Company Reports

We believe the oversupply of Permian oil takeaway capacity, which we expect to persist for years, had a material negative impact on the returns from Plains All American's pipeline network. The crude oil business is now a lower-for-longer story. Plains signed contracts for its Permian long-haul pipeline portfolio that extended the duration of its contracts to 2028 with rates consistent with $1.25-$1.50 a barrel. Factoring in the lower contracted rates and expected volume increases over the next few years, with 2024 Permian volumes expected to increase about 200,000-300,000 barrels per day, this essentially places 2026 EBITDA flat with 2024 at $2.2 billion. We think this outcome speaks to the no-moat nature of the Plains portfolio and its lack of pricing power amid a severe Permian oversupply of long-haul pipeline infrastructure. We don’t expect much, if any, improvement until around 2030.

We believe the oversupply of Permian oil takeaway capacity, which we expect to persist for years, had a material negative impact on the returns from Plains All American's pipeline network. The crude oil business is now a lower-for-longer story. Plains signed contracts for its Permian long-haul pipeline portfolio that extended the duration of its contracts to 2028 with rates consistent with $1.25-$1.50 a barrel. Factoring in the lower contracted rates and expected volume increases over the next few years, with 2024 Permian volumes expected to increase about 200,000-300,000 barrels per day, this essentially places 2026 EBITDA flat with 2024 at $2.2 billion. We think this outcome speaks to the no-moat nature of the Plains portfolio and its lack of pricing power amid a severe Permian oversupply of long-haul pipeline infrastructure. We don’t expect much, if any, improvement until around 2030.

Plains’ second-quarter earnings were a bit better than we expected, primarily because of higher natural gas liquids volumes and wider spreads. The higher volumes make sense given the strength in Permian gas volumes, which would drive natural gas liquids volumes since natural gas liquids are a byproduct of gas. Plains management boosted its 2024 guidance by $75 million to a midpoint of $2.75 billion. Given the boost and cash flows earned, we expect to increase our fair value estimate by $1 to $19. Our no-moat rating is unchanged. Overall adjusted EBITDA improved 13% to $674 million year over year, as the natural gas liquids segment EBITDA jumped over 50% over the same time frame.Despite the earnings boost, expected free cash flow for 2024 as calculated by Plains management of $1.55 billion remains unchanged, as the incremental dollars are largely flowing to bolt-on deals. However, we view the $535 million investment in eight deals since 2022 highly favorably, given the tight linkage with existing assets largely in the Permian. We don’t think it is a heavy lift for Plains to generate attractive returns here. Plains’ free cash flow yield still remains very attractive at around 13% by our estimates.

We believe the oversupply of Permian oil takeaway capacity, which we expect to persist for years, had a material negative impact on the returns from Plains All American's pipeline network. The crude oil business is now a lower-for-longer story. Plains signed contracts for its Permian long-haul pipeline portfolio that extended the duration of its contracts to 2028 with rates consistent with $1.25-$1.50 a barrel. Factoring in the lower contracted rates and expected volume increases over the next few years, with 2024 Permian volumes expected to increase about 200,000-300,000 barrels per day, this essentially places 2026 EBITDA flat with 2024 at $2.2 billion. We think this outcome speaks to the no-moat nature of the Plains portfolio and its lack of pricing power amid a severe Permian oversupply of long-haul pipeline infrastructure. We don’t expect much, if any, improvement until around 2030.

Plains’ first-quarter results largely met our expectations. We don’t expect to change our $18 fair value estimate or no-moat ratings for the Plains entities. Management reaffirmed 2024 guidance at a midpoint of $2.675 billion, largely consistent with our $2.64 billion forecast, which represents a modest decline from 2023. The most attractive part of the Plains story remains its ability to return significant amounts of cash flows to shareholders, and we see this with a 19% annualized dividend increase. Plains’ free cash flow yield remains about 12%, by our estimates, and we expect this to flow through to unitholders in terms of double-digit dividend increases in 2025 and 2026 as well.

We believe the oversupply of Permian oil takeaway capacity, which we expect to persist for years, had a material negative impact on the returns from Plains All American's pipeline network. Higher Permian volumes will help Plains earn the full tariff on more volumes in 2023, as it only earned partial tariffs in 2022 due to the volumes being on partially owned assets. Combined with higher tariffs due to inflation, we are seeing modest EBITDA growth on the oil side. Plains is pursuing a balanced capital allocation approach, including a "no regrets" growth capital investment framework and a thoughtful distribution of its remaining excess cash flow. For example, we think the recent acquisition of the remaining portion of the Northern Midland Basin gathering system from Diamondback is an immediate winner. It is geographically very close to existing joint-venture assets, and it better aligns Plains with a critical Permian producer in Diamondback. The recent addition of Rattler Midstream and LM Energy assets seems to follow a similar playbook.

After rolling our model and lowering our 2024 forecast modestly to about $2.65 billion, we have increased our fair value estimate to $18 from $16 for the Plains entities. The update is primarily attributable to the time value of money, but also because we expect slightly higher oil volumes and tariffs beyond 2026 than previously, due largely to inflation and the Permian pipeline takeaway market becoming modestly tighter over time as volumes fill up existing pipelines. Our no-moat rating remains unchanged for the Plains entities.

Plains’ fourth-quarter results were a bit better than we expected, with full-year EBITDA at $2.71 billion compared with our $2.63 billion forecast. We attribute the strength to higher-than-expected Permian volume growth, supported by some recent acquisitions as well as better marketing opportunities available on the natural gas liquids side of the business. However, 2024 EBITDA guidance was a bit below our expectation of $2.8 billion, with a midpoint guide of $2.675 billion. The weaker guidance is largely due to fewer opportunities to capture marketing spreads on both the oil and natural gas liquids businesses. We anticipate lowering our 2024 forecast to about $2.7 billion, reflecting recent history as Plains management has been conservative on marketing contributions. As a result, we expect to maintain our $16 fair value estimate and no-moat ratings for the Plains entities.

Plains’ third-quarter results were very good, as it boosted its 2023 guidance to just over $2.6 billion compared with earlier expectations of about $2.5 billion. The main drivers of the increases were not the two recent bolt-on deals, as they are contributing about $10 million to $15 million or so to the improved outlook, but higher levels of tariffs. Permian volume guidance actually declined a bit for 2023, as it was impacted by the very hot weather in August that impacted gas processing and field compression in the Permian basin. After updating our model, our fair value estimate increases to $16 from $14 per share for both Plains entities, reflecting its improved cost structure. Our nomoat rating is unchanged.

We believe the oversupply of Permian oil takeaway capacity, which we expect to persist for years, had a material negative impact on the returns from Plains All American's pipeline network. Higher Permian volumes will help Plains earn the full tariff on more volumes in 2023, as it only earned partial tariffs in 2022 due to the volumes being on partially owned assets. Combined with higher tariffs due to inflation, we are seeing modest EBITDA growth. Plains is pursuing a balanced capital allocation approach, including a "no regrets" growth capital investment framework and a thoughtful distribution of its remaining excess cash flow. For example, we think the recent acquisition of the remaining portion of the Northern Midland Basin gathering system from Diamondback is an immediate winner. It is geographically very close to existing joint-venture assets, and it better aligns Plains with a critical Permian producer in Diamondback. The recent addition of Rattler Midstream and LM Energy assets seems to follow a similar playbook.

We believe the returns from Plains All American's pipeline network have been materially negatively impacted by the oversupply of Permian oil takeaway capacity, which we expect to persist for years. Higher Permian volumes will help Plains earn the full tariff on more volumes in 2023, as it only earned partial tariffs in 2022 due to the volumes being on partially-owned assets. Unfortunately, weaker spreads, particularly at its natural gas liquids unit, will offset this improvement, resulting in essentially flat overall EBITDA growth. Still, Plains is pursuing a balanced capital allocation approach, including a "no regrets" growth capital investment framework and a thoughtful distribution of its remaining excess cash flow. For example, we think the recent acquisition of the remaining portion of Northern Midland Basin gathering system from Diamondback is an immediate winner. It is geographically very close to existing joint venture assets, and it better aligns Plains with a critical Permian producer in Diamondback.

Plains’ second-quarter results were good, as healthy Permian volumes and tariffs led the firm to boost its guidance toward the top end of its outlook, or around $2.55 billion in 2023 EBITDA. The change is modest, and about $50 million above our original expectations. After updating our model, our $14 fair value estimates and no-moat ratings for the Plains entities are unchanged.

Plains' first-quarter earnings continue to show the benefits of higher Permian volumes, with adjusted EBITDA up 16% over last year to $715 million. The company reaffirmed adjusted 2023 EBITDA guidance attributable to Plains at a midpoint of $2.5 billion, which matches our forecast. We expect to maintain our $14 per share fair value estimate and no-moat rating.

We believe the returns from Plains All American's pipeline network have been materially negatively impacted by the oversupply of Permian oil takeaway capacity, which we expect to persist for years. 2022 saw more of a muted financial benefit as the volumes moved from wholly owned to joint-venture assets, which meant Plains only earned a fraction of the tariffs. However, with this transition in the past, Plains will earn the full tariff on more volumes in 2023, which should help. Unfortunately, weaker spreads, particularly at its natural gas liquids unit, will offset this improvement, resulting in flat overall EBITDA growth. Still, Plains is pursuing a balanced capital allocation approach, including a "no regrets" growth capital investment framework and a thoughtful distribution of its remaining excess cash flow.

It took some patience as lower-fee pipelines (Wink-to-Webster) needed to fill up first, but Plains is finally beginning to see the financial benefits from its Permian asset base. Strong fourth-quarter results contributed to better-than-expected 2022 performance. As a result, its 2022 result and 2023 guidance are a bit better than we expected at $2.51 billion and $2.5 billion initially and now match our revised forecast. We have increased our fair value estimate $1 to $14 per unit to reflect the improved cash flow outlook in 2023 and cash flows earned. Our no-moat rating remains unchanged. Plains remains a standout among our coverage with double-digit distribution increases planned over the next few years at 10% increases annually by our estimates. Peers are typically in the 3%-5% range.

We believe the returns from Plains All American's pipeline network have been materially negatively impacted by the oversupply of Permian oil takeaway capacity, which we expect to persist for years. 2022 saw more of a muted financial benefit as the volumes moved from wholly owned to joint-venture assets, which meant Plains only earned a fraction of the tariffs. However, with this transition in the past, Plains will earn the full tariff on more volumes in 2023, which should help. Unfortunately, weaker spreads, particularly at its natural gas liquids unit, will offset this improvement, resulting in flat overall EBITDA growth. Still, Plains is pursuing a balanced capital allocation approach, including a "no regrets" growth capital investment framework and a thoughtful distribution of its remaining excess cash flow.

It took some patience as lower-fee pipelines (Wink-to-Webster) needed to fill up first, but Plains is finally beginning to see the financial benefits from its Permian asset base. Strong fourth-quarter results contributed to better-than-expected 2022 performance. As a result, its 2022 result and 2023 guidance are a bit better than we expected at $2.51 billion and $2.5 billion at the midpoint, compared with our $2.45 billion forecast. We expect to increase our $13 fair value estimate modestly to reflect the improved outlook and cash flows earned while maintaining our no-moat rating.

Plains has agreed to sell to Keyera a 21% stake in its Keyera Fort Saskatchewan facility for CAD 365 million in what we view as a mutually beneficial transaction. Given the small size of the deal, we do not expect it will affect our fair value estimates or no-moat ratings for both entities. For Plains, the deal raises a good amount of cash that it can use for deleveraging and investment at the Plains Fort Saskatchewan facility (separate from the Keyera one). This investment could include improving connectivity to Keyera assets.

Plains turned in good third-quarter results, in our view, with higher volumes and spreads across its oil and natural gas liquids businesses, driving a modest boost in 2022 guidance. 2022 EBITDA guidance is now $75 million higher at $2.45 billion. For 2023, current natural gas liquids spreads point to about $100 million of downside compared with $495 million in 2022 EBITDA from its natural gas liquids business. However, we project ongoing Permian oil volumes strength in its crude oil business to offset the weakness to keep 2023 EBITDA flat with 2022. After updating our models, we are maintaining our $13 fair value estimate and no-moat ratings for the Plains entities.

We believe the returns from Plains All American's pipeline network have been materially negatively impacted by the oversupply of Permian oil takeaway capacity, which we expect to persist for years. In a bit of a setback, Plains will see higher Permian volumes in 2022, but the financial benefit will be more muted as the volumes are moving from fully owned assets to joint-venture assets, meaning Plains will only see a fraction of the earned tariffs. As a result, improved operating leverage from higher Permian volumes is essentially shelved until 2023. Still, Plains is pursuing a balanced capital allocation approach, including a "no regrets" growth capital investment framework and a thoughtful distribution of its remaining excess cash flow.