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Plains All American Targets Improved Coverage Ratio in 2017

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PAA’s distributions

On April 11, 2017, Plains All American Pipeline (PAA) announced a 1Q17 quarterly cash distribution of $0.55 per limited partner unit, which is unchanged from its 4Q16 per unit distribution. PAA’s distribution coverage ratio for 2016 was 0.87x.

Plains All American announced a 21% year-over-year reduction in its distributions from $0.70 per unit in 2Q16 to $0.55 per unit from 3Q16 to enhance its distribution coverage and credit profile. PAA’s 4Q16 distribution coverage ratio was 1.12x. The company targets a distribution coverage ratio of 1.15x for 2017.

In comparison, Enterprise Products Partners (EPD) increased its 1Q17 distributions 1.2%. The chart above shows PAA’s distributable cash flows and total capital expenditures over the last four years. The right axis shows PAA’s per-unit distribution.

Currently, Plains All American Pipeline trades at a distribution yield of ~7.2%. In comparison, the Alerian MLP ETF (AMLP) is trading at a yield higher than 7%, while the SPDR S&P 500 ETF (SPY) yields nearly 2%. The energy sector forms nearly 6.6% of the S&P 500 Index (SPX-INDEX).

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PAA’s capital expenditures

Plains All American Pipeline invested ~$1.4 billion on capital projects during 2016. PAA expects its capex for 2017 to be ~$800 million for expansion capital projects and ~$180 million–$200 million for maintenance capital projects.

PAA’s major projects in 2017 include the Diamond Pipeline joint venture, buildouts of the Permian Basin area gathering systems, including the Alpha Connector system, and a multiphase project at Fort Saskatchewan.

PAA’s distributable cash flows

Plains All American’s distributable cash flows for 2016 fell 4% compared to 2015. Its distributable cash flows for 4Q16 fell 4% year-over-year.

In the next article, we’ll see how Plains All American’s valuation compares with its peers.

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