Plains GP (PAGP) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements and related notes for Plains GP Holdings, L.P. and its subsidiaries Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and partners' capital Condensed Consolidated Balance Sheets (in millions) | ASSETS (in millions) | June 30, 2022 | December 31, 2021 | | :------------------- | :------------ | :---------------- | | Cash and cash equivalents | $270 | $452 | | Total current assets | $6,664 | $6,140 | | Property and equipment, net | $14,677 | $14,909 | | Total assets | $30,228 | $29,978 | | LIABILITIES AND PARTNERS' CAPITAL (in millions) | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Total current liabilities | $6,876 | $6,234 | | Senior notes, net | $7,933 | $8,329 | | Total long-term liabilities | $9,293 | $9,567 | | Total partners' capital | $14,059 | $14,177 | | Total liabilities and partners' capital | $30,228 | $29,978 | Condensed Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Operations (in millions, except per share data) | (in millions, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $16,359 | $9,930 | $30,053 | $18,313 | | Total costs and expenses | $15,951 | $10,169 | $29,354 | $18,027 | | OPERATING INCOME/(LOSS) | $408 | $(239) | $699 | $286 | | NET INCOME/(LOSS) | $239 | $(212) | $448 | $181 | | NET INCOME/(LOSS) ATTRIBUTABLE TO PAGP | $31 | $(69) | $53 | $1 | | BASIC AND DILUTED NET INCOME/(LOSS) PER CLASS A SHARE | $0.16 | $(0.35) | $0.27 | $— | Condensed Consolidated Statements of Comprehensive Income/(Loss) This section presents the company's net income or loss alongside other comprehensive income or loss components Condensed Consolidated Statements of Comprehensive Income/(Loss) (in millions) | (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income/(loss) | $239 | $(212) | $448 | $181 | | Other comprehensive income/(loss) | $(52) | $— | $22 | $108 | | Comprehensive income/(loss) | $187 | $(212) | $470 | $289 | | Comprehensive income/(loss) attributable to PAGP | $17 | $(69) | $59 | $30 | Condensed Consolidated Statements of Changes in Accumulated Other Comprehensive Income/(Loss) This section details changes in accumulated other comprehensive income or loss components over specific periods Condensed Consolidated Statements of Changes in Accumulated Other Comprehensive Income/(Loss) (in millions) | (in millions) | Derivative Instruments | Translation Adjustments | Other | Total | | :------------ | :--------------------- | :---------------------- | :---- | :---- | | Balance at December 31, 2021 | $(208) | $(642) | $(3) | $(853) | | Total period activity (6 months ended June 30, 2022) | $74 | $(50) | $(2) | $22 | | Balance at June 30, 2022 | $(134) | $(692) | $(5) | $(831) | | Balance at December 31, 2020 | $(258) | $(657) | $(3) | $(918) | | Total period activity (6 months ended June 30, 2021) | $35 | $73 | $— | $108 | | Balance at June 30, 2021 | $(223) | $(584) | $(3) | $(810) | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in millions) | (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,129 | $1,023 | | Net cash used in investing activities | $(123) | $(283) | | Net cash used in financing activities | $(1,193) | $(772) | | Net decrease in cash and cash equivalents and restricted cash | $(186) | $(30) | | Cash and cash equivalents and restricted cash, end of period | $270 | $33 | Condensed Consolidated Statements of Changes in Partners' Capital This section outlines the changes in partners' capital, including net income and distributions, over specific periods Condensed Consolidated Statements of Changes in Partners' Capital (in millions) | (in millions) | Class A Shareholders | Noncontrolling Interests | Total Partners' Capital | | :------------ | :------------------- | :----------------------- | :---------------------- | | Balance at December 31, 2021 | $1,533 | $12,644 | $14,177 | | Net income | $53 | $395 | $448 | | Distributions | $(77) | $(423) | $(500) | | Balance at June 30, 2022 | $1,517 | $12,542 | $14,059 | | Balance at December 31, 2020 | $1,464 | $9,726 | $11,190 | | Net income | $1 | $180 | $181 | | Distributions | $(70) | $(295) | $(365) | | Balance at June 30, 2021 | $1,421 | $9,640 | $11,061 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1—Organization and Basis of Consolidation and Presentation This note describes the company's structure, consolidation principles, and financial statement presentation - Plains GP Holdings, L.P. (PAGP) is a Delaware limited partnership formed in 2013, taxed as a corporation. It does not directly own operating assets; its cash flow is derived from an indirect investment in Plains All American Pipeline, L.P. (PAA)[24] - As of June 30, 2022, PAGP owned a 100% managing member interest in Plains All American GP LLC (GP LLC) and an approximate 81% limited partner interest in Plains AAP, L.P. (AAP). AAP, in turn, owned approximately 31% of PAA's total outstanding common and Series A preferred units[25] - PAA operates as one of North America's largest midstream service providers, with an extensive network of pipeline transportation, terminalling, storage, and gathering assets focused on crude oil and natural gas liquids (NGL) in key producing basins and market hubs[26] - PAGP consolidates PAA and AAP because they are Variable Interest Entities (VIEs) and PAGP is determined to be the primary beneficiary, having the power to direct activities that significantly impact their performance and the right to receive benefits/absorb losses[34][37] Note 2—Summary of Significant Accounting Policies This note outlines the key accounting principles and methods applied in preparing the financial statements - The company adopted ASU 2020-06, which simplifies accounting for certain financial instruments with characteristics of liabilities and equity, effective January 1, 2022. The adoption did not materially impact financial position, results of operations, or cash flows[37] Note 3—Revenues and Accounts Receivable This note details the company's revenue recognition policies and accounts receivable balances Revenues from Contracts with Customers (in millions) | Revenues from contracts with customers (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Crude Oil segment revenues from contracts with customers | $15,841 | $9,852 | $28,943 | $17,798 | | NGL segment revenues from contracts with customers | $526 | $381 | $1,405 | $1,182 | | Total revenues of reportable segments (3 months) | $16,510 | $10,009 | N/A | N/A | | Total revenues of reportable segments (6 months) | N/A | N/A | $30,323 | $18,501 | Counterparty Deficiencies (in millions) | Counterparty Deficiencies (in millions) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Billed and collected | $65 | $63 | | Unbilled | $10 | $16 | | Total | $75 | $79 | Remaining Performance Obligations (in millions) | Remaining Performance Obligations (in millions) as of June 30, 2022 | | | :---------------------------------------------------------------- | :---- | | Remainder of 2022 | $229 | | 2023 | $430 | | 2024 | $356 | | 2025 | $238 | | 2026 | $158 | | 2027 and Thereafter | $929 | | Total | $2,340 | - The majority of accounts receivable are from crude oil merchant activities, characterized by high volume and low margin, often involving crude oil exchanges. Credit risk is mitigated through a rigorous review process, financial assurances (advance payments, letters of credit, insurance, guarantees), and net-cash settlements with netting agreements[42][43] Note 4—Net Income/(Loss) Per Class A Share This note presents the calculation of basic and diluted net income or loss per Class A share Net Income/(Loss) Attributable to PAGP (in millions, except per share data) | (in millions, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income/(loss) attributable to PAGP | $31 | $(69) | $53 | $1 | | Basic and diluted weighted average Class A shares outstanding | 194 | 194 | 194 | 194 | | Basic and diluted net income/(loss) per Class A share | $0.16 | $(0.35) | $0.27 | $— | - Possible exchanges of AAP units and AAP Management Units, and PAGP LTIP awards, did not have a dilutive effect on basic net income per Class A share for the periods presented, or the dilutive effect was immaterial[49] Note 5—Inventory, Linefill and Long-term Inventory This note provides details on the company's inventory, linefill, and long-term inventory balances Inventory, Linefill and Long-term Inventory (in millions) | (in millions) | June 30, 2022 | December 31, 2021 | | :------------ | :------------ | :---------------- | | Inventory subtotal | $528 | $783 | | Linefill subtotal | $931 | $907 | | Long-term inventory subtotal | $378 | $253 | | Total | $1,837 | $1,943 | - Crude oil inventory volumes decreased from 8,041 thousand barrels to 2,704 thousand barrels, while NGL inventory volumes decreased from 6,982 thousand barrels to 5,535 thousand barrels from December 31, 2021, to June 30, 2022[51] - The price per unit for crude oil inventory increased significantly from $67.65/barrel to $101.33/barrel, and for NGL inventory from $33.51/barrel to $44.99/barrel, between December 31, 2021, and June 30, 2022[51] Note 6—Debt This note outlines the company's short-term and long-term debt obligations and related terms Debt (in millions) | (in millions) | June 30, 2022 | December 31, 2021 | | :------------ | :------------ | :---------------- | | Total short-term debt | $630 | $822 | | Total long-term debt | $7,986 | $8,398 | | Total debt | $8,616 | $9,220 | - PAA redeemed its 3.65%, $750 million senior notes due June 2022 on March 1, 2022[54] - Outstanding letters of credit decreased from $98 million at December 31, 2021, to $34 million at June 30, 2022[55] Note 7—Partners' Capital and Distributions This note details the components of partners' capital and the distributions made to shareholders Shares Outstanding | Shares Outstanding | December 31, 2021 | June 30, 2022 | | :----------------- | :---------------- | :------------ | | Class A Shares | 194,192,777 | 194,228,477 | | Class B Shares | 46,645,514 | 46,855,904 | | Class C Shares | 534,596,831 | 527,557,194 | Distributions to Class A Shareholders (in millions, except per share data) | Distributions to Class A Shareholders (in millions, except per share data) | August 12, 2022 (payable) | May 13, 2022 | February 14, 2022 | | :----------------------------------------------------------------------- | :------------------------ | :----------- | :---------------- | | Distributions to Class A Shareholders | $42 | $42 | $35 | | Distributions per Class A Share | $0.2175 | $0.2175 | $0.1800 | - PAA repurchased 7.3 million common units for $74 million during the six months ended June 30, 2022, under its Common Equity Repurchase Program, with $198 million remaining capacity[60] - Noncontrolling interests in subsidiaries as of June 30, 2022, included 69% of PAA's common and Series A preferred units, 100% of PAA's Series B preferred units, approximately 19% limited partner interest in AAP, 35% in Permian JV, and 33% in Red River LLC[59] Note 8—Derivatives and Risk Management Activities This note describes the company's use of derivative instruments for risk management purposes - The company uses derivative instruments to manage commodity price risk, interest rate risk, and currency exchange rate risk, primarily for risk management rather than speculation[65] Net Gain/(Loss) from Commodity Derivative Activity (in millions) | Net gain/(loss) from commodity derivative activity (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net gain/(loss) from commodity derivative activity | $84 | $(267) | $(115) | $(542) | - The Preferred Distribution Rate Reset Option of PAA Series A preferred units is an embedded derivative, resulting in a net loss of $147 million for the six months ended June 30, 2022, compared to a net gain of $9 million for the same period in 2021[77] Derivative Fair Value as of June 30, 2022 (in millions) | Fair Value as of June 30, 2022 (in millions) | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------------- | :------ | :------ | :------ | :---- | | Commodity derivatives | $(76) | $(27) | $— | $(103) | | Interest rate derivatives | $— | $136 | $— | $136 | | Preferred Distribution Rate Reset Option and Other | $— | $— | $(147) | $(147) | | Total net derivative asset/(liability) | $(76) | $109 | $(147) | $(114) | Note 9—Related Party Transactions This note discloses transactions and balances with related parties of the company Related Party Transactions (in millions) | (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues from related parties | $10 | $10 | $22 | $17 | | Purchases and related costs from related parties | $87 | $95 | $184 | $185 | Related Party Balances (in millions) | (in millions) | June 30, 2022 | December 31, 2021 | | :------------ | :------------ | :---------------- | | Trade accounts receivable and other receivables, net from related parties | $47 | $41 | | Trade accounts payable to related parties | $55 | $72 | Note 10—Commitments and Contingencies This note details the company's significant commitments and potential contingent liabilities - The estimated undiscounted reserve for environmental liabilities (excluding Line 901) was $58 million at June 30, 2022, with $10 million short-term and $48 million long-term[95] - The aggregate total costs for the Line 901 incident are estimated at approximately $725 million as of June 30, 2022, including emergency response, clean-up, natural resource damages, fines, penalties, and third-party claims settlements[104] - As of June 30, 2022, the company had a remaining undiscounted gross liability of approximately $330 million related to the Line 901 incident. A receivable of approximately $240 million was recognized for probable insurance recoveries, with $260 million already collected out of a $500 million insurance program limit[105] - A class action settlement for $230 million has been reached to resolve claims from commercial fishermen and beachfront property owners related to the Line 901 incident, subject to court approval[101] Note 11—Segment Information This note provides financial data and other information for the company's operating segments - During Q4 2021, the company reorganized its operating segments into two: Crude Oil and NGL, and modified the definition of Segment Adjusted EBITDA to exclude amounts attributable to noncontrolling interests in consolidated joint venture entities[110] Segment Adjusted EBITDA (in millions) | Segment Adjusted EBITDA (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Crude Oil Segment Adjusted EBITDA | $494 | $553 | $946 | $1,027 | | NGL Segment Adjusted EBITDA | $120 | $21 | $281 | $90 | | Total Segment Adjusted EBITDA | $614 | $574 | $1,227 | $1,117 | Maintenance Capital Expenditures (in millions) | Maintenance Capital Expenditures (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Crude Oil | $25 | $23 | $45 | $52 | | NGL | $18 | $14 | $25 | $21 | | Total | $43 | $37 | $70 | $73 | Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of the company's financial condition, operating results, liquidity, and capital resources Introduction This introductory section sets the context for understanding the company's financial performance and position - The discussion provides an understanding of the company's financial condition and operations, to be read with historical Consolidated Financial Statements and the 2021 Annual Report on Form 10-K[117] Executive Summary This section provides a high-level overview of the company's key financial highlights and strategic context - PAGP's sole cash-generating assets are indirect investments in Plains All American Pipeline, L.P. (PAA), a major North American midstream service provider focused on crude oil and NGL[118][119] - Operating segments were reorganized in Q4 2021 into Crude Oil and NGL, and the Segment Adjusted EBITDA definition was modified to exclude noncontrolling interests in consolidated joint ventures[120] - Net income for the first six months of 2022 increased to $448 million from $181 million in 2021, driven by favorable NGL segment margins and higher crude oil pipeline volumes, partially offset by the sale of natural gas storage facilities and increased Line 901 incident costs[121] Results of Operations This section analyzes the company's consolidated financial performance, including revenues, expenses, and net income Consolidated Results This section presents a detailed breakdown of the company's overall financial performance for the reporting periods Consolidated Results (in millions, except per share data) | (in millions, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product sales revenues | $16,007 (↑66%) | $9,623 | $29,388 (↑66%) | $17,706 | | Services revenues | $352 (↑15%) | $307 | $665 (↑10%) | $607 | | Purchases and related costs | $(15,324) (↓65%) | $(9,277) | $(28,109) (↓69%) | $(16,669) | | Field operating costs | $(307) (↓22%) | $(252) | $(653) (↓39%) | $(471) | | General and administrative expenses | $(80) (↓8%) | $(74) | $(163) (↓15%) | $(142) | | Depreciation and amortization | $(243) (↓23%) | $(197) | $(475) (↓27%) | $(375) | | Gains/(losses) on asset sales and asset impairments, net | $3 (↑101%) | $(369) | $46 (↑112%) | $(370) | | Equity earnings in unconsolidated entities | $104 (↑215%) | $33 | $201 (↑66%) | $121 | | Interest expense, net | $(99) (↑7%) | $(107) | $(206) (↑3%) | $(213) | | Other income/(expense), net | $(118) () | $84 | $(155) () | $23 | | Income tax (expense)/benefit | $(56) () | $17 | $(91) (↓153%) | $(36) | | Net income/(loss) | $239 (↑213%) | $(212) | $448 (↑148%) | $181 | | Net (income)/loss attributable to noncontrolling interests | $(208) (↓245%) | $143 | $(395) (↓119%) | $(180) | | Net income/(loss) attributable to PAGP | $31 (↑145%) | $(69) | $53 () | $1 | | Basic and diluted net income/(loss) per Class A share | $0.16 (↑146%) | $(0.35) | $0.27 (N/A) | $— | Revenues and Purchases This section discusses the trends and drivers behind the company's total revenues and associated purchase costs - Consolidated revenues and purchases increased for the three and six months ended June 30, 2022, primarily due to higher commodity prices and volumes, as merchant activities are generally indexed to the same pricing indices[125][126] NYMEX WTI Crude Oil Price (dollars per barrel) | NYMEX WTI Crude Oil Price (dollars per barrel) | Low | High | Average | | :--------------------------------------------- | :-- | :--- | :------ | | Three Months Ended June 30, 2022 | $94 | $122 | $109 | | Three Months Ended June 30, 2021 | $59 | $74 | $66 | | Six Months Ended June 30, 2022 | $76 | $124 | $102 | | Six Months Ended June 30, 2021 | $48 | $74 | $62 | - Service revenues increased due to higher prices and volumes in 2022, partially offset by the sale of natural gas storage facilities in Q3 2021[127] Field Operating Costs This section provides an overview of the direct costs associated with the company's field operations - Discussion of field operating costs is deferred to the 'Analysis of Operating Segments' section[129] General and Administrative Expenses This section details the company's overhead expenses not directly tied to production or sales activities - General and administrative expenses increased due to higher employee-related costs (including equity-indexed compensation), increased office rent, reduced Canadian wage subsidies, and costs associated with the Permian JV formation[130] Gains/(Losses) on Asset Sales and Asset Impairments, Net This section reports the net impact of asset disposals and impairment charges on the company's financial results - A $40 million gain was recognized in Q1 2022 from the sale of land and buildings in California[131] - The 2021 net loss included a $475 million non-cash impairment charge for natural gas storage facilities classified as held for sale, partially offset by a $106 million gain from a crude oil pipeline asset exchange in Canada[132] Depreciation and Amortization This section explains the non-cash expenses related to the usage and obsolescence of tangible and intangible assets - Depreciation and amortization expense increased due to depreciation on assets contributed by Oryx Midstream Holdings LLC upon the formation of the Permian JV[133] Other Income/(Expense), Net This section covers various non-operating income and expense items impacting the company's net results Other Income/(Expense), Net (in millions) | (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gain/(loss) related to mark-to-market adjustment of Preferred Distribution Rate Reset Option | $(103) | $77 | $(147) | $9 | | Net gain/(loss) on foreign currency revaluation | $(16) | $6 | $(9) | $13 | | Other | $1 | $1 | $1 | $1 | | Total | $(118) | $84 | $(155) | $23 | Income Tax (Expense)/Benefit This section details the company's income tax provisions or benefits for the reporting periods - The unfavorable income tax variance for the three and six months ended June 30, 2022, was primarily due to increased income in Canadian operations[135] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures used by management to assess performance - Management uses Adjusted EBITDA and Adjusted EBITDA attributable to PAA as non-GAAP measures to evaluate performance, providing insights into core operating performance and aligning with financial analytical frameworks used by management and investors[136][138] Adjusted EBITDA (in millions) | (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted EBITDA | $704 (↑22%) | $579 | $1,394 (↑24%) | $1,125 | | Adjusted EBITDA attributable to PAA | $615 (↑7%) | $575 | $1,228 (↑10%) | $1,118 | Analysis of Operating Segments This section provides a detailed financial and operational analysis of the company's distinct business segments Crude Oil Segment This section analyzes the financial performance and operational metrics of the company's crude oil business segment - Crude Oil segment operations involve gathering, transporting, terminalling, and storing crude oil, supported by merchant activities and risk management strategies[143] Crude Oil Segment Operating Results (in millions) | Crude Oil Segment Adjusted EBITDA (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Segment Adjusted EBITDA | $494 (↓11%) | $553 | $946 (↓8%) | $1,027 | | Maintenance capital | $25 (↑9%) | $23 | $45 (↓13%) | $52 | Crude Oil Pipelines Tariff Volumes (thousands of barrels per day) | Crude Oil Pipelines Tariff Volumes (thousands of barrels per day) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Permian Basin | 5,434 (↑30%) | 4,189 | 5,324 (↑34%) | 3,972 | | Crude oil pipelines tariff activities total volumes | 7,417 (↑23%) | 6,006 | 7,289 (↑27%) | 5,719 | | Crude oil lease gathering purchases | 1,368 (↑1%) | 1,352 | 1,364 (↑8%) | 1,264 | - Crude Oil Segment Adjusted EBITDA decreased due to the sale of natural gas storage facilities in August 2021 and the monetization of contango hedges in 2021. This was partially offset by higher pipeline volumes and increased loss allowance revenue in 2022[149] - The Capline pipeline reversal and phase two of the Wink to Webster pipeline projects were completed and placed in service in Q1 2022, favorably impacting equity earnings and tariff volumes[152] NGL Segment This section analyzes the financial performance and operational metrics of the company's natural gas liquids business segment - NGL segment operations include natural gas processing, NGL fractionation, storage, transportation, and terminalling, generating revenue from fees and sales of extracted NGL products[155] NGL Segment Operating Results (in millions, except per barrel data) | NGL Segment Operating Results (in millions, except per barrel data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $570 (↑148%) | $230 | $1,304 (↑50%) | $869 | | Segment Adjusted EBITDA | $120 (↑471%) | $21 | $281 (↑212%) | $90 | | Maintenance capital | $18 (↑29%) | $14 | $25 (↑19%) | $21 | NGL Average Volumes (thousands of barrels per day) | NGL Average Volumes (thousands of barrels per day) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | NGL fractionation | 137 (↑6%) | 129 | 136 (—%) | 136 | | NGL pipeline tariff | 187 (↑3%) | 181 | 182 (—%) | 182 | | NGL sales | 101 (↓10%) | 112 | 134 (↓19%) | 165 | - NGL Segment Adjusted EBITDA increased significantly due to higher realized fractionation spreads and NGL sales prices, benefiting from increased ownership in Empress straddle plants and higher product gains[158][160] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations and fund operations General This section provides a general overview of the company's liquidity position and capital management strategies - Primary liquidity sources are cash flow from operating activities and borrowings under PAA's credit facilities or commercial paper program, supplemented by asset sales and equity/debt securities[163] - As of June 30, 2022, the company had a working capital deficit of $212 million but approximately $2.8 billion of total liquidity available, including $270 million in cash and cash equivalents[164] - PAA was in compliance with all debt covenants as of June 30, 2022, ensuring continued access to credit facilities and the commercial paper program[165] Cash Flow from Operating Activities This section details the cash generated or used by the company's primary business operations - Net cash provided by operating activities increased to $1.129 billion for the first six months of 2022, up from $1.023 billion in the comparable 2021 period, primarily driven by earnings from operations[168] Investing Activities This section outlines the cash flows related to the acquisition and disposal of long-term assets and investments Capital Expenditures (in millions) | Capital Expenditures (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------- | :----------------------------- | :----------------------------- | | Investment capital | $181 | $142 | | Maintenance capital | $70 | $73 | | Acquisition capital | $— | $32 | | Total | $251 | $247 | - Projected total investment capital for 2022 is approximately $330 million ($275 million net to interest), with about half allocated to Permian JV assets. Full-year maintenance capital is projected at $220 million ($210 million net to interest)[171] Proceeds from Divestitures (in millions) | Proceeds from Divestitures (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Proceeds from divestitures | $57 | $22 | Financing Activities This section describes the cash flows associated with debt, equity, and distributions to shareholders - Net borrowings under PAA credit facilities and commercial paper program were approximately $115 million for the six months ended June 30, 2022, primarily for capital investments, inventory purchases, and senior notes repayments[176] - PAA redeemed its $750 million senior notes due June 2022 on March 1, 2022, using cash on hand and commercial paper borrowings[178] - PAA repurchased 7.3 million common units for $74 million under its Common Equity Repurchase Program during the first six months of 2022, with $198 million remaining capacity[179] - A quarterly cash distribution of $0.2175 per Class A share ($0.87 annualized) was declared payable on August 12, 2022, unchanged from the prior quarter[183] Contingencies This section addresses potential future obligations or gains that depend on uncertain future events - For a discussion of contingencies, refer to Note 10 to the Condensed Consolidated Financial Statements[186] Commitments This section details the company's contractual obligations and future expenditures Purchase Obligations (in millions) | Purchase Obligations (in millions) as of June 30, 2022 | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | | :---------------------------------------------------- | :---------------- | :--- | :--- | :--- | :--- | :------------------ | :---- | | Crude oil, NGL and other purchases | $15,162 | $26,076 | $24,981 | $23,556 | $22,154 | $67,795 | $179,724 | - Outstanding letters of credit totaled approximately $34 million at June 30, 2022, down from $98 million at December 31, 2021[188] Recent Accounting Pronouncements This section discusses the impact of newly adopted or pending accounting standards on the financial statements - For information on recent accounting pronouncements, refer to Note 2 to the Condensed Consolidated Financial Statements[189] Forward-Looking Statements This section provides cautionary language regarding future-oriented information and associated risks - The report contains forward-looking statements reflecting current views on future events, subject to factors that could cause actual results to differ materially[191] - Key risk factors include general economic conditions, declines in crude oil demand and prices, fluctuations in refinery capacity, competition, negative societal sentiment towards hydrocarbons, environmental liabilities, natural disasters, regulatory changes, and capital market conditions[192] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's exposure to market risks, including commodity price and interest rate fluctuations Commodity Price Risk This section discusses the company's exposure to commodity price fluctuations and its hedging strategies - The company uses derivative instruments to hedge price risk for crude oil, natural gas, and NGL, managing exposures with futures, forwards, swaps, and options[196] Commodity Price Risk (in millions) | Commodity Price Risk (in millions) | Fair Value | Effect of 10% Price Increase | Effect of 10% Price Decrease | | :--------------------------------- | :--------- | :--------------------------- | :--------------------------- | | Crude oil | $(78) | $(10) | $10 | | Natural gas | $71 | $31 | $(31) | | NGL and other | $(96) | $(105) | $105 | | Total fair value | $(103) | N/A | N/A | Interest Rate Risk This section describes the company's exposure to changes in interest rates and its management approach - The company is exposed to interest rate risk from variable rate debt and forecasted fixed rate debt issuances, managed with interest rate derivatives[199] - As of June 30, 2022, the fair value of interest rate derivatives was a net asset of $136 million. A 10% increase or decrease in the forward LIBOR curve would result in a $22 million change in fair value[199] Preferred Distribution Rate Reset Option This section explains the embedded derivative related to the Preferred Distribution Rate Reset Option - The Preferred Distribution Rate Reset Option in PAA's Series A preferred units is an embedded derivative with a fair value liability of $147 million as of June 30, 2022. A 10% change in its fair value would impact by $15 million[200] Item 4. CONTROLS AND PROCEDURES This section describes the company's disclosure controls and internal control over financial reporting effectiveness Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - Management, with CEO and CFO participation, concluded that the company's disclosure controls and procedures (DCP) were effective as of June 30, 2022[202] Changes in Internal Control over Financial Reporting This section reports any material changes in the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the second quarter of 2022 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[203] PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. LEGAL PROCEEDINGS This section refers to the detailed discussion of the company's legal proceedings in Note 10 - Information regarding legal proceedings is included in Note 10 to the Condensed Consolidated Financial Statements[206] Item 1A. RISK FACTORS This section refers to the comprehensive discussion of risk factors outlined in the 2021 Annual Report on Form 10-K - For a discussion of risk factors, refer to Item 1A of the 2021 Annual Report on Form 10-K, as these and other factors could adversely affect the business, financial condition, and results of operations[207] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section confirms no unregistered sales of equity securities or related use of proceeds to report Item 3. DEFAULTS UPON SENIOR SECURITIES This section confirms no defaults upon senior securities to report for the period Item 4. MINE SAFETY DISCLOSURES This section indicates that mine safety disclosures are not applicable to the company's operations Item 5. OTHER INFORMATION This section confirms no other material information to report for the current period Item 6. EXHIBITS This section lists all documents filed as exhibits, including organizational, contractual, and certification materials - Exhibits include Certificate of Limited Partnership, Amended and Restated Agreement of Limited Partnership, Certificate of Formation, Limited Liability Company Agreements, Indentures, Shareholder and Registration Rights Agreement, Description of Securities, LTIP Grant Letter, and various certifications (Principal Executive Officer, Principal Financial Officer) and XBRL documents[212][215]