Also Comments on Financial Guidance, Capital
Program and Financial Position
Conference Call Scheduled for Wednesday,
January 25, at 8:00 a.m. ET (7:00 a.m. CT)
Plains All American Pipeline, L.P. (NYSE:PAA) today announced it
had entered into definitive agreements to acquire a Permian Basin
crude oil gathering system for approximately $1.2 billion. PAA also
announced it had entered into definitive sales agreements totaling
$380 million, which includes two pending transactions aggregating
approximately $310 million and the completion of a third
transaction in January 2017 for approximately $70 million. The
acquisition and pending sale transactions are subject to customary
closing conditions, including receipt of regulatory approvals, and
are expected to close during the first half of 2017.
The crude oil gathering system is located in the northern
portion of the Delaware Basin and is supported by substantial
acreage dedications from several producers active in this portion
of the Delaware Basin.
“The Permian Basin is a world class resource play and we are
pleased to announce this strategic acquisition, which complements
our existing assets that provide transportation and related
services throughout the Permian Basin,” said Greg Armstrong,
Chairman and CEO of PAA. “The Northern Delaware Basin is an area
that is experiencing increased activity levels and significant
industry investment. We expect aggregate crude oil production on
the dedicated acreage to double over the next two to three years,
and we believe that overall Permian Basin crude oil volumes have
the potential to grow as much as 50% or more during this same time
period. Additionally, we expect to realize meaningful synergies
with our existing assets and generate attractive investment returns
relative to our cost of capital.”
Armstrong also stated that this system and planned enhancements
will provide additional flexibility and a greater range of options
for area producers, including connectivity to PAA’s pipelines with
access to markets in Cushing, Houston and Corpus Christi. PAA
recently announced it was expanding the capacity on its Cactus
pipeline from McCamey to Gardendale, Texas to approximately 390,000
barrels per day. This expansion is anticipated to be completed in
the third quarter of 2017 and will allow PAA to move increasing
production volumes from the Permian Basin to Corpus Christi and
other delivery points along the system. Additionally, BridgeTex
Pipeline Company, LLC, in which PAA owns a 50% interest, yesterday
announced it was expanding the capacity on the BridgeTex pipeline
from Colorado City to Houston, Texas to approximately 400,000
barrels per day. This expansion is anticipated to be completed in
the second quarter of 2017 and will also move increasing production
volumes from the Permian Basin to the Houston Gulf Coast area.
Financial Related Updates:
In November 2016, PAA furnished preliminary guidance for 2017
Adjusted EBITDA of +/- $2.3 billion and estimated that its 2017
expansion capital program would be in the $500 million to $700
million range. In connection with the release of 2016 full year and
fourth quarter financial results in February, management currently
expects to furnish updated 2017 Adjusted EBITDA guidance in-line
with or slightly above the preliminary guidance, which outlook will
incorporate the impact of completed and pending asset sales as well
as the pending acquisition.
Additionally, PAA currently expects its 2017 expansion capital
program will be approximately $800 million, which incorporates
capital expenditures to integrate and enhance the performance of
the assets to be acquired and additional Permian Basin related
expenditures consistent with its stronger short-term production
outlook.
PAA also stated it expects to report 2016 fourth quarter
Adjusted EBITDA near the midpoint of the $569 million to $619
million guidance range furnished during its third quarter 2016
earnings conference call. Expansion capital expenditures for 2016
are expected to be approximately $1.4 billion.
PAA reiterated its commitment to investment grade credit
metrics, noting it is continuing to advance an asset sale program
that currently totals slightly more than $1.2 billion. Such program
includes the transactions announced today and the previously
announced agreement to sell its Northern California terminals,
which collectively total $670 million as well as $550 million of
asset sales initiated and completed during 2016.
PAA ended 2016 with long-term debt of approximately $10.125
billion, which represents a decrease of $250 million from the
balance at December 31, 2015, despite assuming $642 million of debt
in connection with the elimination of PAA’s incentive distribution
rights in late 2016. At December 31, 2016, PAA had $2.4 billion of
available liquidity.
PAA stated that since September 30, 2016, it had raised $706
million pursuant to PAA and PAGP’s continuous equity offering
programs, bringing the total equity proceeds raised since August
2016 to $995 million. PAA plans to fund the Permian Basin
acquisition and its 2017 expansion capital program with the
proceeds from 2017 asset sales and additional common equity
issuances as well as retained cash flow. As a result, PAA intends
to end 2017 with a long-term debt balance at or below the year-end
2016 level and to enter 2018 with an Adjusted EBITDA run rate above
PAA’s 2017 level. PAA’s outlook takes into consideration the
completion of certain of PAA’s fee-based expansion projects,
increases in minimum volume commitments under existing contracts
and anticipated volume increases across its Permian Basin
assets.
Additional information with respect to acquisition and sales
agreements:
Permian Basin Crude Oil Gathering System - PAA has
executed definitive agreements to acquire 100% of the equity
interests of Alpha Holding Company, LLC, which indirectly owns the
Alpha Crude Connector (ACC) gathering system located in the
Northern Delaware Basin. In exchange for their equity interests,
ACC’s owners (Concho Resources Inc. (NYSE:CXO) and Frontier
Midstream Solutions, LLC) will receive total consideration of
$1.215 billion, subject to customary closing adjustments. The ACC
gathering system is a newly constructed system located in Lea and
Eddy counties, New Mexico that also extends into Loving, Winkler
and Culberson counties, Texas. The system is located in the most
prolific portions of the Northern Delaware Basin and is supported
by acreage dedications covering approximately 315,000 gross acres,
the majority of which have 10-year terms, and include a significant
acreage dedication from Concho Resources, one of the largest
Permian Basin producers. In addition, a large area of mutual
interest agreement with Concho Resources spans the area immediately
around the gathering system.
The ACC system is comprised of 515 miles of gathering and
transmission lines and five market interconnects, including PAA’s
Basin Pipeline system at Wink. Following closing, PAA intends to
make three additional interconnects to PAA’s existing Northern
Delaware Basin system as well as additional enhancements intended
to increase the system capacity to approximately 350,000 barrels
per day, depending on the level of volume at each delivery point.
Such enhancements are designed to provide additional flexibility
for producers and accommodate anticipated volume growth from
current and future acreage dedications.
The ACC system was placed in initial service in late 2015 with
multiple new well connections made throughout 2016. Fourth quarter
2016 gathering volumes averaged approximately 70,000 barrels per
day and shipper nominations for January 2017 totaled approximately
85,000 barrels per day.
In connection with the ACC acquisition, Jefferies LLC acted as
PAA’s financial advisor, and Norton Rose Fulbright served as PAA’s
legal advisor.
Non-Core Asset Sale Transactions - PAA executed
definitive agreements to sell two non-core assets for aggregate
proceeds of approximately $310 million. Such transactions include
the Bluewater gas storage facility in Michigan and a non-core
pipeline segment located in the Midwestern United States.
Strategic Partnership - On January 18, 2017, PAA
completed the sale of an undivided 40% interest in a segment of the
Red River Pipeline to a subsidiary of Valero Energy Partners LP for
approximately $70 million. The undivided interest conveyed
represents 60,000 barrels per day on the segment of the pipeline
extending from Cushing, Oklahoma to Hewitt, Oklahoma near Valero’s
refinery in Ardmore, Oklahoma (the “Hewitt Segment”). PAA retained
an undivided 60% interest in the Hewitt Segment and a 100% interest
in the remaining portion of the pipeline that extends from Ardmore
to Longview, Texas, where it connects with various pipelines,
including PAA’s newly constructed Caddo pipeline that extends to
refinery markets in Northern Louisiana.
Supplemental Slide Presentation
A slide presentation supplementing this press release is posted
on our website at www.plainsallamerican.com under the “Investor
Relations” sections of the website (Navigate to: Investor
Relations/ either “PAA” or “PAGP”/ News & Events/ Conference
Calls).
Conference Call Timing
PAA will conduct a conference call on Wednesday, January 25,
2017 to further discuss PAA’s ACC acquisition, Permian Basin
production outlook, asset sales, funding plan, financial guidance,
2017 expansion capital program and related matters. The conference
call will be held at 8:00 a.m. ET (7:00 a.m. CT).
Webcast Access Instructions
The conference call will be webcast live and is accessible
through either of the addresses below. Registering for the webcast
in advance is recommended.
www.plainsallamerican.com (Navigate to: Investor Relations/
either “PAA” or “PAGP”/ News & Events/ Conference Calls)
or
https://event.webcasts.com/starthere.jsp?ei=1133380
Webcast Replay Instructions
An audio replay in MP3 format will be available within two hours
after the end of the call at www.plainsallamerican.com under the
“Investor Relations” sections of the website (Navigate to: Investor
Relations/ either “PAA” or “PAGP”/ News & Events/ Conference
Calls).
Non-GAAP Financial Measures and Selected Items Impacting
Comparability
To supplement our financial information presented in accordance
with GAAP, management uses additional measures known as “non-GAAP
financial measures” in its evaluation of past performance and
prospects for the future. The primary additional measures used by
management are adjusted earnings before interest, taxes,
depreciation and amortization (“adjusted EBITDA”) and implied
distributable cash flow (“DCF”).
Management believes that the presentation of such additional
financial measures provides useful information to investors
regarding our performance and results of operations because these
measures, when used to supplement related GAAP financial measures,
(i) provide additional information about our core operating
performance and ability to fund distributions to our unitholders
through cash generated by our operations and (ii) provide investors
with the same financial analytical framework upon which management
bases financial, operational, compensation and planning/budgeting
decisions. We also present these and additional non-GAAP financial
measures, including adjusted net income attributable to PAA, basic
and diluted adjusted net income per common unit and adjusted
segment profit, as they are measurements that investors, rating
agencies and debt holders have indicated are useful in assessing us
and our results of operations. These non-GAAP measures may exclude,
for example, (i) charges for obligations that are expected to be
settled with the issuance of equity instruments, (ii) the
mark-to-market of derivative instruments that are related to
underlying activities in another period (or the reversal of such
adjustments from a prior period), the mark-to-market related to our
Preferred Distribution Rate Reset Option, gains and losses on
derivatives that are related to investing activities (such as the
purchase of linefill) and inventory valuation adjustments, as
applicable, (iii) long-term inventory costing adjustments, (iv)
items that are not indicative of our core operating results and
business outlook and/or (v) other items that we believe should be
excluded in understanding our core operating performance. These
measures may further be adjusted to include amounts related to
deficiencies associated with minimum volume commitments whereby we
have billed the counterparties for their deficiency obligation and
such amounts are recognized as deferred revenue in “Accounts
payable and accrued liabilities” in our Condensed Consolidated
Financial Statements. Such amounts are presented net of applicable
amounts subsequently recognized into revenue. Furthermore, the
calculation of these measures contemplates tax effects as a
separate reconciling item, where applicable. We have defined all
such items as “Selected Items Impacting Comparability.” Due to the
nature of the selected items, certain selected items impacting
comparability may impact certain non-GAAP financial measures,
referred to as adjusted results, but not impact other non-GAAP
financial measures. We consider an understanding of these selected
items impacting comparability to be material to the evaluation of
our operating results and prospects.
Our definition and calculation of certain non-GAAP financial
measures may not be comparable to similarly-titled measures of
other companies. Adjusted EBITDA, Implied DCF and other non-GAAP
financial measures are reconciled to the most comparable measures
as reported in accordance with GAAP for the periods presented in
the tables attached to this release, and should be viewed in
addition to, and not in lieu of, our Condensed Consolidated
Financial Statements and notes thereto. In addition, we encourage
you to visit our website at www.plainsallamerican.com (in
particular the section under “Financial Information” entitled
“Non-GAAP Reconciliations” within the “Investor Relations” tab),
which presents a reconciliation of EBITDA as well as certain other
commonly used non-GAAP and supplemental financial measures.
Forward Looking Statements
Except for the historical information contained herein, the
matters discussed in this release consist of forward-looking
statements that involve certain risks and uncertainties that could
cause actual results or outcomes to differ materially from results
or outcomes anticipated in the forward-looking statements. These
risks and uncertainties include, among other things, declines in
the volume of crude oil, refined product and NGL shipped,
processed, purchased, stored, fractionated and/or gathered at or
through the use of our assets, whether due to declines in
production from existing oil and gas reserves, failure to develop
or slowdown in the development of additional oil and gas reserves,
whether from reduced cash flow to fund drilling or the inability to
access capital, or other factors; the effects of competition;
failure to implement or capitalize, or delays in implementing or
capitalizing, on expansion projects; unanticipated changes in crude
oil market structure, grade differentials and volatility (or lack
thereof); environmental liabilities or events that are not covered
by an indemnity, insurance or existing reserves; fluctuations in
refinery capacity in areas supplied by our mainlines and other
factors affecting demand for various grades of crude oil, refined
products and natural gas and resulting changes in pricing
conditions or transportation throughput requirements; the
occurrence of a natural disaster, catastrophe, terrorist attack or
other event, including attacks on our electronic and computer
systems; maintenance of our credit rating and ability to receive
open credit from our suppliers and trade counterparties; tightened
capital markets or other factors that increase our cost of capital
or limit our ability to obtain debt or equity financing on
satisfactory terms to fund additional acquisitions, expansion
projects, working capital requirements and the repayment or
refinancing of indebtedness; the currency exchange rate of the
Canadian dollar; continued creditworthiness of, and performance by,
our counterparties, including financial institutions and trading
companies with which we do business; inability to recognize current
revenue attributable to deficiency payments received from customers
who fail to ship or move more than minimum contracted volumes until
the related credits expire or are used; non-utilization of our
assets and facilities; increased costs, or lack of availability, of
insurance; weather interference with business operations or project
construction, including the impact of extreme weather events or
conditions; the availability of, and our ability to consummate,
acquisition or combination opportunities; the successful
integration and future performance of acquired assets or businesses
and the risks associated with operating in lines of business that
are distinct and separate from our historical operations; the
effectiveness of our risk management activities; shortages or cost
increases of supplies, materials or labor; the impact of current
and future laws, rulings, governmental regulations, accounting
standards and statements and related interpretations; fluctuations
in the debt and equity markets, including the price of our units at
the time of vesting under our long-term incentive plans; risks
related to the development and operation of our assets, including
our ability to satisfy our contractual obligations to our
customers; factors affecting demand for natural gas and natural gas
storage services and rates; general economic, market or business
conditions and the amplification of other risks caused by volatile
financial markets, capital constraints and pervasive liquidity
concerns; and other factors and uncertainties inherent in the
transportation, storage, terminalling and marketing of crude oil
and refined products, as well as in the storage of natural gas and
the processing, transportation, fractionation, storage and
marketing of natural gas liquids as discussed in the Partnerships'
filings with the Securities and Exchange Commission.
Plains All American Pipeline, L.P. is a publicly traded master
limited partnership that owns and operates midstream energy
infrastructure and provides logistics services for crude oil, NGLs,
natural gas and refined products. PAA owns an extensive network of
pipeline transportation, terminalling, storage and gathering assets
in key crude oil and NGL producing basins and transportation
corridors and at major market hubs in the United States and Canada.
On average, PAA handles over 4.6 million barrels per day of crude
oil and NGL in its Transportation segment. PAA is headquartered in
Houston, Texas. More information is available at
www.plainsallamerican.com.
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Plains All American Pipeline, L.P.Ryan Smith, (866)
809-1291Director, Investor Relations
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