Plains Could Be an M&A Target Post-Oneok-Magellan

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.