Company Reports

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.

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.

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.

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.

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. 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 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.

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.

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, a 21% distribution increase, a continued focus on debt reduction, and unit buybacks with the remainder of excess cash flow.

Plains is finally starting to see some incremental benefits from higher Permian volumes in the second quarter, as it boosted guidance for the second time this year. 2022 EBITDA guidance now stands at $2.375 billion, slightly ahead of our $2.3 billion forecast, but not enough to cause us to shift our fair value estimate. Our no-moat rating also remains unchanged.

We have downgraded Plains' moat to none from narrow. Midcycle ROICs have continued to decline over the past few years and even allowing for a level of recovery from COVID-19-related demand destruction, ROICs are well below our cost of capital currently and going forward. The biggest problem is that Permian takeaway pipeline capacity is closer to 8.5 million barrels per day compared with about 6 million barrels per day of current production. The overbuild is because several new pipes entered service in 2019 and 2020 just as COVID-19 destroyed demand. Now, with public oil and gas firms committed to shareholder returns, not growth at all costs, the oversupply issues become more of a long-term problem. After updating our model, our fair value estimate remains $13 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, a 21% distribution increase, a continued focus on debt reduction, and unit buybacks with the remainder of excess cash flow.

Plains’ first-quarter results were solid, in our view. 2022 EBITDA guidance was up slightly by $75 million to $2.275 billion, mainly due to higher oil gathering volumes within the Permian. The difference is immaterial given our existing $2.25 billion forecast, especially as free cash flow is expected to see a modest dip from prior expectations due to Line 901 settlement payments prior to insurance recoveries, so our fair value estimate and narrow moat rating are unchanged.