VettaFi recently sat down with Jeremy Goebel, EVP and Chief Commercial Officer at Plains All American (PAA/PAGP). Goebel offered insight into the company’s asset base, growth opportunities, and capital allocation priorities.
VettaFi: Would you provide a brief overview of Plains’ assets and businesses?
Goebel: Plains is a leading liquids midstream logistics and transportation company. Our asset footprint spans from Canada all the way down to the U.S. Gulf Coast. We have almost 20,000 miles of pipelines, about 157 million barrels of storage capacity, and currently transport about 8 million barrels a day of crude oil and natural gas liquids through our system.
Our system has significant size and scale and is largely integrated. Roughly 85% of our EBITDA comes from oil, with the remaining 15% coming from natural gas liquids (NGLs), which is predominantly in Canada. Roughly half of our EBITDA comes from the Permian Basin, which is one of the premier oil basins globally.
Plains is unique in the midstream space due to its dual tickers. PAA is an MLP that issues a K-1, while PAGP is structured as an “Up-C” and provides a 1099. However, PAGP is expected to provide return-of-capital or tax-deferred dividends for the next five years.
VettaFi: Would you discuss the benefits of your Permian footprint and production expectations for the basin?
Goebel: Our Permian position is second to none, with about half the industry’s drilling rigs currently operating on our roughly 4.5 million dedicated acres. It includes not only crude oil gathering, but intrabasin movements and long-haul pipeline transportation, providing customers with access to local markets, local refiners, as well as multiple downstream markets, including Corpus Christi, Houston, and Cushing.
Our current outlook for 2024 was roughly 200,000 to 300,000 barrels a day of oil growth on an exit to exit basis, comparing the end of 2023 to the end of 2024. This was predicated on a rig count of roughly 300 to 320 horizontal rigs. Due to consolidation and capital discipline amongst our upstream customers, we’ve actually seen the rig count trend a bit below that range, probably around 275 to 280 or so.
That said, efficiency gains have offset the reduced rig count. So our initial forecast of 200,000 to 300,000 barrels a day remains intact. For context, we would exit 2024 with about 6.4 million barrels a day of crude oil production out of the Permian Basin. This compares to operable takeaway capacity approaching 7.2 million barrels a day.
We’ll formally provide an update to our 2025 outlook in February, but based on a preliminary look, we expect activity and growth to remain consistent next year. So, similar growth around 200,000 to 300,000 barrels a day seems like a reasonable estimate at this point.
As the Permian continues to fill existing infrastructure, we’d expect the margin environment to progressively improve. More broadly though, on the Permian, we expect it to be the growth engine for U.S. oil production. Its resource, scale, and infrastructure are unmatched. Longer term, we see production growing to over 7 million barrels a day based on current upstream practices, but we’re excited to see additional efficiencies that our upstream partners can develop to continue unlocking U.S. energy growth.
Just as an aside, Exxon last week announced that it’s got some new completion technologies, which are patented, which can unlock additional resource recoveries. So it’s happening right now, and we’re excited about it.
VettaFi: Would you talk about the Fort Saskatchewan expansion and any other growth opportunities for Plains?
Goebel: The Fort Saskatchewan debottleneck and value chain expansion projects are the largest organic growth projects in the company currently, at roughly $200 million in capital spend. It will add about 30,000 barrels a day of fractionation capacity for the C3+ components, additional connectivity at Fort Sask, and an expansion of our Cochrane to Edmonton gathering system in early 2025. This capacity is backed by 10-year contracts and increases our fee-for-service EBITDA, which tends to be more stable and less seasonal compared to our frac spread or commodity-related volumes.
In 2025, we expect the NGL business to comprise roughly greater than 50% fee-for-service EBITDA.
Canada, in general, has been plagued with infrastructure constraints for years across all commodities. Between TMX (Trans Mountain Expansion) startup and Canada LNG, both oil and natural gas have new egress on their horizon. In our view, this sets the stage for ongoing growth of all commodities out of Canada.
This could lead to additional projects or debottlenecking at our Fort Sask facility at some point in the future. However, our focus at this stage is to complete the existing debottleneck project on time and on budget, and be opportunistic around future expansions.
VettaFi: Would you talk about Plains’ free cash flow generation and capital allocation priorities, including the distribution?
Goebel: Plains currently is one of the strongest free cash flow generators in the midstream space. Since 2021, we have delivered cumulative free cash flow of roughly $7.5 billion. This is underpinned by strong operational performance, where EBITDA has surpassed expectations, and focus on capital discipline, where our growth capital remains fairly consistent in the $300 to $400 million per year range.
Additionally, we see investment opportunities through bolt-on acquisitions to deploy incremental cash flow to continue to grow EBITDA, and ultimately distribution capacity.
Our current distribution is $1.27 per unit annually, translating to about a 7% yield at current unit prices. We are one of the few companies that has outlined a multi-year capital allocation framework. This plan that we announced in November 2022 articulated a 15-cent-per-unit annual increase until our distribution coverage reaches 160%. As an aside, that would imply about a 12% increase in our distribution next year. For context, distribution coverage for 2024 is currently forecasted to be about 190%, leaving ample room for distribution increases.
VettaFi: Is there anything about Plains that you think the market may not fully appreciate?
Goebel: Our goal is to be the partner of choice to our customers, employer of choice to our employees, and investment of choice to our investors.
We spent the last few weeks with investors and analysts providing insight into why we are now on offense. Our focus of those discussion were on outlining our integrated asset base and the potential levers for growth behind it. Additionally, we spent time discussing our financial strength and balance sheet capacity, our strong return of capital framework, and our tax efficient structure.
We’re excited about our positioning and the opportunity set for Plains in 2025 and beyond.
PAA is a top five holding in the Alerian MLP ETF (AMLP), comprising 11.6% of the fund by weight as of December 16. AMLP tracks the Alerian MLP Infrastructure Index (AMZI), a composite of energy infrastructure MLPs that earn most of their cash flow from fee-based midstream activities.
PAGP is a holding in the Alerian Energy Infrastructure ETF (ENFR), making up 4.6% of the fund by weight as of December 16. ENFR tracks the Alerian Midstream Energy Select Index (AMEI). The index includes North American midstream energy infrastructure companies, comprising MLPs (25%) and corporations (75%).
For more news, information, and analysis, visit the Energy Infrastructure Channel.
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