Must-know: Analysis of Plains All American's first quarter earnings

Part 3
Must-know: Analysis of Plains All American's first quarter earnings (Part 3 of 8)

Why PAA’s 2Q14 segment profit estimates are muted

Transportation segment guidance for 2Q14

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In 2Q14, in the Transportation segment, PAA expects volumes to average approximately 3.95 million barrels per day, or 2.8% higher than volumes recorded in 1Q14. The volume growth is primarily attributable to production increases in the Eagle Ford and Mid-Continent areas and an increase in pipelines volume leased to third parties, which dropped in 1Q14. The forecast also assumes lower volumes on the Canadian pipelines of approximately 20,000 barrels a day due to the reduction in flood season. Adjusted segment profit per barrel is expected to be $0.57, which is 5% lower than 1Q14 due to historically higher integrity management costs during 2Q14.

Facilities segment guidance for 2Q14

 

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For the Facilities segment, the expected average capacity for 2Q14 is 122 million barrels of oil equivalent, or a marginal 1% increase from 1Q14 volumes following the recovery from weather-related impacts on the rail volumes. An adjusted segment profit of $0.37 for 2Q14 is expected to be 12% lower than 1Q14 segment profit. Typically, the maintenance and integrity management costs are higher in 2Q14 in PAA. In addition, revenue from the natural gas liquid (or NGL) facilities is expected to be lower during 2Q14 because weather-related higher throughput is expected to affect the next quarter.

Supply and logistics segment guidance for 2Q14

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In the Supply and Logistics segment, the company expects volumes to decrease by 4.1% to average approximately 1.07 million barrels per day in 2Q14 compared to 1Q14. PAA expects NGL volumes to decline by 143,000 barrels per day because of seasonality. This will partially be offset by volume gains from the leased business in gathering that is expected to increase by 47,000 barrels per day. The drop in NGL volume would significantly impact segment profit. Adjusted segment profit is expected to drop by ~50% to $1.17 per barrel in 2Q14 over 1Q14.

Plains All American Pipeline (PAA) is a master limited partnership operating in the midstream energy space. The general partner of PAA is owned by Plains GP Holdings L.P. (PAGP). PAA is a component of the Alerian MLP ETF (AMLP), the Global X MLP ETF (MLPA), and the Global X MLP & Energy Infrastructure ETF (MLPX).

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