part of the story at the time was, you know, looking to redirect maybe eventually some of those volumes onto the planes long-haul pipes.
Speaker Change: So maybe if you could just kind of tie that back into your comments earlier around the general flexibility you guys are giving shippers And then maybe specifically just an update on kind of how that Oryx strategy is has kind of played out. Thanks
Speaker Change: Sure, I'd say it's actually been better than we expected. Both us and our partners are very happy with the JV.
Speaker Change: What I would say is the Oryx shippers now have more choices than they did before, and we hope to offer better service.
Speaker Change: to give them the barrel at one location and get it back. So they still have their old options, they have the new ones. Our pipes are maintained being full.
Speaker Change: It's been good for our Wing-to-Wester customers, we're the largest origin point for Wing-to-Wester. They're a big consumer of barrels in the Permian Basin. It's been good for our long-haul pipes and our third parties because we maintain connectivity there.
Speaker Change: That's more of a defensive strategy in the case the pipes aren't full, but the basins continue to grow and our pipes remain full.
Speaker Change: has been perfectly fine and optionality has been good with our customers and it's candidly allowed us to integrate other parts of their business, maybe where we didn't do business with them, to integrate more pieces of their acreage to give them more options and let them trade across the platform.
Makes sense. Appreciate the time.
Thank you for watching. We'll see you next time.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Neil Dingman with Truer Securities. Your line is open.
Neil Dingman: Thanks for the time, good morning guys. My question is really just on overall producer volumes and activity. I'm just curious now when you look at what your operators are currently doing to sort of wind down the year with on oil and NGL volumes, is that on track kind of what you were thinking to end the year and start the next year and you know are there you know are you still noticing any material I don't know either Delaware infrastructure or other constraints impacting which might be even a higher activity?
That's a good question. So.
Speaker Change: New Mexico gas evacuation is probably the biggest constraint we've seen this year. While not perfect, I think Kinetic referenced it on their call that there's still some gas in the northern New Mexico.
Speaker Change: That's getting... Look, the industry solves bottlenecks. They and others are solving the bottlenecks. That's gas getting to market. That will help our gathering systems as well. But by and large... ... ... ... ...
Speaker Change: You've seen most of those bottlenecks go away. Water is another one, but the industry is dealing with it. And so what I would say is...
Speaker Change: Prudently and responsible development by the upstream folks. I think the biggest surprise to us was the continued efficiencies of the producers And you've heard that on their calls
Speaker Change: and they continue to get better and the consolidation has actually driven that in the right direction for us, the industry as a whole, so we're cautiously optimistic and everything's on track to as good or better than we expected going into next year.
Speaker Change: Yeah, it's really nice to hear. And then maybe just a quick follow-up on the NGL segment. So, again, I'm just curious, you know, how different now operations financially? Should we think about this segment now that, you know, you were able to do, I think you described it last quarter as more of an integrated value chain now after those 15-year-plus contracts. I'm just wondering, now that you've done that, you know, what sort of differences should we be looking for operation financially?
Speaker Change: I think the biggest takeaway is that we've been able to swap margin-based business to fee-based business.
Speaker Change: As we go forward, our goal is obviously to do more of that, so you should see a little more flatness of the saddle. We have some contracts roll off that we were sharing in some price benefits of higher frac spreads, but now it's going to be steadier with the volumes going through the system.
Anything to add, Jeremy? Nope.
Thank you.
Great. Thank you all.
Thanks, Neal.
Thank you.
Speaker Change: Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Willie Chiang for closing remarks.
Speaker Change: Well, thanks so much, everyone, for dialing in your continued interest in planes. We'll give you more updates in February, but we'll see you on the road, and have a nice weekend, everyone. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
and Teresa O'Hara
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Speaker Change: and Van Rynne Bengaluru, will screen the all shows in the coming year!
Thanks for watching.
and Blake Fernandez. Thank you for watching. I'm Blake Fernandez.
Speaker Change: Luca Faubank, Alec Baugh, Vincent Wu Liama Rawlings, Vladdy Garcia Panacag represented Los Angeles