Plains All American Pipeline Has Healthy Q4

It took some patience as lower-fee pipelines (Wink-to-Webster) needed to fill up first, but Plains All American Pipeline PAA 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.

The better-than-expected performance is being driven by higher Permian volumes, as its crude oil segment increased EBITDA by 19% from last year’s levels and will be the primary growth driver in 2023. Plains expects its 2023 Permian volumes to increase about 500,000 barrels per day from fourth-quarter levels. However, a material portion of those will be intrabasin movements, so the actual Permian increase is expected to be 300,000 bbl/d to 350,000 bbl/d. Plains estimates that for every 100,000 bbl/d increase, it earns an incremental $10 million-$15 million in EBITDA.

Oil export demand is the growth engine here, with barrels moving to Corpus Christi as the preferred destination by producers for logistics and quality. However, Plains flagged the need for higher Corpus Christi tariffs to support expected newbuild expansions, meaning barrels may still flow to Houston in the absence of expanded Corpus Christi pipelines. The offset that is driving the flat year-over-year performance is weaker natural gas liquids and oil spreads as prices have come down materially over the past few months.