Plains All American Pipeline(PAA) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported first quarter adjusted EBITDA attributable to PAA of $718 million and reaffirmed the 2024 adjusted EBITDA guidance range of$2.625 billion to $2.725 billion [18][30] - Expected adjusted free cash flow for 2024 is$1.55 billion, with approximately $1.15 billion allocated to common and preferred distributions [20][21] Business Line Data and Key Metrics Changes - The Permian segment is projected to grow by 200,000 to 300,000 barrels a day, with a ramp-up expected in the second half of 2024 [18][29] - The NGL segment remains highly hedged with frac spreads at approximately$0.65 per gallon for 2024 [19] Market Data and Key Metrics Changes - The weighted average contract duration of the Permian long-haul portfolio is approximately five years, extending through 2028 [30] - New contracts or extensions on Cactus I, Cactus II, Basin, and Sunrise have been finalized, with rates in the range of $1.25 to$1.50 per barrel effective in September 2025 [31][48] Company Strategy and Development Direction - The company’s strategy focuses on capital discipline, generating free cash flow, and returning capital to investors while maintaining financial flexibility [29][55] - The company has acquired an additional 10% in the Saddlehorn Pipeline Company and the Mid-Con terminal asset for approximately $110 million, expected to generate returns above the weighted average cost of capital [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver on the 2024 plan, despite not providing formal guidance for 2026, indicating a broadly flat adjusted EBITDA outlook for that year [12][29] - Management noted that the recontracting efforts provide better visibility and clarity around the performance of the Permian long-haul portfolio [4][13] Other Important Information - The company plans to self-fund targeted growth and maintenance capital of$375 million and $230 million, respectively, net to PAA [21] - The company is actively monitoring its hedging strategy and is being opportunistic regarding future hedging opportunities [39][42] Q&A Session All Questions and Answers Question: Why not increase the 2024 guidance despite a strong Q1 and bolt-on acquisition? - Management stated that it is early in the year and they remain confident about being within the guidance range without getting ahead of themselves [47] Question: Can you comment on the rates for the contract extensions for Cactus II and Sunrise/Basin? - Management indicated that the extensions were associated with options to extend existing contracts, maintaining rates consistent with prior agreements [48] Question: How does the recontracting impact your longer-term capital allocation strategy? - Management confirmed that the capital allocation strategy remains unchanged, focusing on maximizing free cash flow and looking for high-return bolt-on opportunities [55] Question: Have you seen enough recovery from weather-related events impacting volumes? - Management noted that volumes have recovered from weather impacts, and the outlook remains in line with expectations [75] Question: How should we think about Permian production cadence for the remainder of the year? - Management expects 200,000 to 300,000 barrels a day of growth from the end of 2023 to the end of 2024, with increases anticipated in the back half of the year [84] Question: What is the impact of gas prices on your operations? - Management explained that low gas prices do not impact all shippers equally and can lead to capital allocation towards oilier areas, which can be beneficial [59] Question: Are there any assets with contract rates meaningfully above market? - Management confirmed that BridgeTex is the only asset with outstanding rates, but demand is increasing, which is positive for future performance [61]