Yahoo Finance Plains All American Pipeline, L.P. (NASDAQ:PAA) Q1 2024 Earnings Call Transcript
Plains All American Pipeline, L.P. (NASDAQ:PAA) Q1 2024 Earnings Call Transcript May 3, 2024
Plains All American Pipeline, L.P. beats earnings expectations. Reported EPS is $0.41, expectations were $0.39. Plains All American Pipeline, L.P. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. And welcome to PAA and PAGP’s First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Blake Fernandez, VP, Investor Relations. Please go ahead.
Blake Fernandez: Thank you, Lateef. Good morning. And welcome to Plains All American first quarter 2024 earnings call. Today’s slide presentation is posted on the Investor Relations website under the News and Events section at plains.com. An audio replay will also be available following today’s call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2. An overview of today’s call is provided on Slide 3. Condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today’s call will be hosted by Chairman and CEO, Willie Chiang; Executive Vice President and CFO, Al Swanson; as well as other management members. With that, I will now turn the call over to Willie.
Willie Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. Our strategy remains consistent and is anchored around capital discipline, generating free cash flow, return of capital to our investors and financial flexibility. And consistent with those themes, earlier this morning we reported first quarter results that are in line with our expectation, which reflects progress towards our full year 2024 targets and provides us with confidence in our ability to deliver on the plan that we laid out in February. For the first quarter and as illustrated on Slides 3 and 4, we reported adjusted EBITDA attributable to PAA of $718 million and we reaffirmed our 2024 adjusted EBITDA outlook. Al will share additional details on our quarterly performance and the 2024 outlook in his portion of the call.
As noted in our press release this morning and as illustrated on Slide 5, we have increased contract volumes and extended the term on certain contracts such that our weighted average contract duration of our Permian long-haul portfolio is approximately five years, which takes us through 2028. This includes new contracts or extensions on Cactus I, Cactus II, Basin and Sunrise. This also includes transactions related to 200,000 barrels a day of Cactus I capacity that has been finalized on terms that are consistent with the rates in the range of $1.25 per barrel to $1.50 per barrel that will become effective in September of 2025. Today’s announcement is a win-win for both Plains and our partners and it strikes a good balance between term commitments and maintaining flexibility to capture higher margins from uncontracted long-haul capacity over time.
While we are not providing formal guidance for 2026, we would expect continued underlying growth in the business and contributions from efficient growth investments to offset the lower contracted rates, which results in a broadly flat adjusted EBITDA in 2026 as compared to 2024 guidance for the Crude segment. In summary, we believe these actions should provide greater clarity and confidence in the outlook for our Crude Oil segment and our ability to continue to generate significant free cash flow over multiple years. Consistent with our efficient growth strategy, and as summarized on Slide 6, Plains acquired an additional 10% in the Saddlehorn Pipeline Company, LLC, and the Mid-Con terminal asset for an aggregate cash consideration of approximately $110 million.
These bolt-on acquisitions are expected to generate unlevered returns in line with our return threshold of approximately 300 basis points to 500 basis points above our weighted average cost of capital. In addition to enhancing our position in both the Rockies and the Mid-Con. With that, I’ll turn the call over to Al.
Al Swanson: Thanks, Willie. We reported first quarter adjusted EBITDA net PAA of $718 million. Slides 10 and 11 in today’s appendix contain blocks that provide details on our first quarter performance. Our outlook for the balance of the year remains essentially unchanged and we are reaffirming our adjusted EBITDA guidance range of $2.625 billion to $2.725 billion for 2024. We continue to believe the Permian will grow 200,000 barrels a day to 300,000 barrels a day with a back half weighted ramp providing momentum for the remainder of 2024. The NGL segment remains highly hedged with frac spreads at approximately $0.65 per gallon for 2024. A detailed overview of our 2024 guidance and key assumptions which remain generally consistent with our February guidance are on Slide 12 within today’s appendix.
For 2024, we expect to generate $1.55 billion of adjusted free cash flow, excluding changes in assets and liabilities, and including $110 million of bolt-on acquisitions with approximately $1.15 billion to be allocated to common and preferred distributions. We will also continue to self-fund our targeted $375 million and $230 million of growth and maintenance capital, respectively, net to PAA, which is consistent with our February guidance and includes capital for POP JV well connections and intra-basin improvements, as well as capital related to our previously announced Fort Sask debottleneck project. With that, I’ll turn the call back to Willie.
Willie Chiang: Thank you, Al. Over the last several years, we have made considerable progress across several initiatives, including running a safe, responsible and reliable business, remaining capital disciplined, generating meaningful free cash flow and increasing the return of capital to our unitholders while maintaining financial flexibility. Our business model and asset footprint span key supply basins in North America and provides infrastructure solutions to supply global energy demand needs. The combination of our asset base and our strategic initiatives really creates a unique value proposition for our current and potential unit holders, including a double-digit adjusted free cash flow yield and a distribution yield of approximately 7% to 7.5%, with a multiyear targeted annual increase of $0.15 a unit.
We’re pleased to be able to provide the update on our Permian long-haul contracting efforts, which reflects our commitment and focus on being the partner of choice and creating win-win solutions for our customers and partners. Recontracting of our long-haul capacity has been a focal point for investors and we view the developments that we shared with you today as a significant milestone, offering better visibility and clarity around the contractual support for the performance of our Permian long-haul portfolio in the coming years. The bottomline is we’re well positioned to continue to generate significant free cash flow well into the future. I’ll now turn the call over to Blake to lead us in the Q&A.
Blake Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to one question and one follow-up. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as practical in our available time this morning. The IR team will also be available to address any additional questions. Lateef, we’re ready to open the call for questions, please.
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