Plains All American Pipeline, L.P. (NASDAQ:PAA) Q1 2023 Earnings Call Transcript

Plains All American Pipeline, L.P. (NASDAQ:PAA) Q1 2023 Earnings Call Transcript May 5, 2023

Plains All American Pipeline, L.P. beats earnings expectations. Reported EPS is $0.41, expectations were $0.36.

Operator: Good day, and thank you, for standing by. Welcome to the PAA and PAGP First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Blake Fernandez, Vice President, Investor Relations. Please begin.

Blake Fernandez: Thank you, Gavin. Good morning, and welcome to Plains All American’s first quarter 2023 earnings call. Thank you for all of you for joining us on our new time today. The new day and time for our earnings call is a result of feedback from many of you and part of our ongoing efforts to continue optimizing our engagement with investors and analysts. Today’s slide presentation is posted on the Investor Relations website under the News and Events section at plains.com, where an audio replay will also be available following today’s call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2. Highlights from the quarter are provided on Slide 3. A condensed consolidating balance sheet for PAGP and other reference materials are located in the appendix.

Today’s call will be hosted by Willie Chiang, Chairman and CEO; and Al Swanson, Executive Vice President and CFO, as well as other members of our management team. With that, I would turn the call over to Willie.

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Willie Chiang: Thank you, Blake. Happy Friday, everyone, and thank you for joining us. Earlier this morning, we announced strong results, reflecting good progress towards executing on our full-year 2023 targets and providing us with confidence and our ability to deliver on the plan that we laid out in February. As a result, our comments today will be brief. It’s been a volatile few months from a macro perspective with recessionary concerns, headlines in the banking industry and an unexpected OPEC production cut along with the ongoing war in the Ukraine. Through all of this, we remain confident that Plains is well positioned for the long-term as North American supply will continue to be critical to meeting growing long-term global demand.

For 2023 and as illustrated on Slide 4, our focus is on execution. And through the first quarter, we’ve done just that. Reporting adjusted EBITDA attributable to PAA of $715 million. As a result of our first quarter performance and our outlook for the balance of the year, we are reaffirming our adjusted EBITDA guidance range of $2.45 billion to $2.55 billion for 2023. Additionally, we continue to expect free cash flow generation of approximately $1.6 billion and common distribution coverage of 215%, which includes our recent $0.20 per unit annualized distribution increase. Looking forward, we expect that our continued focus on free cash flow supports our previously announced capital allocation framework, which targets multi-year annualized distribution increases of $0.15 per unit, and further debt and leverage reduction.

Al will share additional detail on our quarterly performance and 2023 outlook in his portion of the call. Let me shift to the Permian. We continue to capture increasing volumes on our system and we expect production growth of plus or minus 500,000 barrels a day exit-to-exit in 2023 based on an assumed 2022 exit production of approximately 5.65 million barrels a day. While still relatively early in the year, current horizontal rig count is tracking in line with our expected full-year average of 340 horizontal rigs, and we continue to monitor additional data points, including well completion activity and commodity price environment. Consistent with our February guidance and as shown on Slide 5, we expect year-over-year growth in our Crude Oil segment, underpinned by continued Permian production and tariff growth volumes in our gathering and our long haul systems.

Before I hand it over to Al, I wanted to reinforce that capital discipline remains front and center as we continue to advance capital efficient NGL opportunities around our Fort Saskatchewan facility, which we expect to share additional detail on later this year. With that, I’ll turn the call over to Al.

Al Swanson: Thanks, Willie. We reported first quarter adjusted EBITDA attributable to PAA of $715 million. This includes Crude Oil segment benefits from market-based opportunity and increased volumes across our systems, primarily within the Permian. The NGL segment benefited from seasonally higher sales volumes due to winter demand and favorable margins. Slides 9 and 10 in today’s appendix contains walks which provide more detail on our first quarter performance. A detailed overview of our 2023 guidance and key assumptions which remain consistent with our February guidance are located on Slide 12 within today’s appendix. We continue to expect year-over-year growth in our Crude Oil segment, driven by anticipated volume increases in our Permian business.

For the NGL segment, we remain highly hedged and continue to expect segment adjusted EBITDA midpoint of $420 million. I would note this reflects a more pronounced winter to summer [saddle] versus 2022, which reflects lower volumes due to a planned third-party turnaround in the second quarter, the February sale of our non-op interest in the Keyera Fort Sask facility and an NGL market structure that supports increased sales volumes in the peak winter demand months relative to the summer months. Regarding capital allocation as illustrated on Slide 6 and consistent with our February outlook, we remain committed to significant returns of capital to our equity holders, continued capital discipline and reducing debt, and maintaining financial flexibility.

For 2023, we expect to generate $2.3 billion in cash flow from operations, $1.6 billion of free cash flow with $600 million of free cash flow after distributions available for net debt reduction resulting in year-end leverage of approximately 3.5x. We will continue to self fund $325 million and $195 million of investment and maintenance capital net to PAA, which is consistent with our February guidance and does not include amounts related to the potential Fort Sask opportunity. With that, I will turn the call back to Willie.

Willie Chiang: Thanks, Al. Today’s results reflect another quarter of strong execution and we remain confident in our outlook for the year, despite the near-term volatility. We continue to believe that the world needs North American energy supply long-term, and that our business is well situated to meet this need in a low cost, reliable and responsible manner. We also believe we are well positioned to meaningfully increase returns of capital to unitholders through our targeted multi-year distribution growth and 8.5% current yield, significant free cash flow generation, balance sheet strength as illustrated on Slide 7. We appreciate your continued interest and support, and we look forward to providing further updates on our earnings conference call in August. With that, I’ll turn the call over to Blake to lead us into Q&A.

Blake Fernandez: 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. This will allow us to address questions from as many participants as practical in our available time this morning. Additionally, the IR team will be available to address any additional questions you may have. Kevin, we are now ready to open the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Michael Blum with Wells Fargo. Your line is open.

Operator: [Operator Instructions] Our next question comes from Spiro Dounis with Citi. Your line is open.

Operator: [Operator Instructions] Our next question comes from Brian Reynolds with UBS. Your line is open.

Operator: [Operator Instructions] Our next question comes from Jean Salisbury with Bernstein. Your line is open.

Operator: [Operator Instructions] Our next question comes from [indiscernible] with Bank of America. Your line is open.

Operator: [Operator Instructions] Our next question comes from Jeremy Tonet with JPMorgan. Your line is open.

Operator: [Operator Instructions] Our next question comes from Gabriel Moreen with Mizuho. Your line is open.

Operator: [Operator Instructions] Our next question comes from Neal Dingmann with Truist. Your line is open.

Operator: [Operator Instructions] Our next question comes from Sunil Sibal with Seaport Global. Your line is open.

Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to the company for any closing remarks.

Willie Chiang: Well listen, thanks all of you for joining us today. Hopefully, the new time works a little bit better for folks. We look forward to seeing you soon. Have a great day.

Operator: Ladies and gentlemen, that concludes today’s presentation. You may now disconnect and have a wonderful day.