Plains GP (PAGP) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Plains GP Holdings, L.P. as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021. It includes the balance sheets, statements of operations, comprehensive income, cash flows, and changes in partners' capital, along with detailed notes explaining the basis of presentation and significant accounting policies Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $5,576 | $6,140 | | Property and equipment, net | $14,569 | $14,909 | | Total assets | $28,788 | $29,978 | | Total current liabilities | $5,335 | $6,234 | | Total long-term liabilities | $9,381 | $9,567 | | Total partners' capital | $14,072 | $14,177 | | Total liabilities and partners' capital | $28,788 | $29,978 | - Total assets decreased to $28.79 billion as of September 30, 2022, from $29.98 billion at year-end 2021, primarily due to a decrease in current assets[11] Condensed Consolidated Statements of Operations Statement of Operations Highlights (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $14,336 | $10,776 | $44,390 | $29,089 | | Operating income/(loss) | $624 | $(40) | $1,324 | $246 | | Net income/(loss) | $420 | $(50) | $868 | $130 | | Net income/(loss) attributable to PAGP | $71 | $(24) | $124 | $(24) | | Basic and diluted EPS | $0.36 | $(0.12) | $0.64 | $(0.12) | - For the nine months ended September 30, 2022, the company reported net income of $868 million, a significant improvement from the $130 million net income in the same period of 2021. This was driven by a 52.6% increase in total revenues[13] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,070 | $1,358 | | Net cash (used in)/provided by investing activities | $(291) | $478 | | Net cash used in financing activities | $(1,605) | $(1,704) | - Cash from operations increased by 52.4% YoY to $2.07 billion for the first nine months of 2022. Cash used in investing activities was $291 million, compared to cash provided of $478 million in the prior year, mainly due to lower proceeds from asset sales[19] Notes to the Condensed Consolidated Financial Statements - PAGP's principal sources of cash flow are derived from its indirect investment in Plains All American Pipeline, L.P. (PAA), a major midstream service provider in North America with operations in Crude Oil and NGL segments[23][25] - In Q4 2021, the company reorganized its reporting structure from three segments (Transportation, Facilities, Supply and Logistics) into two: Crude Oil and NGL. All prior period data has been recast to reflect this change[34][114] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition, operating results, and liquidity. Key highlights include increased net income driven by favorable NGL margins and higher crude oil pipeline volumes. The report details segment performance, capital allocation, including a planned distribution increase, and liquidity status, noting total available liquidity of $3.3 billion Executive Summary - For the first nine months of 2022, net income rose to $868 million from $130 million in the prior-year period. This increase was primarily driven by more favorable margins in the NGL segment and increased earnings from crude oil pipelines due to higher volumes and prices[126] - Results for the first nine months of 2022 included a $46 million net gain on asset sales, contrasting with a $592 million net loss on asset sales and impairments in the same period of 2021[127] Results of Operations Crude Oil Segment Performance (in millions) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Segment Adjusted EBITDA | $536 | $459 | $1,482 | $1,486 | - The Crude Oil segment's Adjusted EBITDA for the first nine months of 2022 was flat compared to 2021, as higher pipeline volumes and favorable Canadian differentials were offset by the prior year's monetization of contango hedges and the sale of natural gas storage assets[156] NGL Segment Performance (in millions) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Segment Adjusted EBITDA | $86 | $54 | $367 | $144 | - The NGL segment's Adjusted EBITDA increased by 155% for the first nine months of 2022, driven by higher realized frac spreads and increased NGL mix supply from its straddle plants[164] Liquidity and Capital Resources - As of September 30, 2022, the company had approximately $3.3 billion of total liquidity, comprising $2.6 billion in available credit facility capacity and $625 million in cash and cash equivalents[171] - Projected capital expenditures for the full year 2022 are approximately $330 million for investment capital and $220 million for maintenance capital[176] - On March 1, 2022, PAA redeemed its 3.65%, $750 million senior notes due June 2022, using cash on hand and borrowings under its commercial paper program[182] - The company announced its intention to recommend a $0.20 per unit/share annualized increase to its distribution for Q4 2022, to be paid in February 2023 if approved[191] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to commodity price risk (crude oil, natural gas, NGL), interest rate risk, and risk from an embedded derivative in its PAA Series A preferred units. It uses derivative instruments to manage these risks. A 10% change in commodity prices would have a varied impact on the fair value of its derivative portfolio, while a 10% change in the forward LIBOR curve would change the fair value of interest rate derivatives by $17 million - The company is exposed to market risks from commodity prices, interest rates, and an embedded derivative (Preferred Distribution Rate Reset Option). It uses derivatives like futures, swaps, and options to hedge these risks[204][205][208][209] Commodity Derivative Sensitivity to a 10% Price Change (in millions) | Commodity | Fair Value (Sep 30, 2022) | Effect of 10% Price Increase | Effect of 10% Price Decrease | | :--- | :--- | :--- | :--- | | Crude oil | $(40) | $(21) | $21 | | Natural gas | $49 | $24 | $(24) | | NGL and other | $223 | $(75) | $75 | | Total | $232 | | | - A 10% increase/decrease in the forward LIBOR curve would result in a $17 million increase/decrease in the fair value of the company's interest rate derivatives[208] - The embedded derivative related to the PAA Series A preferred units had a liability fair value of $196 million. A 10% increase in the ten-year U.S. Treasury rate would increase this liability by $36 million[209] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures (DCP) and concluded they were effective as of September 30, 2022. There were no material changes to the company's internal control over financial reporting during the third quarter of 2022 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[212] - No changes in internal control over financial reporting occurred during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[213] PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 10 of the financial statements for details on legal proceedings. The most significant matter is the Line 901 incident from 2015. As of September 30, 2022, the estimated aggregate cost is approximately $730 million. A class action lawsuit was settled for $230 million, and a derivative lawsuit was also settled. Several other individual lawsuits remain pending - The company estimates the aggregate total cost for the May 2015 Line 901 incident will be approximately $730 million, which includes response costs, damages, fines, and settlements[108] - A class action lawsuit related to the Line 901 incident was settled for $230 million, with the payment made on October 27, 2022[104] - A unitholder derivative lawsuit related to the Line 901 incident was settled, with court approval on November 1, 2022. The settlement involves an insurer payment of approximately $1.0 million for attorneys' fees and covenants regarding board oversight[105] Risk Factors This section refers to the risk factors detailed in the company's 2021 Annual Report on Form 10-K. No new or updated risk factors are presented in this quarterly report - For a discussion of risk factors, the report refers to Item 1A of the company's 2021 Annual Report on Form 10-K[217] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter of 2022, the company issued 21,874 Class A shares in connection with the exercise of Exchange Rights by certain legacy owners. This issuance was exempt from registration under the Securities Act of 1933. There were no issuer purchases of equity securities during the period - During Q3 2022, certain legacy owners exercised their Exchange Right, resulting in the issuance of 21,874 Class A shares. This transaction was exempt from registration requirements[218] - The company reported no issuer purchases of its equity securities during the quarter[219] Other Information There is no other information to report for this item - The company reported no information for this item[222] Exhibits This section lists all exhibits filed with the Form 10-Q, including amendments to credit agreements, forms of LTIP grant letters, and certifications by the CEO and CFO - Exhibits filed with the report include amendments to credit agreements, forms of Long-Term Incentive Plan (LTIP) grant letters, and required CEO and CFO certifications[224][226]