Plains GP (US:PAGP)2024-05-03 16:45Financial Data and Key Metrics - The company reported Q1 2024 adjusted EBITDA of $718 million, reaffirming its 2024 adjusted EBITDA guidance range of $2.625 billion to $2.725 billion [43][47] - The company expects to generate $1.55 billion of adjusted free cash flow in 2024, including $110 million from bolt-on acquisitions, with $1.15 billion allocated to common and preferred distributions [27] - The NGL segment remains highly hedged with frac spreads at approximately $0.65 per gallon for 2024 [27] Business Line Data and Key Metrics - The Permian long-haul portfolio has seen increased contract volumes and extended terms, with a weighted-average contract duration of approximately five years, extending through 2028 [14] - The company expects Permian production to grow by 200,000 to 300,000 barrels per day in 2024, with growth weighted towards the second half of the year [43][80] - The company acquired an additional 10% in the Saddlehorn Pipeline Company LLC and the Mid-Con Terminal asset for $110 million, expected to generate returns above the weighted-average cost of capital [42] Market Data and Key Metrics - The company noted that the movement of barrels to the West Coast could create opportunities for its Mid-Continent pipelines [1] - The company expects the Permian Basin to grow by 200,000 to 300,000 barrels per day, with growth disproportionately coming from the Delaware Basin [81] - The company highlighted potential gas constraints in 2026 but expects new pipelines to be sanctioned, mitigating long-term impacts [51][59] Company Strategy and Industry Competition - The company remains focused on capital discipline, generating free cash flow, and returning capital to investors, with a multiyear targeted annual distribution increase of $0.15 per unit [31][34] - The company has re-contracted its Permian long-haul capacity, offering better visibility and clarity around contractual support, with rates consistent with market levels [10][32] - The company is actively monitoring its hedging profile and is being opportunistic, with minimal forward hedging due to low liquidity [20][69] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in meeting 2024 guidance, citing strong Q1 performance and bolt-on acquisitions, but remains cautiously optimistic about increasing guidance [38][39] - The company expects flat adjusted EBITDA in 2026 compared to 2024, driven by lower contracted rates offset by efficient growth investments [32][41] - Management highlighted the importance of maintaining flexibility in long-haul contracts to capture higher margins from uncontracted capacity over time [32][78] Other Important Information - The company plans to self-fund $375 million in growth capital and $230 million in maintenance capital in 2024, consistent with February guidance [13] - The company noted that weather-related challenges in Q1 impacted Permian volumes, but recovery has been in-line with expectations, with no change to the full-year outlook [50][101] - The company sees opportunities in the Canadian market, particularly with the startup of TMX, which could lead to more tariff-based opportunities and less market-based opportunities [66][88] Q&A Session Summary Question: Why not increase 2024 guidance given strong Q1 performance and bolt-on acquisitions? - Management stated it is early in the year and remains confident in meeting the current guidance range, with a cautiously optimistic outlook [38][39] Question: Are contract extensions for Cactus II and Sunrise/Basin consistent with prior rates? - The extensions were associated with existing contract options, and rates were consistent with prior levels [15][40] Question: How is the company thinking about hedging strategy for 2025? - The company is actively monitoring its hedging profile but is not currently hedging forward due to low liquidity and backwardated markets [20][69] Question: What is the impact of the Permian re-contracting on long-term capital allocation? - The capital allocation strategy remains unchanged, with a focus on high-return bolt-on acquisitions and maintaining financial flexibility [75] Question: How is the company managing gas constraints in 2026? - The company expects new pipelines to be sanctioned, mitigating long-term impacts, and sees potential upside from oilier areas in low gas price environments [51][59] Question: What is the outlook for Permian production growth in 2024? - The company expects 200,000 to 300,000 barrels per day of growth, with a back-half weighted ramp [43][80] Question: How is the startup of TMX impacting Canadian assets? - The company expects short-term blips but long-term benefits, with more tariff-based opportunities and potential for increased Canadian production [88][94]