Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Plains All American Pipeline LP (PAA, Financial) reported second quarter adjusted EBITDA of $674 million, exceeding expectations.
- The company raised its full-year 2024 adjusted EBITDA guidance by $75 million to a new range of $2.725 billion to $2.775 billion.
- PAA completed eight bolt-on acquisitions since the second half of 2022, totaling approximately $535 million, enhancing their asset base and financial profile.
- The company expects to generate approximately $1.55 billion of adjusted free cash flow in 2024, with significant allocations to common and preferred distributions.
- PAA issued $650 million of senior and secured notes due in 2034 at a rate of 5.7%, which will be used to repay the $750 million note maturing in November.
Negative Points
- Rigs are trending slightly below initial expectations, although efficiencies have largely offset the impact.
- Some of the lower operating expenses in the first half of the year were due to deferred spending, which will reverse in the second half.
- The NGL segment's favorable ISO to normal butane spreads and higher frac spreads may not be sustainable long-term.
- There are infrastructure constraints in the Delaware Basin, driven by lower natural gas prices and water and gas infrastructure issues.
- The company faces challenges in maintaining consistent growth due to seasonal and market variability in the NGL segment.
Q & A Highlights
Q: Willie, on the crude segment, seeing the guide come up there and you noted your producer customers are seeing greater efficiencies. Is that the key source of the change in the outlook for the crude segment? And how do you see efficiency gains trending as you exit into and look to the beginning of 2025?
A: (Jeremy Goebel, EVP and CCO) The overall guidance change was part NGL, part crude. Within the crude segment, there are some opportunistic captures in Canada and the US. Production growth has been in line with expectations, but producers have been able to do more with less. We think a healthier, efficient producer is good for our business long-term. It's not the sole source for the increase in guidance, but it's a positive trend for us.
Q: On the NGL segment, as the business becomes more fee-based, how should we think about less variability in the NGL business longer term?
A: (Jeremy Goebel, EVP and CCO) We have entered into 15-plus year contracts, replacing roughly a third of our frac spread exposure. We're investing $150 million to $200 million to replace that business with gathering, fractionation, storage, and transportation. This will make our NGL value chain more predictable, moving from roughly 60/40 frac spread exposure to less than 50/50.
Q: In your last call, you said you expected the crude segment EBITDA in 2026 to be roughly flat with 2024 EBITDA. Is that still a good statement given the increase in 2024 EBITDA guidance?
A: (Willie Chiang, Chairman and CEO) Our perspective hasn't changed. We don't expect a cliff falling off in 2026. We're always working on bolstering our crude business, and more guidance will come as we outline 2025 and 2026.
Q: How do you see Permian production growth playing out over the balance of this year and next? Could Permian crude takeaway get tight again?
A: (Jeremy Goebel, EVP and CCO) In the near-term, there are some infrastructure constraints mostly in New Mexico. As pipelines come on, there will be the ability to add more production growth. We see it directionally continuing to increase to the 200,000 to 300,000 barrels a day a year. Forward differentials don't reflect tightness for next year, but contracting discussions indicate the industry is looking to sell more away from Midland.
Q: How much depth do you see to the M&A opportunity set going forward?
A: (Willie Chiang, Chairman and CEO) We have a deep opportunity set for bolt-ons, which have been a niche for us. These transactions are often not formal processes but come from discussions with partners. We think there will be more consolidation across the industry, and we will stay disciplined in considering broader M&A opportunities.
Q: Can you provide more color on customer conversations regarding Permian egress and supply-demand?
A: (Jeremy Goebel, EVP and CCO) We have had constructive dialogue with our shippers. We are seeing available capacity and having constructive dialogues with third-party customers. We are retaining some space to fill our dock and do other things.
Q: What part of the lower operating expenses and costs is sticky and can benefit you in the second half of 2024 and 2025?
A: (Chris Chandler, EVP and COO) Some of the lower costs in the first half were due to deferring spend into the second half, so that won't necessarily be sticky. We are always looking to optimize our operating costs, which vary with volumes and utility prices.
Q: Any commentary on the possibility of redeeming the preferreds to lower your cost of capital?
A: (Al Swanson, EVP and CFO) No change in our thinking at this time, but we recognize that there may be a point in the future where we will reconsider that.
Q: Given another good year above expectations, is raising the distribution sooner or in larger size on the table?
A: (Willie Chiang, Chairman and CEO) We have been steadfast in our capital allocation strategies. If we have sustainable EBITDA going forward, we will consider increasing returns of capital to our unitholders during our annual reviews on distribution.
Q: Any early thoughts on 2025 and the trajectory for Permian volumes?
A: (Willie Chiang, Chairman and CEO) We haven't given long-term guidance, but we believe the Permian will be a key basin for the world. We expect growth of 200,000 to 300,000 barrels a day, with some constraints and lumpiness in the growth profile. We are bullish on the Permian and the efficiencies from E&P consolidations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
