Plains GP (PAGP) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2022 Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Plains GP Holdings, L.P. and its subsidiaries for the quarter ended March 31, 2022, including balance sheets, statements of operations, cash flows, and detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and partners' capital as of March 31, 2022, and December 31, 2021 | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :-------------------------------- | :----------------------------- | :------------------------------ | | ASSETS | | | | Total current assets | $8,100 | $6,140 | | Property and equipment, net | $14,869 | $14,909 | | Total assets | $31,991 | $29,978 | | LIABILITIES AND PARTNERS' CAPITAL | | | | Total current liabilities | $8,572 | $6,234 | | Total long-term liabilities | $9,218 | $9,567 | | Total partners' capital | $14,201 | $14,177 | | Total liabilities and partners' capital | $31,991 | $29,978 | - Total assets increased by $2,013 million from December 31, 2021, to March 31, 2022, primarily driven by an increase in trade accounts receivable and other receivables, net[11] - Total current liabilities increased by $2,338 million, mainly due to an increase in trade accounts payable[11] Condensed Consolidated Statements of Operations This section presents the company's financial performance, detailing revenues, costs, and net income for the three months ended March 31, 2022, and 2021 | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Product sales revenues | $13,381 | $8,083 | | Services revenues | $313 | $300 | | Total revenues | $13,694 | $8,383 | | Total costs and expenses | $13,403 | $7,859 | | Operating income | $291 | $524 | | Net income | $209 | $392 | | Net income attributable to PAGP | $22 | $70 | | Basic and diluted net income per Class A share | $0.11 | $0.36 | - Total revenues increased by $5,311 million (63.3%) year-over-year, primarily driven by product sales revenues[13] - Net income attributable to PAGP decreased by $48 million (68.6%) year-over-year, resulting in a significant drop in basic and diluted net income per Class A share[13] Condensed Consolidated Statements of Comprehensive Income This section outlines the company's comprehensive income, including net income and other comprehensive income components, for the three months ended March 31, 2022, and 2021 | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net income | $209 | $392 | | Other comprehensive income | $74 | $108 | | Comprehensive income | $283 | $500 | | Comprehensive income attributable to PAGP | $43 | $99 | - Comprehensive income attributable to PAGP decreased by $56 million (56.6%) year-over-year[15] Condensed Consolidated Statements of Changes in Accumulated Other Comprehensive Income/(Loss) This section details changes in accumulated other comprehensive income or loss, including derivative instruments and translation adjustments, for the three months ended March 31, 2022 | Component | Balance at Dec 31, 2021 (in millions) | Total Period Activity (3M ended Mar 31, 2022) (in millions) | Balance at Mar 31, 2022 (in millions) | | :------------------------ | :------------------------------------ | :------------------------------------------------------- | :------------------------------------ | | Derivative Instruments | $(208) | $35 | $(173) | | Translation Adjustments | $(642) | $40 | $(602) | | Other | $(3) | $(1) | $(4) | | Total | $(853) | $74 | $(779) | - Accumulated Other Comprehensive Income/(Loss) improved from $(853) million at December 31, 2021, to $(779) million at March 31, 2022, primarily due to unrealized gains on hedges and currency translation adjustments[17] Condensed Consolidated Statements of Cash Flows This section presents the company's cash flow activities from operations, investing, and financing for the three months ended March 31, 2022, and 2021 | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $339 | $789 | | Net cash used in investing activities | $(81) | $(108) | | Net cash used in financing activities | $(596) | $(686) | | Net decrease in cash and cash equivalents | $(335) | $(5) | | Cash and cash equivalents, end of period | $121 | $58 | - Net cash provided by operating activities decreased significantly from $789 million in Q1 2021 to $339 million in Q1 2022, primarily due to negative working capital changes[19][165] - Net cash used in financing activities decreased by $90 million, mainly due to net borrowings under the PAA commercial paper program in 2022 compared to net repayments in 2021, partially offset by senior notes repayments[19][172][173][174] Condensed Consolidated Statements of Changes in Partners' Capital This section details changes in partners' capital, including net income and distributions, for the three months ended March 31, 2022 | Metric | Balance at Dec 31, 2021 (in millions) | Net Income (in millions) | Distributions (in millions) | Balance at Mar 31, 2022 (in millions) | | :---------------------- | :------------------------------------ | :----------------------- | :-------------------------- | :------------------------------------ | | Class A Shareholders | $1,533 | $22 | $(35) | $1,540 | | Noncontrolling Interests | $12,644 | $187 | $(200) | $12,661 | | Total Partners' Capital | $14,177 | $209 | $(235) | $14,201 | - Total partners' capital increased slightly from $14,177 million to $14,201 million, reflecting net income partially offset by distributions[20] Note 1—Organization and Basis of Consolidation and Presentation This note describes Plains GP Holdings, L.P.'s organizational structure, its relationship with Plains All American Pipeline, L.P., and the basis for consolidating financial statements - Plains GP Holdings, L.P. (PAGP) is a Delaware limited partnership taxed as a corporation, whose principal cash flow sources are derived from an indirect investment in Plains All American Pipeline, L.P. (PAA)[21] - PAGP owns 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, owns approximately 31% of PAA's total outstanding common and Series A preferred units[22] - PAA operates as one of the largest midstream service providers in North America, focusing on crude oil and natural gas liquids (NGL) through extensive pipeline transportation, terminalling, storage, and gathering assets[23] - PAGP consolidates PAA and AAP, determining them to be Variable Interest Entities (VIEs) where PAGP is the primary beneficiary due to its power to direct activities and absorb significant losses/benefits[31] - Segment reporting was reorganized in Q4 2021 from three segments (Transportation, Facilities, Supply and Logistics) to two (Crude Oil and NGL), with prior period data recast for comparability[32] Note 2—Summary of Significant Accounting Policies This note outlines the significant accounting policies applied in preparing the unaudited financial statements, including cash and cash equivalents, and the adoption of new accounting standards - The financial statements are unaudited and prepared in accordance with SEC interim reporting instructions, including normal recurring adjustments[28] | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :------------------------------------ | :----------------------------- | :------------------------------ | | Cash and cash equivalents | $117 | $452 | | Restricted cash | $4 | $4 | | Total cash and cash equivalents and restricted cash | $121 | $456 | - PAGP adopted ASU 2020-06, simplifying accounting for convertible instruments, effective January 1, 2022, with no material impact on financial position, results of operations, or cash flows[35] Note 3—Revenues and Accounts Receivable This note details the company's revenue recognition by segment and type, along with information on accounts receivable and remaining performance obligations | Revenue Type (Crude Oil Segment) | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Sales | $12,857 | $7,726 | | Transportation | $155 | $90 | | Terminalling, Storage and Other | $90 | $130 | | Total Crude Oil segment revenues | $13,102 | $7,946 | | Revenue Type (NGL Segment) | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Sales | $845 | $772 | | Transportation | $9 | $7 | | Terminalling, Storage and Other | $25 | $22 | | Total NGL segment revenues | $879 | $801 | - Total revenues from contracts with customers increased from $8,747 million in Q1 2021 to $13,981 million in Q1 2022, primarily driven by Crude Oil segment sales[38] | Remaining Performance Obligations (as of March 31, 2022, in millions) | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | | :---------------------------------------------------------------- | :---------------- | :--- | :--- | :--- | :--- | :------------------ | :---- | | Pipeline revenues supported by minimum volume commitments | $132 | $174 | $158 | $134 | $87 | $379 | $1,064 | | Terminalling, storage and other agreement revenues | $201 | $223 | $173 | $81 | $61 | $517 | $1,256 | | Total | $333 | $397 | $331 | $215 | $148 | $896 | $2,320 | - Trade accounts receivable and other receivables, net, increased from $4,705 million at December 31, 2021, to $7,136 million at March 31, 2022, with substantially all balances less than 30 days past their invoice date[11][44] Note 4—Net Income Per Class A Share This note provides a breakdown of net income attributable to PAGP and the calculation of basic and diluted net income per Class A share | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income attributable to PAGP (in millions) | $22 | $70 | | Basic and diluted weighted average Class A shares outstanding (in millions) | 194 | 194 | | Basic and diluted net income per Class A share | $0.11 | $0.36 | - Basic and diluted net income per Class A share decreased from $0.36 in Q1 2021 to $0.11 in Q1 2022, reflecting the lower net income attributable to PAGP[49] - Potentially dilutive AAP units and AAP Management Units did not have a dilutive effect on basic net income per Class A share for both periods[48] Note 5—Inventory, Linefill and Long-term Inventory This note details the composition and carrying values of inventory, linefill, and long-term inventory as of March 31, 2022, and December 31, 2021 | Inventory Type | March 31, 2022 (Carrying Value in millions) | December 31, 2021 (Carrying Value in millions) | | :------------------- | :------------------------------------------ | :--------------------------------------------- | | Inventory subtotal | $527 | $783 | | Linefill subtotal | $919 | $907 | | Long-term inventory subtotal | $374 | $253 | | Total | $1,820 | $1,943 | - Total inventory decreased from $1,943 million at December 31, 2021, to $1,820 million at March 31, 2022, primarily due to a decrease in crude oil and NGL inventory[50] - Crude oil inventory volumes decreased from 8,041 thousand barrels to 4,711 thousand barrels, while its price per unit increased from $67.65 to $89.15[50] Note 6—Debt This note provides a breakdown of the company's short-term and long-term debt, including details on senior notes and outstanding letters of credit | Debt Type | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :-------------------- | :----------------------------- | :------------------------------ | | Total short-term debt | $900 | $822 | | Total long-term debt | $7,986 | $8,398 | | Total debt | $8,886 | $9,220 | - Total debt decreased by $334 million from December 31, 2021, to March 31, 2022, primarily due to repayments of PAA senior notes[51][53] - PAA redeemed its 3.65%, $750 million senior notes due June 2022 during the three months ended March 31, 2022[53] - Outstanding letters of credit decreased from $98 million at December 31, 2021, to $34 million at March 31, 2022[54] Note 7—Partners' Capital and Distributions This note details the composition of partners' capital, including outstanding shares and distributions, and information on noncontrolling interests | Share Type | Outstanding at Dec 31, 2021 | Outstanding at Mar 31, 2022 | | :---------------- | :-------------------------- | :-------------------------- | | Class A Shares | 194,192,777 | 194,228,477 | | Class B Shares | 46,645,514 | 46,802,881 | | Class C Shares | 534,596,831 | 532,285,426 | | Distribution Payment Date | Distributions to Class A Shareholders (in millions) | Distributions per Class A Share | | :------------------------ | :------------------------------------------------ | :------------------------------ | | May 13, 2022 (payable) | $42 | $0.2175 | | February 14, 2022 (paid) | $35 | $0.1800 | - PAA repurchased 2.4 million common units for $25 million during Q1 2022, reducing outstanding units, with remaining capacity under the program at $247 million[58] - Noncontrolling interests in subsidiaries include 69% of PAA's common and Series A preferred units, 100% of PAA's Series B preferred units, 19% of AAP, 35% of Permian JV, and 33% of Red River LLC[57] Note 8—Derivatives and Risk Management Activities This note describes the company's use of derivative instruments to manage commodity price, interest rate, and currency exchange rate risks, and their impact on financial results - The company uses derivative instruments to manage commodity price risk, interest rate risk, and currency exchange rate risk, primarily for hedging purposes rather than speculation[62] | Commodity Derivative Impact on Earnings (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Product sales revenues | $(213) | $(314) | | Field operating costs | $13 | $39 | | Net loss from commodity derivative activity | $(200) | $(275) | - Net broker receivable from exchange-traded derivatives increased from $259 million at December 31, 2021, to $373 million at March 31, 2022, reflecting higher initial and variation margins[68] - Interest rate derivatives, designated as cash flow hedges, resulted in a net unrealized gain of $32 million in AOCI for Q1 2022, with a total net loss of $173 million deferred in AOCI as of March 31, 2022[71][72] - The Preferred Distribution Rate Reset Option, an embedded derivative, resulted in a $44 million loss recognized in Q1 2022, increasing its fair value liability from less than $1 million to $44 million[73] Note 9—Related Party Transactions This note provides details on revenues, purchases, and receivables/payables arising from transactions with related parties | Metric (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenues from related parties | $12 | $7 | | Purchases and related costs from related parties | $97 | $90 | | Metric (in millions) | March 31, 2022 | December 31, 2021 | | :------------------------------------------------ | :------------- | :---------------- | | Trade accounts receivable and other receivables, net from related parties | $56 | $41 | | Trade accounts payable to related parties | $75 | $72 | - Transactions with related parties, including sales, transportation revenues, and purchases, are conducted at market-approximate rates[83] Note 10—Commitments and Contingencies This note outlines the company's commitments and contingencies, including environmental liabilities, legal proceedings, and settlements related to the Line 901 incident - The company accrues undiscounted liabilities for probable and reasonably estimable loss contingencies, including legal fees[85] - Estimated undiscounted reserve for environmental liabilities (excluding Line 901) totaled $59 million at March 31, 2022, with $11 million probable of recovery from insurance/third parties[92] - For the Line 901 incident, aggregate total costs are estimated at $725 million as of March 31, 2022, including emergency response, clean-up, natural resource damages, fines, and settlements[101] - A Class Action Settlement for $230 million has been agreed in principle, and a Derivative Settlement for $2.0 million in attorneys' fees (paid by insurers) has been reached, both subject to court approval[98][99] - As of March 31, 2022, a remaining undiscounted gross liability of $335 million related to Line 901 is recognized, with approximately $240 million receivable from insurance carriers, net of deductibles[102] Note 11—Segment Information This note provides financial information by operating segment, including Adjusted EBITDA for Crude Oil and NGL segments, and reconciliation to net income attributable to PAGP - Operating segments were reorganized in Q4 2021 into Crude Oil and NGL, with Segment Adjusted EBITDA modified to exclude amounts attributable to noncontrolling interests in consolidated joint ventures[106] | Segment Adjusted EBITDA (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Crude Oil Segment Adjusted EBITDA | $453 | $474 | | NGL Segment Adjusted EBITDA | $161 | $69 | | Total Segment Adjusted EBITDA | $614 | $543 | - Total Segment Adjusted EBITDA increased by $71 million (13.1%) year-over-year, driven by a significant increase in the NGL segment, partially offset by a decrease in Crude Oil[109] | Reconciliation Item (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Segment Adjusted EBITDA | $614 | $543 | | Adjustments (net) | $(48) | $(151) | | Income before tax | $244 | $445 | | Net income attributable to PAGP | $22 | $70 | Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operating results for the three months ended March 31, 2022, covering consolidated and segment performance, liquidity, and capital resources Executive Summary This summary highlights key financial outcomes for Q1 2022, including net income changes and the primary drivers behind them, and PAGP's core business model - Net income for the first three months of 2022 was $209 million, a decrease from $392 million in the comparable 2021 period[119] - The decrease in net income was primarily driven by mark-to-market impacts of derivative instruments, sale of natural gas storage facilities, and higher field operating costs (including Line 901 incident costs), partially offset by favorable NGL margins and increased pipeline tariff volumes[119] - PAGP's sole cash-generating assets are indirect investments in Plains All American Pipeline, L.P. (PAA), a major North American midstream service provider for crude oil and NGL[116][117] Consolidated Results This section provides a detailed analysis of the company's consolidated financial performance, including revenues, expenses, and net income, with comparative figures | Metric | 3M Ended Mar 31, 2022 (in millions) | 3M Ended Mar 31, 2021 (in millions) | Variance ($) | Variance (%) | | :------------------------------------ | :---------------------------------- | :---------------------------------- | :----------- | :----------- | | Product sales revenues | $13,381 | $8,083 | $5,298 | 66% | | Services revenues | $313 | $300 | $13 | 4% | | Purchases and related costs | $(12,785) | $(7,392) | $(5,393) | (73)% | | Field operating costs | $(346) | $(219) | $(127) | (58)% | | General and administrative expenses | $(83) | $(68) | $(15) | (22)% | | Depreciation and amortization | $(231) | $(178) | $(53) | (30)% | | Gains/(losses) on asset sales and impairments, net | $42 | $(2) | $44 | ** | | Equity earnings in unconsolidated entities | $97 | $88 | $9 | 10% | | Interest expense, net | $(107) | $(107) | $0 | 0% | | Other expense, net | $(37) | $(60) | $23 | 38% | | Income tax expense | $(35) | $(53) | $18 | 34% | | Net income | $209 | $392 | $(183) | (47)% | | Net income attributable to PAGP | $22 | $70 | $(48) | (69)% | | Basic and diluted net income per Class A share | $0.11 | $0.36 | $(0.25) | (69)% | - Product sales revenues and purchases increased significantly due to higher commodity prices and volumes in Q1 2022, with NYMEX WTI crude oil prices averaging $95/barrel compared to $58/barrel in Q1 2021[124] - Field operating costs increased by $127 million, primarily due to gains related to hedged power costs from Winter Storm Uri in Q1 2021 and additional estimated costs for the Line 901 incident in Q1 2022[119] - A $40 million gain was recognized from the sale of land and buildings in California during Q1 2022[129] | Non-GAAP Financial Measure (in millions) | 3M Ended Mar 31, 2022 | 3M Ended Mar 31, 2021 | Variance ($) | Variance (%) | | :--------------------------------------- | :-------------------- | :-------------------- | :----------- | :----------- | | Net income | $209 | $392 | $(183) | (47)% | | Adjusted EBITDA | $690 | $546 | $144 | 26% | | Adjusted EBITDA attributable to PAA | $614 | $543 | $71 | 13% | - Adjusted EBITDA increased by 26% to $690 million, and Adjusted EBITDA attributable to PAA increased by 13% to $614 million, indicating stronger core operating performance despite lower GAAP net income[137] Analysis of Operating Segments This section analyzes the financial performance of the Crude Oil and NGL operating segments, detailing Adjusted EBITDA and average volumes - The Crude Oil segment's Adjusted EBITDA decreased by 4% to $453 million, primarily due to the sale of natural gas storage facilities and Q1 2021 gains from Winter Storm Uri, partially offset by higher pipeline tariff volumes[143][146] | Crude Oil Segment Average Volumes (in thousands of barrels per day) | 3M Ended Mar 31, 2022 | 3M Ended Mar 31, 2021 | Variance | Variance (%) | | :---------------------------------------------------------------- | :-------------------- | :-------------------- | :------- | :----------- | | Crude oil pipelines tariff activities total volumes | 7,159 | 5,430 | 1,729 | 32% | | Crude oil lease gathering purchases | 1,361 | 1,174 | 187 | 16% | - The NGL segment's Adjusted EBITDA increased by 133% to $161 million, driven by higher realized fractionation spreads and NGL sales prices, despite lower NGL sales volumes[156][159] | NGL Segment Average Volumes (in thousands of barrels per day) | 3M Ended Mar 31, 2022 | 3M Ended Mar 31, 2021 | Variance | Variance (%) | | :------------------------------------------------------------ | :-------------------- | :-------------------- | :------- | :----------- | | NGL fractionation | 134 | 144 | (10) | (7)% | | NGL pipeline tariff | 176 | 183 | (7) | (4)% | | NGL sales | 168 | 220 | (52) | (24)% | - The Permian JV, formed in October 2021, added approximately 640 thousand barrels per day of additional tariff volumes in the Permian Basin for the Crude Oil segment in Q1 2022[150] Liquidity and Capital Resources This section discusses the company's liquidity position, cash flow activities, capital expenditures, and financing strategies - As of March 31, 2022, the company had approximately $2.4 billion in total liquidity, including $117 million in cash and cash equivalents and $2.284 billion in available capacity under PAA's credit facilities and commercial paper program[162] - Net cash provided by operating activities decreased from $789 million in Q1 2021 to $339 million in Q1 2022, negatively impacted by working capital changes[165] | Capital Expenditures (in millions) | 3M Ended Mar 31, 2022 | 3M Ended Mar 31, 2021 | | :--------------------------------- | :-------------------- | :-------------------- | | Investment capital | $109 | $85 | | Maintenance capital | $27 | $35 | | Total | $136 | $120 | - Total investment capital for 2022 is projected at $330 million ($275 million net to interest), with approximately half allocated to Permian JV assets; maintenance capital is projected at $220 million ($210 million net to interest)[167] - Net borrowings under PAA's credit facilities and commercial paper program were $382 million in Q1 2022, compared to net repayments of $576 million in Q1 2021[172][173] - A quarterly cash distribution of $0.2175 per Class A share ($0.87 annualized) was declared for Q1 2022, an increase of $0.0375 per share from the prior quarter[179] | Purchase Obligations (in millions) | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | | :--------------------------------- | :---------------- | :--- | :--- | :--- | :--- | :------------------ | :---- | | Crude oil, NGL and other purchases | $23,259 | $26,253 | $25,271 | $24,414 | $23,148 | $72,905 | $195,250 | Recent Accounting Pronouncements This section reports on the adoption of new accounting pronouncements and their impact on the company's financial statements - No new accounting pronouncements became effective or were issued during Q1 2022 that are of significance or potential significance, other than the adoption of ASU 2020-06, which had no material impact[34][35] Forward-Looking Statements This section outlines the nature of forward-looking statements within the report and identifies key factors that could cause actual results to differ materially - The report contains forward-looking statements regarding future events, business strategy, plans, and objectives, based on reasonable assumptions[188] - Key factors that could cause actual results to differ materially include global crude oil demand and prices, competition, societal sentiment towards hydrocarbons, market structure changes, general economic conditions, regulatory impacts, environmental liabilities, and operational risks[189][191] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the company's exposure to market risks, including commodity price, interest rate, and currency exchange rate risks, and its strategies for managing these through derivative instruments Commodity Price Risk This section describes the company's exposure to commodity price fluctuations and its use of derivatives to hedge crude oil, natural gas, and NGL price risks - The company uses derivatives to hedge price risk for crude oil (anticipated purchases/sales, stored inventory, basis differentials), natural gas (processing assets, operational fuel gas), and NGL (commercial activities, sales of specification products, stored inventory)[193] | Commodity | Fair Value (in millions) | Effect of 10% Price Increase (in millions) | Effect of 10% Price Decrease (in millions) | | :---------- | :----------------------- | :----------------------------------------- | :----------------------------------------- | | Crude oil | $(62) | $(40) | $40 | | Natural gas | $130 | $34 | $(34) | | NGL and other | $(217) | $(95) | $95 | | Total fair value | $(149) | | | - The fair value of commodity derivatives was a net liability of $149 million as of March 31, 2022; a 10% price increase would result in a $101 million decrease in fair value, while a 10% decrease would result in a $101 million increase[194] Interest Rate Risk This section outlines the company's exposure to interest rate fluctuations on variable rate debt and its use of interest rate derivatives for hedging - The company is exposed to interest rate risk from variable rate debt and forecasted fixed rate debt issuances, managed through interest rate derivatives (forward starting interest rate swaps and treasury locks)[196] - Variable rate debt outstanding at March 31, 2022, was approximately $382 million, with an average interest rate of 1.0% during Q1 2022[196] - The fair value of interest rate derivatives was a net asset of $97 million as of March 31, 2022; a 10% increase or decrease in the forward LIBOR curve would impact fair value by $18 million[196] Preferred Distribution Rate Reset Option This section describes the Preferred Distribution Rate Reset Option as an embedded derivative and its fair value liability - The Preferred Distribution Rate Reset Option in PAA's Series A preferred units is an embedded derivative, bifurcated and recorded at fair value as a liability[197] - Its fair value was a $44 million liability as of March 31, 2022; a 10% change in fair value would result in a $4 million impact[197] Item 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - Management, under the supervision of the CEO and CFO, concluded that the company's disclosure controls and procedures (DCP) were effective as of March 31, 2022[199] - There were no changes in internal control over financial reporting during Q1 2022 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[200] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. LEGAL PROCEEDINGS This section incorporates by reference the detailed discussion of legal proceedings from Note 10, covering general legal and environmental matters, and the Line 901 incident - Information on legal proceedings is incorporated by reference from Note 10 to the Condensed Consolidated Financial Statements[203] Item 1A. RISK FACTORS This section refers to the comprehensive discussion of risk factors in the 2021 Annual Report on Form 10-K, highlighting potential adverse impacts on business and financial condition - A discussion of risk factors is provided in Item 1A of the 2021 Annual Report on Form 10-K[204] - These risks, along with other unknown or unpredictable factors, could adversely affect the company's business, financial condition, and results of operations[204] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the issuance of Class A shares through the exercise of Exchange Rights, which are exempt from registration and non-dilutive - During Q1 2022, 35,700 Class A shares were issued due to the exercise of Exchange Rights by Legacy Owners or their permitted transferees[205] - These issuances were exempt from registration requirements under Section 4(a)(2) of the Securities Act of 1933 and were not dilutive, as the company received equivalent AAP units and general partner units[205] Item 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[206] Item 4. MINE SAFETY DISCLOSURES This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[207] Item 5. OTHER INFORMATION This section states that there is no other information to report under this item - No other information is reported under this item[208] Item 6. EXHIBITS This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, debt indentures, shareholder agreements, certifications, and XBRL data - The exhibits include various organizational documents, debt indentures, shareholder agreements, and certifications[210][211] - Certifications of the Principal Executive Officer and Principal Financial Officer are filed as Exhibits 31.1, 31.2, 32.1, and 32.2[211] - XBRL Instance Document and Taxonomy Extension Documents are included as Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, and 104[213]