Plains All American Earnings, Revenue Shortfalls Don’t Affect Distribution

Plains All American Pipeline L.P. (NYSE: PAA) and Plains G.P. Holdings L.P. (NYSE: PAGP) reported fourth-quarter and full-year 2015 results after markets closed on Monday. For the quarter, the midstream operator posted adjusted diluted earnings per common unit (EPS) of $0.38 on revenues of $5 billion. In the same period a year ago, the company reported EPS of $0.60 on revenues of $9.46 billion. Third-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.46 EPS and $7.3 billion in revenues.

For the full year, the pipeline operator reported EPS of $1.48 and revenues of $23 billion, compared with 2014 EPS of $2.28 and revenues of $43.46 billion. Analysts were expecting EPS of $1.55 on revenues of $25.92.

Fourth-quarter adjusted EBITDA of $563 million is 5% below the year-ago quarter’s total and adjusted EBITDA for the year was down 1%, from $2.2 billion to $2.17 billion. Plains attributed the shortfall to $15 million “associated with deficiencies on minimum volume commitments and an approximate shift in earnings recognition on certain NGL sales activities from the fourth quarter of 2015 to the first quarter of 2016.”

While we don’t know for sure what a deficiency on minimum volume commitments actually means, a reasonable guess is that the $15 million includes at least some take-or-pay commitments from shippers that Plains wrote off due to the shippers’ inability to ship and sell the products profitably. It’s hard to say, perhaps an analyst will clear this up on Tuesday’s conference call.
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Chairman and CEO Greg Armstrong said:

The $1.6 billion of proceeds from our recent preferred equity placement satisfies PAA’s equity financing needs for 2016 and substantially all of 2017 and enables PAA to complete its multi-year, multi-billion dollar capital expansion program, while maintaining substantial liquidity and a solid balance sheet.

PAA has visibility for incremental cash flow contributions over the next 24 months from the completion of these projects, the majority of which are backed by minimum volume commitments and other contractual support. These projects enhance PAA’s existing footprint and provide further significant leverage to a sustained increase in U.S. production levels with little to no incremental investment.

Plains GP Holdings, the sole assets of which are the general partner interest and incentive distribution rights in the pipeline company, reported a quarterly distribution per share of $0.231, unchanged from the prior quarter.

Plains did not offer guidance in its earnings release, but the consensus estimate for the first quarter calls for earnings per common unit of $0.46 on revenues of $6.96 billion. For the full year, the consensus estimate calls for earnings per common unit of $1.59 on revenues of $29.17 billion.

Shares traded down about 0.3% at $17.51 in Monday’s after-hours session, in a 52-week range of $16.42 to $52.70. Thomson Reuters had a consensus analyst price target of around $29.15 before Monday’s report.