| Snowflake Score | |
|---|---|
| Valuation | 4/6 |
| Future Growth | 2/6 |
| Past Performance | 4/6 |
| Financial Health | 3/6 |
| Dividends | 3/6 |
PAA Stock Overview
Plains All American Pipeline, L.P., through its subsidiaries, engages in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada.
Plains All American Pipeline, L.P. Competitors
Price History & Performance
| Historical stock prices | |
|---|---|
| Current Share Price | US$10.61 |
| 52 Week High | US$12.57 |
| 52 Week Low | US$8.64 |
| Beta | 1.69 |
| 1 Month Change | -13.53% |
| 3 Month Change | 8.05% |
| 1 Year Change | 2.91% |
| 3 Year Change | -47.24% |
| 5 Year Change | -49.86% |
| Change since IPO | 6.10% |
Recent News & Updates
Plains All American Pipeline: Good Yield But Don't Bet On Growth
Summary Plains All American Pipeline is one of the largest and most well-known midstream partnerships in the United States. The company derives about 80% of its cash flow from the transportation of crude oil, which limits its growth compared to natural gas-focused peers. The company could deliver some near-term growth though as volumes are positioned to climb over the coming few months. The company's debt load is reasonable, although still a bit higher than the best of its peers. The 7.40% yield is quite sustainable and the company may be able to increase it a bit going forward. This article was originally published to Energy Profits in Dividends when the market closed on September 22, 2022. Plains All American Pipeline, L.P. (PAA) is one of the largest and most well-known crude oil-focused midstream companies in the United States. This was a somewhat challenging place to be in over the past few years as the COVID-19 lockdowns drown crude oil prices to all-time lows, but the surge in energy prices in 2021 and 2022 has more than corrected this problem, which has also resulted in a production rebound. The shift in the industry's fortunes has understandably been confusing to the management of midstream companies that has been tasked with deciding what to do with the growth projects that their companies were working on prior to the pandemic. Plains All American Pipeline has overall been handling this situation fairly well and, indeed, the company's common units are up 11.64% over the past year. Despite this, the company still boasts a very attractive 7.40% yield, which the company could increase in the near future. Unfortunately, Plains All American Pipeline has limited prospects for near-term growth, and admittedly the long-term fundamentals for crude oil are not nearly as good as those for natural gas, which may put Plains All American Pipeline at a disadvantage compared to some of its peers. This does not necessarily mean that it would be a bad investment though so let us investigate further and determine what place this company may have in a portfolio. About Plains All American Pipeline As stated in the introduction, Plains All American Pipeline is one of the largest and most well-known midstream master limited partnerships in the United States. The company boasts a network of liquids-focused infrastructure that stretches across much of the central United States and Canada: Plains All American Pipeline In total, the company's pipelines are capable of carrying more than seven million barrels of crude oil and natural gas liquids. The company also has 140 million barrels of liquid storage capacity and 200,000 barrels per day of natural gas liquid fractionation capacity. It, therefore, comes as no surprise that Plains All American Pipeline's infrastructure primarily stretches across the center of the continent. There are three major liquids-producing basins in this footprint: the Permian Basin, the Bakken Shale, and the Western Canadian Sedimentary Basin. All three of these have been increasing their production over the past few years. We can see this here for the Permian and the Bakken, which account for the overwhelming majority of Plains All American Pipeline's transported volumes: U.S. Energy Information Administration The Permian Basin alone accounts for about 55% of Plains All American Pipeline's cash flows so it is by far the most important region for the company. As such, it is quite nice to see that the region is seeing strong volume growth. This is because of the business model that the company uses. In short, Plains All American Pipeline invests in long-term contracts with its customers under which the customer sends resources through the partnership's infrastructure and then compensates Plains All American Pipeline based on the volume of resources transported. Thus, when production within the company's footprint increases, Plains All American Pipeline should see its cash flows increase due to rising volumes. After all, there is no point in producing more resources if the customer cannot get them to the market to be sold. This is exactly the task that is performed by Plains All American Pipeline. Furthermore, the company expects that the production will increase substantially going forward, going from approximately 5.3 million barrels today to over seven million barrels of crude oil per day by the end of 2025: Plains All American Pipeline This sort of growth would obviously result in enormous cash flow growth for Plains All American Pipeline should it play out. I will confess to being less confident about this than the company's management, however. As I have explained in various past articles, such as this one, there are several major operators in the Permian Basin that have been expressing reluctance about increasing their production. In a change from the past decade, independent operators have largely adopted a business model that focuses on maximizing free cash flow as opposed to growing production at all costs. Even among those operators that have announced production increases, the total planned increase is rarely more than 5%. This makes a lot of sense since the International Energy Agency projects that the global consumption of crude oil will only increase by 7% over the 2020 to 2040 period. As Plains All American Pipeline is not divulging a source for the data from which it derived its estimates, my only conclusion is that the company's management might be far too optimistic about its growth prospects. With that said, Plains All American Pipeline did see some volume growth during the second quarter, which provides us with much more recent data than what we had at the time of my last article on the company. This is especially noticeable by looking at the company's gathering pipeline operations in the Permian Basin. As we can see here, the unit averaged gathered volumes of 2.202 million barrels of liquids per day in the first quarter, which increased to 2.342 million barrels of hydrocarbon liquids per day in the second quarter of 2022: Plains All American Pipeline Plains All American Pipeline is projecting a volume increase over the remainder of the year, as we can see above. Unlike the company's multi-year projections, however, there are some reasons to believe that this scenario will actually play out. This is because the company's customers have already shared their drilling and other plans with Plains All American Pipeline so that the partnership can be sure to have the needed infrastructure in place. Thus, the company seems certain to see growth over the remainder of the year. This would be a continuation of the growth that the partnership delivered in the second quarter: Q2 2022 Q2 2021 Adjusted EBITDA $615 $575 Distributable Cash Flow $400 $373 Free Cash Flow $688 $60 (all figures in millions of U.S. dollars and refer solely to PAA and not to the general partner) Plains All American Pipeline may be able to deliver this growth without the need and expense to construct additional pipelines. This saves the company both the time and the expense of doing so. The reason for this is that much of its current pipeline infrastructure is running at well under full capacity: Plains All American Pipeline This is not an especially good sign as we typically like to see midstream companies running at close to full capacity in order to maximize cash flows and minimize avoidable expenses. The fact that this is not the case here may be a sign that the company was considerably overbuilt in the years leading up to the pandemic. This may explain why its debt load is still somewhat high compared to its peers. However, it does provide the company with some room to grow into higher volumes. This can be an advantage over its peers that need to construct new infrastructure to handle higher volumes considering that the time and cost of doing so are quite high. As already discussed though, the company appears to be far too optimistic about its forward growth prospects so it is possible that its excess capacity will never be completely filled. Financial Considerations It is always important to look at a company's finances before investing in it. This is because debt is a riskier way to finance a company than equity because debt must be repaid at maturity. As most companies cannot fully pay off their debt with cash, the usual way that this is accomplished is by issuing new debt to repay the old debt. This can cause a company's interest costs to increase following the rollover depending on market conditions. Perhaps more importantly, the company needs to make regular payments on its debt if it is to remain solvent. Thus, a decline in cash flows could push the company into financial trouble if it has too much debt. Although midstream partnerships like Plains All American Partners tend to have stable cash flows, this is a risk that we should not ignore as bankruptcies have occurred in the sector.
Plains All American's Growth Story Intact, For Now
Summary Plains All American is a growth story in which cash flow could increase by 50%-75% over the next four years. The company will reach its leverage target by year's end. Management now targets the excess cash flows at unit buybacks or distributions. Management expects distribution to increase, but cautious about when. The price of PAA is reflecting this financial change. Plains All American Pipeline's (PAA) business model relies heavily on growth from the Permian Basin in Texas and New Mexico. During the past few months, the Energy Information Agency's ((EIA)) weekly report continues to show significant levels of gasoline demand destruction (up to 7%). Yet, crude inventories continue to collapse, suggesting significant production increases are still needed to stabilize the petroleum material balance. Demand destruction could hinder Plains from achieving its growth goals. Or will it, and is the destruction real? The Backdrop Before reviewing Plains' most recent report, an honest look at real consumption is necessary. The EIA reports several critical petroleum numbers weekly on Wednesday for the previous week. In the past, investors and markets relied heavily upon this report for decision-making. In the past several weeks, analysts, for good reason, started challenging the accuracy and honesty of the numbers. From a report on Oilprice several suspect arguments surfaced. ""For the week ending July 22nd, implied gasoline demand rebounded to 9.2 million b/d - a 1 million b/d increase vs the last two week average, and the second highest level of 2022," BofA wrote in the note to clients. Curiously, the EIA reported a steep drop in gasoline demand shortly thereafter, prompting Piper Sandler global energy strategist to label the data "crooked", saying the methodology left "significant room for error"." Continuing: "We are supposed to believe that in July, in the middle of driving season we are only using 8.6 million barrels per day. That would be down half a million barrels a day from May of this year; that would be below the Covid low of 2020," Sandler noted. "So we ask all the refiners, we ask all the retailers, we ask everybody that reported earnings this season. Every single one of them tells you that their sales are not down materially from even pre-covid days. Some report record high sales," CEO Gary Simmons of Valero (VLO) had this to say: "I can tell you, through our wholesale channel there is really no indication of any demand destruction... In June, we actually set sales records. We read a lot about demand destruction and mobility data showing in that range of 3% to 5% demand destruction. Again, we're not seeing it in our system." Valero is the second-largest refinery in the United States. From another source, GasBuddy, also tracks retail demand, which during the same week had usage up 2% year over year while the EIA reported down 7%. Something is amiss. Although the refineries might have been selling overseas from its natural competitive advantage, GasBuddy data throws ice water on that thought. With respect to outside competition, primarily OPEC+, the damage isn't likely solved outside through an Iran deal either. OPEC claimed to cut production recently, claimed. In truth, "[t]he small cut is actually quite irrelevant considering that OPEC+ is estimated to be some 2.9 million bpd behind collective quotas." The Last Quarter Next let's review a few financial numbers, but the real important investor story follows afterward. The company reported: EBITDA equaled $615. Full year 2022 EBITDA guidance increased by $100 million to plus or minus $2.375 billion. Outperformance of NGL and crude oil transportation drives the upgraded numbers. Leverage target ratio of 4.0 by year's end. Asset sales target increased by $100 million. Cash used to repurchase a modest amount of stock at $50 million. Management offered a few comments dealing with inflation. Although much of the business is insulated, management noted, "All of this being said, we continue to expect annual escalators to offset expenses and provide a modest net benefit." Expect higher tariffs. The Company Several slides from Plains' last presentation follows. The first summarizes the company. Its yield is modestly low at 7.5%. Why?
Shareholder Returns
| PAA | US Oil and Gas | US Market | |
|---|---|---|---|
| 7D | -9.7% | -4.5% | -2.0% |
| 1Y | 2.9% | 35.9% | -20.3% |
Return vs Industry: PAA underperformed the US Oil and Gas industry which returned 29.9% over the past year.
Return vs Market: PAA exceeded the US Market which returned -22.1% over the past year.
Price Volatility
| PAA volatility | |
|---|---|
| PAA Average Weekly Movement | 5.0% |
| Oil and Gas Industry Average Movement | 8.1% |
| Market Average Movement | 6.9% |
| 10% most volatile stocks in US Market | 15.8% |
| 10% least volatile stocks in US Market | 2.8% |
Stable Share Price: PAA is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 5% a week.
Volatility Over Time: PAA's weekly volatility (5%) has been stable over the past year.
About the Company
| Founded | Employees | CEO | Website |
|---|---|---|---|
| 1981 | 4,100 | Willie Chiang | https://www.plainsallamerican.com |
Plains All American Pipeline, L.P., through its subsidiaries, engages in the pipeline transportation, terminalling, storage, and gathering of crude oil and natural gas liquids (NGL) in the United States and Canada. The company operates in two segments, Crude Oil and NGL. The Crude Oil segment offers gathering and transporting crude oil through pipelines, gathering systems, trucks, and at times on barges or railcars.
Plains All American Pipeline, L.P. Fundamentals Summary
| PAA fundamental statistics | |
|---|---|
| Market Cap | US$7.41b |
| Earnings (TTM) | US$580.00m |
| Revenue (TTM) | US$53.82b |
12.8x
P/E Ratio0.1x
P/S RatioIs PAA overvalued?
See Fair Value and valuation analysisEarnings & Revenue
| PAA income statement (TTM) | |
|---|---|
| Revenue | US$53.82b |
| Cost of Revenue | US$51.19b |
| Gross Profit | US$2.63b |
| Other Expenses | US$2.05b |
| Earnings | US$580.00m |
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
Nov 02, 2022
| Earnings per share (EPS) | 0.83 |
| Gross Margin | 4.88% |
| Net Profit Margin | 1.08% |
| Debt/Equity Ratio | 67.0% |
How did PAA perform over the long term?
See historical performance and comparison