Plains All American Pipeline LP (PAA)
Plains All American Pipeline LP (PAA) transports, stores, and markets crude oil. It also transports, processes, stores, and markets natural gas liquids (or NGLs) and owns and operates natural gas storage facilities. The company operates in three segments: transportation, facilities, and supply and logistics.
The transportation segment transports crude oil and NGLs through pipelines, gathering systems, trucks, and barges. The facilities segment provides storage, terminaling, and throughput services for crude oil, refined products, and NGLs and natural gas, and it also provides NGL fractionation and isomerization as well as natural gas and condensate processing services. The supply and logistics segment purchases crude oil and NGL from producers, refiners, processors, and other marketers. This segment also stores inventory and NGLs, resells or exchanges crude oil and NGLs, and transports crude oil and NGLs on trucks, barges, railcars, pipelines, and ocean-going vessels.
As of April 7, 2014, the company had a market cap of ~$20 billion and an enterprise value of ~$28 billion. PAA’s revenue for LTM (the last 12 months) as of December 31, 2013, totaled $42 billion. Adjusted EBITDA over the same period was $2 billion and distributable cash flow amounted to $1.6 billion. At a current unit price of $55.43, and given the latest quarterly distribution of $0.63 per unit, PAA has a current yield of ~4 %.
PAA as a component of AMLP
Plains All American Pipeline LP (PAA) is the third largest component of the Alerian MLP ETF (AMLP) and is weighted at 7%. So factors affecting PAA would significantly affect AMLP as well. Other MLPs that are a part of AMLP include Kinder Morgan Partners (KMP), Enterprise Product Partners (EPD), and Magellan Midstream Partners (MMP).
Positive growth drivers
PAA has a presence in most major shale crude oil plays, including the Bakken, Eagle Ford, and Permian. Oil production is expected to continue to grow in the US, particularly in these regions, which is a positive for PAA’s crude logistics and transportation assets. PAA expects to grow 2014 distributions by ~10% over 2013 distributions.
Negative growth drivers and risks
Government regulation has greatly affected the oil and gas industries in recent months. There’s been strong political opposition to new large projects such as pipelines and refineries in North America. The most recent example of this has been the blockage of the Keystone XL pipeline, which would run from Canada to the Gulf Coast. Plus, news of oil leaks from pipelines operated by different companies has surfaced in areas ranging from Utah to the Gulf Coast region. So concern regarding increasing regulation has increased.
PAA’s rail services serve as a buffer to these regulatory effects, however, rail is generally more expensive than pipeline as a transportation method, and recent incidents involving rail accidents have also caused increased scruitny. Another concern about PAA revolves around the capital structure. The general partner gets 50% of any distributions in excess of $2.70 per unit per annum, pushing up PAA’s cost of capital and constraining its ability to increase distributions to limited partners. Cost inflation and project timing delays are also potential risks to the partnership’s capex program, as PAA expects capital expenditures for expansion projects in 2014 to be approximately $1.7 billion and an additional $185 million to $205 million for maintenance of capital projects.
The company also has some exposure to crude oil price differentials, as discussed in the guidance section below.
Per the guidance, EBITDA for 2014 is forecasted at ~$2.15 billion, which is almost the same as the consensus estimate ($2.2 billion) and as compared to 2013 EBITDA of $2.3 billion. PAA notes that it expects a slight decline in EBTIDA year-over-year as 2013 was an extremely profitable year in its supply and logistics segment, which benefited from abnormally large differentials in crude prices that the company was able to exploit. For 2014, PAA expects a return to “baseline” supply and logistics profitability. Plains All American Pipeline expects net income in 2014 to range from $1.2 billion to $1.4 billion and earnings per unit in the range of $1.95 to $2.32.
To learn more about AMLP’s top holdings, continue to the following part of the series.