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Plains All American Pipeline Delivers a Profit Gusher in Q1

By Matthew DiLallo – Updated May 8, 2019 at 10:18AM

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The oil pipeline company’s hot start sets it up for an even better year.

Plains All American Pipeline (PAA 3.90%) picked up right where it left off in 2018 by delivering strong first-quarter results. The oil pipeline master limited partnership (MLP) continued to benefit from the recent volatility in the oil market as well as the lack of infrastructure to move oil and other liquids from production basins to market centers. Those factors, when combined with the company's investments in new pipelines, enabled it to generate a gusher of earnings and cash flow during the first quarter. That strong start allowed the company to boost its full-year outlook.

Drilling down into the results

Metric

Q1 2019

Q1 2018

YOY Change

Adjusted EBITDA

$862 million

$593 million

45.4%

Distributable cash flow (DCF)

$654 million

$443 million

62.1%

DCF per unit

$0.90

$0.61

47.5%

Data source: Plains All American Pipeline. YOY = year over year.

Plains All American blew past the guidance that it would produce about $742.5 million in EBITDA during the first quarter. Fueling that better-than-expected result was the strong performance of its supply and logistics business:

Plains All American Pipeline's earnings by segment in the first quarter of 2019 and 2018.

Data source: Plains All American Pipeline. Chart by author.

Supply and logistics' earnings rocketed 286% from the year-ago period due to the company's ability to take advantage of dislocations in the oil market. The MLP was able to ship crude from price-constrained areas to premium markets, enabling it to cash in on these activities.

The company's transportation segment also delivered an excellent quarter as earnings rose 19% year over year. That's primarily due to higher volumes on its Permian Basin system, fueled in part by the start-up of the Sunrise II pipeline at the end of last year. The company also benefited from higher volumes in the central region as well as in the Eagle Ford shale. These positives more than offset the impact of asset sales. If it weren't for those sales, transportation earnings would have risen 26% year over year.

Facilities earnings, on the other hand, slipped 1% from last year's first quarter. That's due entirely to asset sales, without which this segment's earnings would have increased by 1% year over year.

Pipelines heading towards the bright sun.

Image source: Getty Images.

A look at what's ahead

Plains All American's exceptional performance during the first quarter has it on track to earn more money than it initially anticipated this year. That led the company to raise its full-year forecast:

Metric

Updated Guidance

Growth Versus 2018

Prior Guidance

Growth Versus 2018

Adjusted EBITDA

$2.85 billion

6.2%

$2.75 billion

2.5%

Distributable cash flow

$1.97 billion

10.2%

$1.875 billion

4.9%

Data source: Plains All American Pipeline.

Driving that improved outlook is the company's supply and logistics business, which is on track to generate $100 million in additional EBITDA this year due to its strong showing in the first quarter.

Plains All American Pipeline also increased its guidance for capital spending. The oil pipeline company now expects to invest $1.35 billion in growth projects this year, a $250 million increase from its initial budget. The spending boost comes after the company approved several new projects, including additional storage capacity at its St. James terminal in Louisiana and more expansions in the Permian Basin. These new investments set the company up to continue growing in 2020 and beyond. Meanwhile, the MLP has a few other identified projects in development, including expansions of the Red River, Capline, and Diamond pipelines. Success in securing these and other projects will further enhance the company's growth profile in the coming years.

What a way to start the year

Plains All American Pipeline got off to a better-than-expected start in 2019 thanks to the strong showing of its supply and logistics business, which benefits from dislocations in the oil market. The company also secured several more expansion projects, which positions it for continued growth in 2020 and beyond. Add that to the oil pipeline MLP's recent decision to boost its payout by 20%, and the company has the potential to generate meaningful total returns in the coming years.

 

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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