Plains All American Pipeline(US:PAA)2023-02-28 16:00Part I Items 1 and 2. Business and Properties PAA is a major North American midstream energy infrastructure provider for crude oil and NGLs, operating through two core segments - PAA's business model integrates large-scale supply aggregation with the ownership and operation of critical midstream infrastructure for crude oil and NGLs in the U.S. and Canada16 - The company's financial strategy targets a leverage multiple of 3.75x to 4.25x (total debt plus 50% of preferred units, divided by Adjusted EBITDA attributable to PAA) to maintain an investment grade credit profile29 - Operations are divided into two primary segments: Crude Oil and Natural Gas Liquids (NGL)30 Crude Oil Segment The Crude Oil segment manages extensive crude oil gathering, transportation, and storage assets across the U.S. and Canada, with the Permian Basin as a key operational hub Crude Oil Segment Assets (as of Dec 31, 2022) | Asset Type | Metric | | :--- | :--- | | Active Pipelines & Gathering Systems | 18,075 miles | | Commercial Storage Capacity | 72 million barrels | | Active Above-Ground Tank Capacity | 39 million barrels | | Marine Facilities (U.S.) | 4 | | Condensate Processing Capacity | 120,000 barrels/day | 2022 Average Daily Pipeline Volumes by Region (in thousands of barrels) | Region | 2022 Avg. Barrels per Day | | :--- | :--- | | Permian Basin | 5,638 | | South Texas/Eagle Ford | 357 | | Mid-Continent | 512 | | Gulf Coast | 219 | | Rocky Mountain | 332 | | Canada | 328 | | Western | 179 | | Total | 7,565 | - The company owns interests in multiple long-haul pipelines providing approximately 2.1 million barrels per day of takeaway capacity from the Permian Basin to major market hubs like Corpus Christi, Houston, and Cushing44 Natural Gas Liquids (NGL) Segment The NGL segment handles natural gas processing, NGL fractionation, storage, and transportation, primarily serving the Western Canadian Sedimentary Basin NGL Segment Assets (as of Dec 31, 2022) | Asset Type | Metric | | :--- | :--- | | Natural Gas Processing Plants | 4 | | Fractionation Plants | 8 (185,600 barrels/day capacity) | | NGL Storage Facilities | 28 million barrels capacity | | Active NGL Pipelines | 1,620 miles | - The Empress facility in Alberta can process up to 6.2 Bcf of natural gas per day and is a key source of NGL mix for the segment's fractionation and sales activities7677 - In February 2023, the company closed the sale of its 21% interest in the Keyera Fort Saskatchewan facility, a transaction agreed upon in December 202280 Regulation The company's operations are subject to extensive and stringent federal, state, and local regulations in the U.S. and Canada, covering HSE, pipeline safety, and climate change - Pipeline safety and integrity management programs are mandated by the DOT's PHMSA in the U.S. and the CER in Canada, requiring frequent inspections and maintenance104110 - In 2022, the company incurred approximately $20 million in the U.S. and $85 million in Canada for mandated pipeline integrity management activities105110 - Interstate liquids pipeline operations in the U.S. are subject to rate regulation by FERC under the Interstate Commerce Act, requiring rates to be just and reasonable130 - The company is subject to climate change initiatives, including GHG reporting requirements and cap-and-trade programs like California's, which could increase operating costs and impact demand119121123 Human Capital As of December 31, 2022, PAA employed approximately 4,100 people in North America, prioritizing health, safety, diversity, and professional development Workforce Statistics (as of Dec 31, 2022) | Category | Number/Percentage | | :--- | :--- | | Total Employees | ~4,100 | | U.S. Employees | ~2,900 | | Canadian Employees | ~1,200 | | Field Employees | ~2,800 (69% of total) | | Female Workforce | 21% of total | | Under-represented Groups (U.S.) | 34% of U.S. workforce | - Annual bonus compensation for employees is tied to safety and environmental performance targets. In 2022, the company achieved or exceeded its targets, reducing its recordable injury rate by ~18% and federally reportable releases by ~35% compared to 2020149 Item 1A. Risk Factors The company faces significant business, regulatory, and partnership structure risks, including commodity price volatility, intense competition, stringent environmental laws, and MLP tax complexities - Profitability is highly dependent on the volume of crude oil and NGLs transported, which can be negatively impacted by factors outside of company control, such as commodity price declines and reduced drilling activity180 - The company faces heightened competition due to a general overbuild of midstream infrastructure in key operating areas like the Permian Basin, putting downward pressure on tariffs and margins183184 - Operations are subject to extensive environmental and safety regulations, and any new or stricter laws, particularly those related to climate change and hydraulic fracturing, could significantly increase costs and adversely impact business245262 - As a publicly traded partnership, there is a risk the company could be treated as a corporation for U.S. federal income tax purposes, which would substantially reduce cash available for distributions to unitholders293 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None321 Item 3. Legal Proceedings The company is involved in various legal proceedings, primarily related to the 2015 Line 901 crude oil release with an estimated aggregate cost of $740 million, and is pursuing insurance recovery - The estimated aggregate total cost for the Line 901 incident is approximately $740 million, covering response, clean-up, damages, fines, and legal fees460797 - In 2022, a class action lawsuit related to the Line 901 incident was settled for $230 million795 - As of December 31, 2022, the company has a long-term insurance receivable of approximately $225 million related to the incident, but insurers responsible for $185 million of this have formally denied coverage460795798 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable323 Part II Item 5. Market for Registrant's Common Units, Related Unitholder Matters and Issuer Purchases of Equity Securities PAA's common units trade on Nasdaq under 'PAA', with 698.4 million units outstanding as of February 2023, and increasing cash distributions in 2022 Quarterly Cash Distributions per Common Unit | Year | Q1 | Q2 | Q3 | Q4 | | :--- | :--- | :--- | :--- | :--- | | 2022 | $0.2175 | $0.2175 | $0.2175 | $0.2675 | | 2021 | $0.1800 | $0.1800 | $0.1800 | $0.1800 | - The company's policy is to distribute available cash quarterly after setting aside reserves for business conduct, legal/contractual compliance, and funding future distributions333 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For 2022, PAA reported $1.037 billion net income and $2.51 billion Adjusted EBITDA, driven by favorable NGL margins and higher crude oil volumes, maintaining $3.0 billion liquidity Consolidated Financial Results (Year Ended Dec 31) | Metric (in millions, except per unit) | 2022 | 2021 | | :--- | :--- | :--- | | Total Revenues | $57,342 | $42,078 | | Net Income Attributable to PAA | $1,037 | $593 | | Basic and Diluted Net Income per Common Unit | $1.19 | $0.55 | Key Non-GAAP Financial Measures (Year Ended Dec 31) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Adjusted EBITDA | $2,875 | $2,290 | | Adjusted EBITDA attributable to PAA | $2,510 | $2,196 | | Implied DCF | $1,794 | $1,664 | - The increase in 2022 net income was primarily driven by more favorable margins in the NGL segment and increased earnings from crude oil pipelines due to higher volumes and commodity prices346 - As of December 31, 2022, the company had approximately $3.0 billion of available liquidity, consisting of cash and available borrowing capacity under its credit facilities404 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to commodity price risk and interest rate risk, managed using derivative instruments. A hypothetical 10% crude oil price change would impact derivatives by $54-55 million, and Series A preferred units' reset option is a $189 million liability - The company uses derivative instruments such as futures, forwards, swaps, and options to hedge commodity price risk for crude oil, natural gas, and NGLs462463464 Commodity Derivative Fair Value Sensitivity (as of Dec 31, 2022) | Commodity | Fair Value (in millions) | Effect of 10% Price Increase (in millions) | Effect of 10% Price Decrease (in millions) | | :--- | :--- | :--- | :--- | | Crude oil | $(2) | $(54) | $55 | | Natural gas | $(1) | $13 | $(13) | | NGL and other | $225 | $(47) | $47 | - The Preferred Distribution Rate Reset Option for Series A preferred units is an embedded derivative with a fair value liability of $189 million as of December 31, 2022. The option was exercised by unitholders in January 2023468 Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022472 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022473 Part III Item 10. Directors and Executive Officers of Our General Partner and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting Proxy Statement, including key executives - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting Proxy Statement481 - Key executive officers include Willie Chiang (Chairman & CEO), Harry N. Pefanis (President), Al Swanson (EVP & CFO), and Chris R. Chandler (EVP & COO)482 Item 11. Executive Compensation Details on executive compensation are incorporated by reference from the 2023 Proxy Statement - Details on executive compensation are incorporated by reference from the 2023 Proxy Statement483 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters Information on security ownership by beneficial owners and management is incorporated by reference from the 2023 Proxy Statement - Details on security ownership are incorporated by reference from the 2023 Proxy Statement484 Item 13. Certain Relationships and Related Transactions, and Director Independence Details on certain relationships, related party transactions, and director independence are incorporated by reference from the 2023 Proxy Statement - Details on related transactions and director independence are incorporated by reference from the 2023 Proxy Statement485 Item 14. Principal Accountant Fees and Services Details on principal accountant fees and services are incorporated by reference from the 2023 Proxy Statement - Details on accountant fees and services are incorporated by reference from the 2023 Proxy Statement486 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Form 10-K report, referencing the Index to Consolidated Financial Statements - This item provides a reference to the Index to the Consolidated Financial Statements on page F-1489 - A comprehensive list of exhibits filed with the report is provided, including organizational documents, material contracts, and certifications490 Financial Statements and Notes Consolidated Financial Statements For 2022, consolidated financial statements show total assets of $27.9 billion, liabilities of $14.6 billion, and net income attributable to PAA of $1.037 billion Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | Account (in millions) | Amount | | :--- | :--- | | Total Current Assets | $5,355 | | Property and Equipment, Net | $15,250 | | Total Assets | $27,892 | | Total Current Liabilities | $5,891 | | Total Long-Term Liabilities | $8,676 | | Total Liabilities | $14,567 | | Total Partners' Capital | $13,325 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2022) | Account (in millions) | Amount | | :--- | :--- | | Total Revenues | $57,342 | | Operating Income | $1,292 | | Net Income Attributable to PAA | $1,037 | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31, 2022) | Account (in millions) | Amount | | :--- | :--- | | Net Cash Provided by Operating Activities | $2,408 | | Net Cash Used in Investing Activities | $(526) | | Net Cash Used in Financing Activities | $(1,931) | Note 7—Acquisitions, Divestitures and Other Transactions In 2022, PAA acquired an additional 5% interest in Cactus II for $88 million, leading to consolidation and a $370 million remeasurement gain, following the 2021 formation of the Permian JV - In November 2022, PAA and Enbridge acquired WES's 15% interest in Cactus II. PAA's share was 5% for $88 million, increasing its total ownership to 70% and resulting in consolidation of the asset618 - The Cactus II step acquisition resulted in a remeasurement gain of $370 million, recognized in "Gains (losses) on/(impairment of) investments in unconsolidated entities, net"620 - In October 2021, PAA formed the Permian JV with Oryx Midstream, with PAA owning 65% and operating the combined assets. The transaction was accounted for as a business combination627 Note 11—Debt As of December 31, 2022, total debt was approximately $8.4 billion, comprising $1.2 billion short-term and $7.3 billion long-term, with a weighted average maturity of approximately 9 years for senior notes Debt Summary (as of Dec 31, 2022) | Debt Category (in millions) | Amount | | :--- | :--- | | Short-Term Debt | $1,159 | | Long-Term Debt (Senior notes, net) | $7,237 | | Other Long-Term Debt, net | $50 | | Total Debt | $8,446 | - The company has a $1.35 billion senior unsecured revolving credit facility maturing in 2027 and a $1.35 billion senior secured hedged inventory facility maturing in 2025671672 - During 2022, the company repaid its $750 million 3.65% senior notes due June 2022677 Note 19—Commitments and Contingencies The company has $2.6 billion in commitments and faces a $740 million estimated aggregate cost for the 2015 Line 901 incident, with $225 million in insurance receivables, though some claims are denied - Total future noncancelable commitments for leases and other agreements were $2.576 billion as of December 31, 2022771 - The estimated aggregate cost for the Line 901 incident is approximately $740 million. As of Dec 31, 2022, a remaining gross liability of $105 million was recorded797798 - The company has a long-term insurance receivable of $225 million for the Line 901 incident. Insurers responsible for $185 million of this amount have denied coverage, and the company intends to vigorously pursue recovery795798