Yahoo Finance Plains All American to Take Actions for Preserving Liquidity
Plains All American Pipeline L.P. PAA announced that it will take certain actions to preserve liquidity amid the unprecedented economic distress created by the outbreak of novel coronavirus. To lower the spread of this contagious virus, governments across the globe have resorted to different degrees of lockdown, which adversely impacted transportation, manufacturing and commercial activities, in turn lowering the demand for crude oil and its prices.
Due to softness in demand, crude oil prices have declined 59.1% year to date. Oil and gas companies like Occidental Petroleum OXY, Devon Energy Corporation DVN, and Murphy Oil Corporation MUR had to lower their 2020 capital expenditure twice in recent times to cope with low price and demand for commodities.
Amid the above scenario, it is quite logical for midstream service providers like Plains All American to take steps to cut down spending and delay some of its capital projects, as drillers are constantly adjusting expected production levels.
Steps Taken
Plain All American decided to lower 2020-2021 capital expenditure by 33% or $750 million to $1.55 billion from its previous guidance of $2.3 billion. The targeted reduction in capital expenditure is $1.35 billion or 47%, considering the elimination of $600 million of assumed JV project financing (net to Plains All American) for the Red Oak project, which has been deferred.
In addition, the firm has decided to lower its distribution by 50%, which will save $525 million on an annualized basis. The firm has sold non-core assets worth $245 million year to date and entered into a definite agreement to sell another $195 million worth of assets. The agreement is expected to close in the latter half of the year. The sales proceeds will assist the company to meet its immediate demand of funds. The firm is also working on additional asset sales opportunities.
Challenges surrounding crude oil might linger due to COVID-19-led demand decline and supply glut, as Saudi Arabia and Russia continue to pump more crude in an already oversupplied market. The firm might have to further lower capital expenditure and delay capital expansion plans until the virus is contained or the big producers decide to cut down production to control prices.
Zacks Rank & Price Performance
Currently, Plain All American has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Units of Plain All American have underperformed the industry in the past 12 months.
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Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
Murphy Oil Corporation (MUR) : Free Stock Analysis Report
Devon Energy Corporation (DVN) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
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