Plains All American Pipeline (PAA 0.48%) has spent the past year shoring up its balance sheet while at the same time working to restart its growth engine. The oil pipeline company made excellent progress on its turnaround strategy in 2018, which was evident in its strong third-quarter results. And the company's management team sees even better days ahead. They provided five reasons why they believe that's the case on the accompanying conference call

1. We're executing our strategic plan

"We have characterized 2018 as a 'year of execution,'" stated CEO Willie Chiang on the call. He went on to note that "so far this year, we have delivered results ahead of our guidance, and we remain on track to achieve our deleveraging objectives within the first half of 2019." 

One factor driving the company's outperformance has been its supply and logistics segment. Plains has been able to take advantage of regional price differences due to pipeline issues in the U.S. and Canada to capture much higher profits from this segment in 2018. Meanwhile, the company also made excellent progress on its balance sheet improvement plan, driven in part by the recent sale of a partial stake in the BridgeTex Pipeline.

An oil storage complex with pipelines.

Image source: Getty Images.

2. We expect to continue growing in 2019

Plains All American's progress in 2018 has it on pace to increase earnings 22% compared to last year's level even after taking into account recent asset sales. That growth will continue in 2019 according to CFO Al Swanson, who stated on the call that:

We expect 2019 fee-based segment adjusted EBITDA to increase plus or minus 12% year-over-year which equates to plus or minus $2.46 billion. This is essentially unchanged from our previous 14% to 15% fee-based growth guidance, as adjusted for the BridgeTex sale. We expect all of this fee-based growth to be driven by our Transportation segment, and our Facilities segment is expected to be flat to slightly down as 2018 results thus far reflect a degree of outperformance relative to our initial 2018 guidance.

The main factor fueling the transportation segment's increased earnings in 2019 will be the company's expansion projects. Plains All American recently started up its Sunrise expansion project and is on pace to begin partial service on its Cactus II pipeline by the third quarter of next year. The company also expects to finish several other small pipeline projects in the next year, which will help drive that double-digit growth rate.

3. We anticipate restarting distribution growth early next year

The sale of the stake in BridgeTex, when combined with earnings growth, has Plains on pace to achieve its targeted leverage metrics by early next year. "Upon completing the deleveraging plan," stated CFO Al Swanson, "we expect to be in a position to increase the distribution, potentially as soon as the first quarter of 2019 distribution, payable in May." The company is still contemplating the size of the increase to ensure its long-term sustainability as well as whether it will raise its payout annually or on a quarterly basis.

A stack of pipelines with a blue sky in the background.

Image source: Getty Images.

4. Industry fundamentals remain solid

While oil prices have been volatile, Plains All American's CEO stated on the call that "the fundamentals for our industry are constructive." He noted that "global [oil] demand continues to grow, and the U.S. leads the world as the largest and most visible source of growing liquids supply." With that in mind, the company "anticipate[s] crude oil production growth across multiple North American basins over the next several years, and our asset base and business model are positioned to benefit."

The company sees the most growth coming from the Permian Basin, which plays right into its hand since it holds an industry-leading position in that region. However, Plains All American's CEO also pointed out that:

We expect increased activity in other key producing regions, including the Eagle Ford, Rockies, Williston, and Mid-Continent, which should drive increased flows to key U.S. market centers, including Cushing, Oklahoma. This is driving demand for new takeaway solutions that our existing system is well positioned to serve through a combination of capacity optimization and capital efficient expansion opportunities.

5. We have more growth projects in the pipeline

Plains All American is currently pursuing several additional expansion opportunities around the country. CEO Willie Chiang noted on the call that the company "continue[s] to progress options to increase capacity on our Red River and Diamond pipeline systems," which would move oil out of Cushing toward the refineries along the Gulf Coast. One thing the CEO noted about these potential projects is that they would "leverage existing systems to provide efficient solutions at attractive returns."

Meanwhile, the company is also making "meaningful progress on the ExxonMobil (XOM 0.99%) JV," according to Chiang. The proposed large-scale oil pipeline from the Permian to the Gulf Coast would serve as a key bridge to move Exxon's fast-growing Permian production to the Houston refinery market. The companies recently secured another partner, which puts them one step closer to moving forward with this needle-moving pipeline.

Better days ahead

Plains All American is nearing the completion of its strategic turnaround plan, which positions the company to start increasing its distribution next year. Meanwhile, the pipeline company has ample growth ahead. For these reasons, this high-yielding pipeline stock looks like a great buy with the future in mind.