PLAINS GP HOLDINGS, L.P. Introduction
The following discussion is intended to provide investors with an understanding of our financial condition and results of our operations and should be read in conjunction with our historical Consolidated Financial Statements and accompanying notes. Unless the context otherwise requires, references to "we," "us," "our," and "PAGP" are intended to mean the business and operations of PAGP and its consolidated subsidiaries.
Our discussion and analysis includes the following:
•Executive Summary •Critical Accounting Policies and Estimates •Recent Accounting Pronouncements •Results of Operations •Liquidity and Capital Resources A comparative discussion of our 2019 to 2018 operating results and performance measures can be found in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onFebruary 27, 2020 .
Executive Summary
Company Overview
We are aDelaware limited partnership formed in 2013 that has elected to be taxed as a corporation forUnited States federal income tax purposes. As ofDecember 31, 2020 , our sole cash-generating assets consisted of (i) a 100% managing member interest inGP LLC , an entity that has also elected to be taxed as a corporation forUnited States federal income tax purposes and (ii) an approximate 79% limited partner interest in AAP through our direct ownership of approximately 193.1 million AAP units and indirect ownership of approximately 1.0 million AAP units throughGP LLC .GP LLC is aDelaware limited liability company that also holds the non-economic general partner interest in AAP. AAP is aDelaware limited partnership that, as ofDecember 31, 2020 , directly owned a limited partner interest in PAA through its ownership of approximately 245.8 million PAA common units (approximately 31% PAA's total outstanding common units and Series A preferred units combined). AAP is the sole member of PAA GP, aDelaware limited liability company that directly holds the non-economic general partner interest in PAA. PAA's business model integrates large-scale supply aggregation capabilities with the ownership and operation of critical midstream infrastructure systems that connect major producing regions to key demand centers and export terminals. As one of the largest midstream service providers inNorth America , PAA owns an extensive network of pipeline transportation, terminalling, storage and gathering assets in key crude oil and NGL producing basins (including thePermian Basin ) and transportation corridors and at major market hubs inthe United States andCanada . PAA's assets and the services it provides are primarily focused on crude oil, NGL and natural gas. PAA's business activities are conducted through three operating segments: Transportation, Facilities and Supply and Logistics. See "-Results of Operations-Analysis of Operating Segments" for further discussion.
Recent Events and Outlook
During the first quarter of 2020, COVID-19 escalated into a global pandemic, which led to widespread shelter-in-place or similar requirements throughoutNorth America and across the world, resulting in significantly reduced energy demand. As a result, North American producers responded aggressively by shutting in significant levels of production early in the second quarter, which mitigated the pace of crude oil inventory builds and the risk of testing storage maximums. Subsequently,United States refinery utilization increased, the previously steep contango market structure tempered, and crude oil prices improved to more constructive levels. Over the course of the second half of the year, the more constructive price environment allowed oil and gas producers to return to production wells that were previously shut-in, resume completion activities and begin to increase drilling activities during the third quarter at a level that is lower than pre-pandemic, but likely at a level that is sufficient to offset natural declines. 80
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Index to Financial Statements While prices have rebounded to levels that are near pre-pandemic levels, drilling activity is at a fraction of pre-pandemic levels as evidenced by the Lower 48 rig count, which is approximately 40% of peak levels reached in 2020 pre-COVID-19. Many oil and gas producers inthe United States have publicly stated their intention to reduce capital investment in oil and gas drilling activities in 2021 as they strive to improve their financial metrics and increase returns to shareholders. Accordingly, we expect oil and gas drilling activities to continue to be lower than pre-pandemic levels which in turn will slow the growth in oil production, relative to pre-pandemic expectations of production growth. We expect that the combination of a muted growth in production, with excess pipeline capacity in most of our operating areas will have a negative impact on our business relative to pre-pandemic levels, with the impacts in 2021 being more pronounced than in 2020. Similar to the actions taken by oil and gas producers, we have implemented a number of initiatives, as described below, to ensure that we are positioned to manage through the current challenging market environment. Longer term, we expect global demand for hydrocarbons will recover, which should drive higher production levels in key onshore shale basins, which should support growing demand for our assets. Also see Items 1. and 2. "Business and Properties-Global Petroleum Market Overview and Fundamental Themes" for additional information. Our response to the challenging near-term market conditions has been to focus on measures to strengthen our balance sheet, liquidity and long-term financial flexibility. These actions include significantly reducing our capital program, reducing the amount of our common equity distributions, progressing asset sales, and reducing costs, while remaining focused on operating safely and responsibly. Specifically, since April, we have reduced our 2020/2021 capital program by$950 million , or 41%, and have decreased PAA's common unit distributions and our Class A share distributions by 50% versus the distributions paid inFebruary 2020 , which reflects a reduction of$525 million on an annualized basis. We have also completed approximately$450 million of asset sales. While each of these actions should contribute to a stronger balance sheet and enhanced liquidity and long-term financial flexibility, we can provide no assurance that we will be able to effect certain future actions (such as additional capital reductions, asset sales and expense reductions) and additional actions may be necessary to achieve our balance sheet, liquidity and financial security objectives. See "Risk Factors-Risks Related to PAA's Business" in Item 1A. While some modifications in our operations have been necessary to deal with risks associated with the COVID-19 pandemic, we have not experienced any material constraints in our ability to continue our essential business functions and have not incurred any significant additional operating costs as a result of the pandemic. We remain focused on the health and safety of our workforce, and have modified our operations in ways that we believe are prudent and appropriate in order to protect our employees while continuing to operate our assets in an effective, safe and responsible manner. In addition, many governments have enacted or are contemplating measures to provide aid and economic stimulus in response to the COVID-19 pandemic. These measures include actions by boththe United States federal government and the government ofCanada . There has been no material direct impact to our financial position, results of operations or cash flows resulting from these measures. However, our Canadian subsidiary participated in a wage subsidy program during the second, third and fourth quarters of 2020 for subsidies totaling approximately$23 million . The impact of such subsidies is included in the line items "Field operating costs" and "Segment general and administrative expenses" of the applicable segments. See "-Results of Operations-Analysis of Operating Segments" for further discussion.
Overview of Operating Results, Capital Investments and Other Significant Activities
The macroeconomic and industry specific challenges discussed above have resulted in a number of impairment charges recognized during 2020 as discussed further below. See "-Liquidity and Capital Resources" for additional discussion of the expected and potential impact of COVID-19 and related market conditions on our business. We recognized a net loss of$2.440 billion for the year endedDecember 31, 2020 compared to net income of$2.062 billion recognized for the year endedDecember 31, 2019 . The net loss for the period was driven by goodwill impairment losses of$2.515 billion and was also impacted by non-cash impairment charges of approximately$914 million related to the write-down of certain pipeline and other long-lived assets, certain of our investments in unconsolidated entities, and assets upon classification as held for sale. In addition, we recognized approximately$233 million of inventory valuation adjustments due to declines in commodity prices primarily during the first quarter of 2020. 81
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Index to Financial Statements Our results for the comparative period were also impacted by: •Less favorable results from our Supply and Logistics segment due to less favorable crude oil differentials, lower NGL margins and the unfavorable impact of the mark-to-market of certain derivative instruments, resulting in higher losses recognized in 2020 compared to 2019, partially offset by the favorable impact of contango market conditions during 2020; •Less favorable results from our Transportation segment driven by lower volumes from shut-ins of crude oil production, reduced drilling and completion activity and compressed regional basis differentials, a portion of which are covered by minimum volume commitments that will be made up or paid for in future periods, and lower pipeline loss allowance revenue in 2020 due to lower prices and volumes, partially offset by lower field operating costs; •Higher depreciation and amortization expense in the 2020 period primarily due to additional depreciation expense associated with acquired assets, the completion of various investment capital projects and a reduction in the useful lives of certain assets; •A gain of$21 million recognized in the current period related to the sale of a portion of our interest inSaddlehorn Pipeline Company, LLC inFebruary 2020 , compared to a non-cash gain of$269 million recognized in the 2019 period related to a fair value adjustment resulting from the accounting for the contribution of our undivided joint interest in theCapline pipeline system for an equity interest inCapline Pipeline Company LLC ; partially offset by
•Favorable results from our Facilities segment primarily due to lower field operating costs; and
•The favorable impact on income tax expense of (i) lower income attributable to PAGP as a result of lower earnings at PAA and (ii) lower taxable earnings and lower year-over-year income as impacted by fluctuations in the derivative mark-to-market valuations in our Canadian operations.
See further discussion of our operating results in the "-Results of Operations-Analysis of Operating Segments" and "-Other Income and Expenses" sections below.
We invested$921 million in midstream infrastructure projects during 2020, which primarily related to projects under development in thePermian Basin . See "-Liquidity and Capital Resources-Investing Activities-Investment Capital Projects" for additional information. Additionally, during the first quarter of 2020, we acquired$310 million of assets, which primarily included a crude oil gathering system located in theDelaware Basin .
We also paid approximately
InJune 2020 , PAA completed the issuance of$750 million , 3.80% senior notes dueSeptember 2030 . We used the net proceeds from this offering of$742 million , after deducting the underwriting discount and offering expenses, to repay the principal amounts of PAA's 5.00% senior notes dueFebruary 2021 inNovember 2020 . See "-Liquidity and Capital Resources-Financing Activities-Senior Notes" for additional information. During the fourth quarter of 2020, PAA repurchased 6.6 million common units for$53 million , which includes repurchases of 350,000 common units for$3 million that did not settle untilJanuary 2021 . See "-Liquidity and Capital Resources-Financing Activities-Common Equity Repurchase Program" for additional information.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP and rules and regulations of theSEC requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Although we believe these estimates are reasonable, actual results could differ from these estimates. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors. 82
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Index to Financial Statements We believe that the assumptions, judgments and estimates involved in the accounting for our (i) estimated fair value of assets and liabilities acquired and identification of associated goodwill and intangible assets, (ii) impairment assessments of goodwill and intangible assets, (iii) fair value of derivatives, (iv) accruals and contingent liabilities, (v) property and equipment, depreciation and amortization expense and asset retirement obligations, (vi) impairment assessments of property and equipment and investments in unconsolidated entities and (vii) inventory valuations have the greatest potential impact on our Consolidated Financial Statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates. Therefore, we consider these to be our critical accounting policies and estimates, which are discussed further as follows. For further information on all of our significant accounting policies, see Note 2 to our Consolidated Financial Statements. Fair Value of Assets and Liabilities Acquired and Identification of AssociatedGoodwill and Intangible Assets. In accordance withFinancial Accounting Standards Board ("FASB") guidance regarding business combinations, with each acquisition, we allocate the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition. If the initial accounting for the business combination is incomplete when the combination occurs, an estimate will be recorded. We also expense the transaction costs as incurred in connection with each acquisition, except for acquisitions of equity method investments. In addition, we are required to recognize intangible assets separately from goodwill. Determining the fair value of assets and liabilities acquired, as well as intangible assets that relate to such items as customer relationships, acreage dedications and other contracts, involves professional judgment and is ultimately based on acquisition models and management's assessment of the value of the assets acquired and, to the extent available, third-party assessments. Impairment Assessments ofGoodwill and Intangible Assets.Goodwill and intangible assets with indefinite lives are not amortized but are instead periodically assessed for impairment. Intangible assets with finite lives are amortized over their estimated useful life as determined by management. See Note 8 and Note 10 to our Consolidated Financial Statements for further discussion of goodwill and intangible assets. Impairment testing entails estimating future net cash flows relating to the business, based on management's estimate of future revenues, future cash flows and market conditions including pricing, demand, competition, operating costs and other factors. Uncertainties associated with these estimates include changes in production decline rates, production interruptions, fluctuations in refinery capacity or product slates, economic obsolescence factors in the area and potential future sources of cash flow. In addition, changes in our weighted average cost of capital from our estimates could have a significant impact on fair value. We cannot provide assurance that actual amounts will not vary significantly from estimated amounts. Resolutions of these uncertainties have resulted, and in the future may result, in impairments that impact our results of operations and financial condition. Fair Value of Derivatives. The fair value of a derivative at a particular period end does not reflect the end results of a particular transaction, and will most likely not reflect the gain or loss at the conclusion of a transaction. We reflect estimates for these items based on our internal records and information from third parties. We have commodity derivatives, interest rate derivatives and foreign currency derivatives that are accounted for as assets and liabilities at fair value on our Consolidated Balance Sheets. The valuations of our derivatives that are exchange traded are based on market prices on the applicable exchange on the last day of the period. For our derivatives that are not exchange traded, the estimates we use are based on indicative broker quotations or an internal valuation model. Our valuation models utilize market observable inputs such as price, volatility, correlation and other factors and may not be reflective of the price at which they can be settled due to the lack of a liquid market. Less than 1% of total annual revenues are based on estimates derived from internal valuation models.
We also have embedded derivatives that are recorded at fair value on our Consolidated Balance Sheets. These embedded derivatives are valued using models that contain inputs, some of which involve management judgment.
Although the resolution of the uncertainties involved in these estimates has not
historically had a material impact on our results of operations or financial
condition, we cannot provide assurance that actual amounts will not vary
significantly from estimated amounts. See Item 7A. Quantitative and Qualitative
Disclosures About Market Risk and Note 13 to our Consolidated Financial
Statements for a discussion regarding our derivatives and risk management
activities.
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Index to Financial Statements Accruals and Contingent Liabilities. We record accruals or liabilities for, among other things, environmental remediation, potential legal claims or settlements and fees for legal services associated with loss contingencies, and bonuses. Accruals are made when our assessment indicates that it is probable that a liability has occurred and the amount of liability can be reasonably estimated. Our estimates are based on all known facts at the time and our assessment of the ultimate outcome. Among the many uncertainties that impact our estimates are the necessary regulatory approvals for, and potential modification of, our environmental remediation plans, the limited amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment, the duration of the natural resource damage assessment and the ultimate amount of damages determined, the determination and calculation of fines and penalties, the possibility of existing legal claims giving rise to additional claims and the nature, extent and cost of legal services that will be required in connection with lawsuits, claims and other matters. Our estimates for contingent liability accruals are increased or decreased as additional information is obtained or resolution is achieved. A hypothetical variance of 5% in our aggregate estimate for the accruals and contingent liabilities discussed above would have an impact on earnings of up to approximately$19 million . Although the resolution of these uncertainties has not historically had a material impact on our results of operations or financial condition, we cannot provide assurance that actual amounts will not vary significantly from estimated amounts. Property and Equipment, Depreciation and Amortization Expense and Asset Retirement Obligations. We compute depreciation and amortization using the straight-line method based on estimated useful lives. These estimates are based on various factors including condition, manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Uncertainties that impact these estimates include changes in laws and regulations relating to restoration and abandonment requirements, economic conditions and supply and demand in the area. When assets are put into service, we make estimates with respect to useful lives and salvage values that we believe are reasonable. However, subsequent events could cause us to change our estimates, thus impacting the future calculation of depreciation and amortization. We record retirement obligations associated with tangible long-lived assets based on estimates related to the costs associated with cleaning, purging and, in some cases, completely removing the assets and returning the land to its original state. In addition, our estimates include a determination of the settlement date or dates for the potential obligation, which may or may not be determinable. Uncertainties that impact these estimates include the costs associated with these activities and the timing of incurring such costs. Impairment Assessments of Property and Equipment and Investments in Unconsolidated Entities. We periodically evaluate property and equipment for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable. Any evaluation is highly dependent on the underlying assumptions of related cash flows. We consider the fair value estimate used to calculate impairment of property and equipment a critical accounting estimate. In determining the existence of an impairment of carrying value, we make a number of subjective assumptions as to: •whether there is an event or circumstance that may be indicative of an impairment; •the grouping of assets; •the intention of "holding", "abandoning" or "selling" an asset; •the forecast of undiscounted expected future cash flow over the asset's estimated useful life; and •if an impairment exists, the fair value of the asset or asset group.
In addition, when we evaluate property and equipment and other long-lived assets for recoverability, it may also be necessary to review related depreciation estimates and methods.
Investments in unconsolidated entities accounted for under the equity method of
accounting are assessed for impairment when events or circumstances suggest that
a decline in value may be other than temporary. Examples of such events or
circumstances include continuing operating losses of the entity and/or long-term
negative changes in the entity's core business. When it is determined that an
indicated impairment is other than temporary, a charge is recognized for the
difference between the investment's carrying amount and its estimated fair
value. We consider the fair value estimate used to calculate the impairment of
investments in unconsolidated entities a critical accounting estimate. In
determining the existence of an other-than-temporary impairment of carrying
value, we make a number of subjective assumptions as to:
•whether there is an event or circumstance that may be indicative of a decline
in value of the investment;
•whether the decline in value is other than temporary; and
•the fair value of the investment.
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Index to Financial Statements A change in our outlook or use could result in impairments that may be material to our results of operations or financial condition. See "-Executive Summary- Recent Events and Outlook" and Note 6 and Note 9 to our Consolidated Financial Statements for additional information. Inventory Valuations. Inventory, including long-term inventory, primarily consists of crude oil and NGL and is valued at the lower of cost or net realizable value, with cost determined using an average cost method within specific inventory pools. At the end of each reporting period, we assess the carrying value of our inventory and use estimates and judgment when making any adjustments necessary to reduce the carrying value to net realizable value. Among the uncertainties that impact our estimates are the applicable quality and location differentials to include in our net realizable value analysis. Additionally, we estimate the upcoming liquidation timing of the inventory. Changes in assumptions made as to the timing of a sale can materially impact net realizable value. During the years endedDecember 31, 2020 , 2019 and 2018, we recorded charges of$233 million ,$11 million and$8 million , respectively, related to the valuation adjustment of our crude oil inventory due to declines in prices. See Note 5 to our Consolidated Financial Statements for further discussion regarding inventory.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements for information regarding the effect of recent accounting pronouncements on our Consolidated Financial Statements. Results of Operations
The following table sets forth an overview of our consolidated financial results calculated in accordance with GAAP (in millions, except per share amounts):
Year Ended December 31, Variance
2020 2019 $ %
Transportation Segment Adjusted EBITDA (1) $ 1,616 $ 1,722 $ (106) (6) %
Facilities Segment Adjusted EBITDA (1) 731 705 26 4 %
Supply and Logistics Segment Adjusted EBITDA (1) 210 803 (593) (74) %
Adjustments:
Depreciation and amortization of unconsolidated entities (73) (62) (11) (18) % Selected items impacting comparability - Segment Adjusted EBITDA (617) (163) (454) ** Unallocated general and administrative expenses (5) (5) - - % Depreciation and amortization (656) (604) (52) (9) %
Gains/(losses) on asset sales and asset impairments, net
(719) (28) (691) **
Goodwill impairment losses (2,515) - (2,515) N/A
Gain on/(impairment of) investments in unconsolidated
entities, net (182) 271 (453) (167) %
Interest expense, net (436) (425) (11) (3) %
Other income, net 39 24 15 63 %
Income tax (expense)/benefit 167 (176) 343 195 %
Net income/(loss) (2,440) 2,062 (4,502) (218) %
Net (income)/loss attributable to noncontrolling
interests 1,872 (1,731) 3,603 208 %
Net income/(loss) attributable to PAGP $ (568) $ 331 $ (899) (272) %
Basic net income/(loss) per Class A share $ (3.06) $ 1.97 $ (5.03) **
Diluted net income/(loss) per Class A share $ (3.07) $ 1.96 $ (5.03) **
Basic weighted average Class A shares outstanding 186 168 18 **
Diluted weighted average Class A shares outstanding 246 170 76 **
** Indicates that variance as a percentage is not meaningful.
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Index to Financial Statements
(1)Segment Adjusted EBITDA is the measure of segment performance that is
utilized by our Chief Operating Decision Maker ("CODM") to assess performance
and allocate resources among our operating segments. This measure is adjusted
for certain items, including those that our CODM believes impact comparability
of results across periods. See Note 21 to our Consolidated Financial Statements
for additional discussion of such adjustments.
Non-GAAP Financial Measures
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 measure used by management is earnings before interest,
taxes, depreciation and amortization (including our proportionate share of
depreciation and amortization of unconsolidated entities), gains and losses on
asset sales and asset impairments, goodwill impairment losses and gains on and
impairments of investments in unconsolidated entities, adjusted for certain
selected items impacting comparability ("Adjusted EBITDA").
Our definition and calculation of certain non-GAAP financial measures may not be
comparable to similarly-titled measures of other companies. Adjusted EBITDA is
reconciled to Net Income/(Loss), the most directly comparable measure as
reported in accordance with GAAP, and should be viewed in addition to, and not
in lieu of, our Consolidated Financial Statements and accompanying notes.
Management believes that the presentation of such additional financial measure
provides useful information to investors regarding our performance and results
of operations because this measure, when used to supplement related GAAP
financial measures, (i) provide additional information about our core operating
performance, (ii) provide investors with the same financial analytical framework
upon which management bases financial, operational, compensation and
planning/budgeting decisions and (iii) present measurements that investors,
rating agencies and debt holders have indicated are useful in assessing us and
our results of operations. This non-GAAP measure may exclude, for example,
(i) charges for obligations that are expected to be settled with the issuance of
equity instruments, (ii) gains and losses on derivative instruments that are
related to underlying activities in another period (or the reversal of such
adjustments from a prior period), 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. This measure 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
"Other current liabilities" in our Consolidated Financial Statements. Such
amounts are presented net of applicable amounts subsequently recognized into
revenue. We have defined all such items as "selected items impacting
comparability." We do not necessarily consider all of our selected items
impacting comparability to be non-recurring, infrequent or unusual, but we
believe that an understanding of these selected items impacting comparability is
material to the evaluation of our operating results and prospects.
Although we present selected items impacting comparability that management considers in evaluating our performance, you should also be aware that the items presented do not represent all items that affect comparability between the periods presented. Variations in our operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions, acquisitions, divestitures, investment capital projects and numerous other factors as discussed, as applicable, in "-Analysis of Operating Segments."
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Index to Financial Statements The following table sets forth the reconciliation of our non-GAAP financial performance measure Adjusted EBITDA from Net Income/(Loss) (in millions):
Year Ended December 31, Variance
2020 2019 $ %
Net income/(loss) $ (2,440) $ 2,062 $ (4,502) (218) %
Add/(Subtract):
Interest expense, net 436 425 11 3 %
Income tax expense/(benefit) (167) 176 (343) (195) %
Depreciation and amortization 656 604 52 9 %
(Gains)/losses on asset sales and asset
impairments, net 719 28 691 **
Goodwill impairment losses 2,515 - 2,515 N/A
(Gain on)/impairment of investments in
unconsolidated entities, net 182 (271) 453 167 %
Depreciation and amortization of unconsolidated
entities (1) 73 62 11 18 %
Selected Items Impacting Comparability: Losses from derivative activities net of inventory valuation adjustments (2)
480 160 320 **
Long-term inventory costing adjustments (3) 44 (20) 64 **
Deficiencies under minimum volume commitments, net (4)
74 (18) 92 **
Equity-indexed compensation expense (5) 19 17 2 **
Net (gain)/loss on foreign currency revaluation (6) (3) 14 (17) **
Line 901 incident (7) - 10 (10) **
Significant acquisition-related expenses (8) 3 - 3 **
Selected Items Impacting Comparability - Segment
Adjusted EBITDA 617 163 454 **
Gains from derivative activities (2) (20) (2) (18) **
Net gain on foreign currency revaluation (6) (13) (15) 2 **
Net gain on early repayment of senior notes (9) (3) - (3) **
Selected Items Impacting Comparability - Adjusted
EBITDA (10) 581 146 435 **
Adjusted EBITDA (10) $ 2,555 $ 3,232 $ (677) (21) %
** Indicates that variance as a percentage is not meaningful.
(1)Over the past several years, we have increased our participation in strategic
pipeline joint ventures accounted for under the equity method of accounting. We
exclude our proportionate share of the depreciation and amortization expense of
such unconsolidated entities when reviewing Adjusted EBITDA, similar to our
consolidated assets.
(2)We use derivative instruments for risk management purposes, and our related
processes include specific identification of hedging instruments to an
underlying hedged transaction. Although we identify an underlying transaction
for each derivative instrument we enter into, there may not be an accounting
hedge relationship between the instrument and the underlying transaction. In the
course of evaluating our results of operations, we identify the earnings that
were recognized during the period related to derivative instruments for which
the identified underlying transaction does not occur in the current period and
exclude the related gains and losses in determining Adjusted EBITDA. In
addition, we exclude gains and losses on derivatives that are related to
investing activities, such as the purchase of linefill. We also exclude the
impact of corresponding inventory valuation adjustments, as applicable. See
Note 13 to our Consolidated Financial Statements for a comprehensive discussion
regarding our derivatives and risk management activities.
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Index to Financial Statements
(3)We carry crude oil and NGL inventory that is comprised of minimum working
inventory requirements in third-party assets and other working inventory that is
needed for our commercial operations. We consider this inventory necessary to
conduct our operations and we intend to carry this inventory for the foreseeable
future. Therefore, we classify this inventory as long-term on our balance sheet
and do not hedge the inventory with derivative instruments (similar to linefill
in our own assets). We treat the impact of changes in the average cost of the
long-term inventory (that result from fluctuations in market prices) and
write-downs of such inventory that result from price declines as a selected item
impacting comparability. See Note 5 to our Consolidated Financial Statements for
additional inventory disclosures.
(4)We, and certain of our equity method investments, have certain agreements
that require counterparties to deliver, transport or throughput a minimum volume
over an agreed upon period. Substantially all of such agreements were entered
into with counterparties to economically support the return on our capital
expenditure necessary to construct the related asset. Some of these agreements
include make-up rights if the minimum volume is not met. We record a receivable
from the counterparty in the period that services are provided or when the
transaction occurs, including amounts for deficiency obligations from
counterparties associated with minimum volume commitments. If a counterparty has
a make-up right associated with a deficiency, we defer the revenue attributable
to the counterparty's make-up right and subsequently recognize the revenue at
the earlier of when the deficiency volume is delivered or shipped, when the
make-up right expires or when it is determined that the counterparty's ability
to utilize the make-up right is remote. We include the impact of amounts billed
to counterparties for their deficiency obligation, net of applicable amounts
subsequently recognized into revenue, as a selected item impacting
comparability. We believe the inclusion of the contractually committed revenues
associated with that period is meaningful to investors as the related asset has
been constructed, is standing ready to provide the committed service and the
fixed operating costs are included in the current period results.
(5)Our total equity-indexed compensation expense includes expense associated
with awards that will or may be settled in PAA common units and awards that will
or may be settled in cash. The awards that will or may be settled in PAA common
units are included in PAA's diluted net income per unit calculation when the
applicable performance criteria have been met. We consider the compensation
expense associated with these awards as a selected item impacting comparability
as the dilutive impact of the outstanding awards is included in PAA's diluted
net income per unit calculation, as applicable, and the majority of the awards
are expected to be settled in PAA common units. The portion of compensation
expense associated with awards that are certain to be settled in cash is not
considered a selected item impacting comparability. See Note 18 to our
Consolidated Financial Statements for a discussion regarding our equity-indexed
compensation plans.
(6)During the periods presented, there were fluctuations in the value of the
Canadian dollar ("CAD") to the U.S. dollar ("USD"), resulting in the realization
of foreign exchange gains and losses on the settlement of foreign currency
transactions as well as the revaluation of monetary assets and liabilities
denominated in a foreign currency. These gains and losses are not integral to
our core operating performance and were thus classified as a selected item
impacting comparability. See Note 13 to our Consolidated Financial Statements
for discussion regarding our currency exchange rate risk hedging activities.
(7)Includes costs recognized during the period related to the Line 901 incident
that occurred in May 2015 , net of amounts we believe are probable of recovery
from insurance. See Note 19 to our Consolidated Financial Statements for
additional information regarding the Line 901 incident.
(8)Includes acquisition-related expenses associated with the acquisition of
Felix Midstream LLC ("Felix Midstream") in February 2020 . See Note 7 to our
Consolidated Financial Statements for additional information.
(9)Includes net gains recognized in connection with the repurchase of our
outstanding senior notes on the open market. See Note 11 to our Consolidated
Financial Statements for additional information.
(10)Other income/(expense), net per our Consolidated Statements of Operations,
adjusted for selected items impacting comparability ("Adjusted other
income/(expense), net") is included in Adjusted EBITDA and excluded from Segment
Adjusted EBITDA.
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Index to Financial Statements Analysis of Operating Segments
We manage our operations through three operating segments: Transportation, Facilities and Supply and Logistics. Our CODM (our Chief Executive Officer) evaluates segment performance based on a variety of measures including Segment Adjusted EBITDA, segment volumes, Segment Adjusted EBITDA per barrel and maintenance capital investment.
We define Segment Adjusted EBITDA as revenues and equity earnings in
unconsolidated entities less (a) purchases and related costs, (b) field
operating costs and (c) segment general and administrative expenses, plus our
proportionate share of the depreciation and amortization expense of
unconsolidated entities, and further adjusted for certain selected items
including (i) 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), gains and losses on derivatives that are related to
investing activities (such as the purchase of linefill) and inventory valuation
adjustments, as applicable, (ii) long-term inventory costing adjustments, (iii)
charges for obligations that are expected to be settled with the issuance of
equity instruments, (iv) amounts related to deficiencies associated with minimum
volume commitments, net of applicable amounts subsequently recognized into
revenue and (v) other items that our CODM believes are integral to understanding
our core segment operating performance. See Note 21 to our Consolidated
Financial Statements for a reconciliation of Segment Adjusted EBITDA to Net
income/(loss) attributable to PAGP.
Our segment analysis involves an element of judgment relating to the allocations
between segments. In connection with its operations, the Supply and Logistics
segment secures transportation and facilities services from our other two
segments as well as third-party service providers under month-to-month and
multi-year arrangements. Intersegment transportation service rates are conducted
at posted tariff rates, rates similar to those charged to third parties or rates
that we believe approximate market. Facilities segment services are also
obtained at rates generally consistent with rates charged to third parties for
similar services. Intersegment activities are eliminated in consolidation and we
believe that the estimates with respect to these rates are reasonable. Also, our
segment operating and general and administrative expenses reflect direct costs
attributable to each segment; however, we also allocate certain operating
expenses and general and administrative overhead expenses between segments based
on management's assessment of the business activities for the period. The
proportional allocations by segment require judgment by management and may be
adjusted in the future based on the business activities that exist during each
period. We believe that the estimates with respect to these allocations are
reasonable.
Revenues and expenses from our Canadian based subsidiaries, which use CAD as
their functional currency, are translated at the prevailing average exchange
rates for the month.
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Index to Financial Statements Transportation Segment Our Transportation segment operations generally consist of fee-based activities associated with transporting crude oil and NGL on pipelines, gathering systems and trucks. The Transportation segment generates revenue through a combination of tariffs, pipeline capacity agreements and other transportation fees. Tariffs and other fees on our pipeline systems vary by receipt point and delivery point. The segment results generated by our tariff and other fee-related activities depend on the volumes transported on the pipeline and the level of the tariff and other fees charged, as well as the fixed and variable field costs of operating the pipeline. The following tables set forth our operating results from our Transportation segment: Operating Results (1) Year Ended December 31, Variance (in millions, except per barrel data) 2020 2019 $ % Revenues$ 2,020 $ 2,320 $ (300) (13) % Purchases and related costs (229) (244) 15 6 % Field operating costs (584) (700) 116 17 % Segment general and administrative expenses (2) (98) (104) 6 6 % Equity earnings in unconsolidated entities 350 388 (38)
(10) %
Adjustments (3): Depreciation and amortization of unconsolidated entities 71 61 10
16 % Losses from derivative activities, net of inventory valuation adjustments
1 - 1 **
Deficiencies under minimum volume commitments, net 71 (18) 89
**
Equity-indexed compensation expense 11 9 2 ** Line 901 incident - 10 (10) ** Significant acquisition-related expenses 3 - 3
**
Segment Adjusted EBITDA$ 1,616 $ 1,722 $ (106) (6) % Maintenance capital$ 136 $ 161 $ (25) (16) % Segment Adjusted EBITDA per barrel$ 0.70 $ 0.68 $ 0.02 3 % Average Daily Volumes Year Ended December 31, Variance (in thousands of barrels per day) (4) 2020 2019 Volumes % Tariff activities volumes Crude oil pipelines (by region): Permian Basin (5) 4,427 4,690 (263) (6) % South Texas / Eagle Ford (5) 380 446 (66) (15) % Central (5) 379 498 (119) (24) % Gulf Coast 134 165 (31) (19) % Rocky Mountain (5) 245 293 (48) (16) % Western 223 198 25 13 % Canada 294 323 (29) (9) % Crude oil pipelines 6,082 6,613 (531) (8) % NGL pipelines 184 192 (8) (4) % Tariff activities total volumes 6,266 6,805 (539) (8) % Trucking volumes 74 88 (14) (16) % Transportation segment total volumes 6,340 6,893 (553) (8) % ** Indicates that variance as a percentage is not meaningful. 90
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Index to Financial Statements (1)Revenues and costs and expenses include intersegment amounts. (2)Segment general and administrative expenses reflect direct costs attributable to each segment and an allocation of other expenses to the segments. The proportional allocations by segment require judgment by management and are based on the business activities that exist during each period. (3)Represents adjustments included in the performance measure utilized by our CODM in the evaluation of segment results. See Note 21 to our Consolidated Financial Statements for additional discussion of such adjustments. (4)Average daily volumes are calculated as the total volumes (attributable to our interest) for the year divided by the number of days in the year. (5)Region includes volumes (attributable to our interest) from pipelines owned by unconsolidated entities.
The following is a discussion of items impacting Transportation segment operating results for the periods indicated.
Revenues, Purchases and Related Costs, Equity Earnings in Unconsolidated Entities and Volumes. The following table presents variances in revenues, purchases and related costs and equity earnings in unconsolidated entities by region:
Favorable/(Unfavorable) Variance
2020-2019
Purchases and
(in millions) Revenues Related Costs Equity Earnings
Crude oil pipelines
Permian Basin region $ (104) $ (17) $ 31
South Texas / Eagle Ford region (12) - (26)
Central region (33) (2) (21)
Rocky Mountain region (5) - (24)
Canada region (26) - -
Other regions, NGL pipelines, trucking and
pipeline loss allowance revenue (120) 34 2
Total variance $ (300) $ 15 $ (38)
•COVID-19 Impact. The destruction of demand for refined products, and therefore
crude oil, caused by COVID-19 created a supply and demand imbalance in the crude
oil markets for a portion of 2020 in all of our operating regions. This
imbalance pushed crude oil prices to historically low levels, including negative
values for at least one day in April 2020 . In turn, these factors caused U.S.
and Canadian producers to respond by quickly curtailing their crude oil
production as well as their drilling and completion activities. These actions
led to a decline of onshore, lower 48 U.S. oil production by approximately 1.4
million barrels of crude oil per day between February and May of 2020, according
to the information provided by the EIA, and adversely impacted transportation
volumes on our pipelines.
•Permian Basin region. Revenues, net of purchases and related costs, ("net
revenues") decreased by $121 million for the year ended December 31, 2020
compared to the year ended December 31, 2019 . This decrease was primarily due to
lower long-haul pipeline movements to Cushing, Oklahoma and Corpus Christi,
Texas due to compressed regional basis differentials, as well as lower volumes
on our intra-basin pipelines that feed our long-haul pipelines, partially offset
by increased volumes on our gathering pipelines, almost half of which was
attributable to the Felix Midstream system we acquired in February 2020 . Some
shippers on the long-haul pipelines to Cushing and Corpus Christi have
under-delivered relative to their minimum volume commitments; however, the
earnings related to these volume shortfalls will not be recognized until future
periods when either the shortfall is made up or when the shipper's make-up
rights expire or it is determined that their ability to utilize the make-up
right is remote. Such deficiencies are reflected as an "Adjustment" in the table
above as discussed further below under "-Adjustments: Deficiencies under minimum
volume commitments, net."
The increase in equity earnings over the comparative period was primarily from
our 65% interest in the Cactus II pipeline, which was placed in service in
August 2019 , partially offset by lower equity earnings from our 20% interest in
the BridgeTex pipeline primarily due to lower volumes.
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Index to Financial Statements •South Texas / Eagle Ford region. The decrease in revenues for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was due to lower volumes, primarily related to lower production. Equity earnings from our 50% interest in the Eagle Ford pipeline decreased for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 due to a combination of lower joint tariff volumes from thePermian Basin via our Cactus I pipeline, and to a lesser extent, lower regional receipts. Similar to some shippers in thePermian Basin region, certain shippers on the Eagle Ford pipeline have under-delivered relative to their minimum volume commitments and the earnings related to these volume shortfalls will not be recognized until future periods. Such deficiencies are reflected as an "Adjustment" in the table above as discussed further below under "-Adjustments: Deficiencies under minimum volume commitments, net." •Central region. The decrease in net revenues for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to a decrease in crude oil production in the region. This is also a region with a meaningful amount of excess pipeline capacity, which exacerbates the impact to our assets in this region. The decrease in equity earnings for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to the impact of refinery downtime on certain of the demand pull pipelines out ofCushing, Oklahoma , in which we own a 50% interest. •Rocky Mountain region. Equity earnings decreased for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 primarily due to a combination of (i) lower crude oil volumes, partially offset by higher NGL volumes, (ii) lower tariff rates due to the expiration of certain long-term contracts and (iii) the sale of 25% of our interest in Saddlehorn inFebruary 2020 .
•Canada region. The decrease in revenues for the year ended
•Other regions, NGL pipelines, trucking and pipeline loss allowance revenue. The decrease in other net revenues for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to lower pipeline loss allowance revenue due to a combination of both lower prices and volumes in 2020. To a lesser extent, lower net revenues from our trucking activities due to less favorable market conditions in 2020 contributed to the decrease. Additionally, volumes in ourGulf Coast region were impacted by a decrease in throughput on a lower tariff pipeline, which did not result in a significant impact on revenue. Adjustments: Deficiencies under minimum volume commitments, net. Many industry infrastructure projects developed and completed over the last several years were underpinned by long-term minimum volume commitment contracts whereby the shipper agreed to either: (i) ship and pay for certain stated volumes or (ii) pay the agreed upon price for a minimum contract quantity. Some of these agreements include make-up rights if the minimum volume is not met. If a counterparty has a make-up right associated with a deficiency, we bill the counterparty and defer the revenue attributable to the counterparty's make-up right but record an adjustment to reflect such amount associated with the current period activity in Segment Adjusted EBITDA. We subsequently recognize the revenue, and record a corresponding reversal of the adjustment, at the earlier of when the deficiency volume is delivered or shipped, when the make-up right expires or when it is determined that the counterparty's ability to utilize the make-up right is remote. For the year endedDecember 31, 2020 , amounts billed to counterparties exceeded revenue recognized during the period that was previously deferred. For the year endedDecember 31, 2019 , the recognition of previously deferred revenue exceeded amounts billed to counterparties associated with deficiencies under minimum volume commitments. Field Operating Costs. The decrease in field operating costs for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to (i) a decrease in variable costs due to lower volumes, (ii) a decrease of maintenance activities, primarily due to timing changes, (iii) lower equity-based compensation costs on liability-classified awards (which are not included as an "Adjustment" in the table above) due to a decrease in our common unit price, (iv) reductions in compensation costs, primarily due to the benefit of wage subsidies received by our Canadian subsidiary and (v) additional estimated costs recognized in 2019 associated with the Line 901 incident (which impact field operating costs but are excluded from Segment Adjusted EBITDA and thus are reflected as an "Adjustment" in the table above). Such favorable impacts were partially offset by higher property taxes attributable to assets placed in service in 2020 and increased property valuations. 92
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Index to Financial Statements Segment General and Administrative Expenses. The decrease in segment general and administrative expenses for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to (i) lower equity-based compensation costs on liability-classified awards (which are not included as an "Adjustment" in the table above), due to a decrease in our common unit price, (ii) decreased travel and entertainment costs and (iii) the benefit of wage subsidies received by our Canadian subsidiary. Such items were partially offset by an overall increase in compensation costs related to severance costs associated with our efforts to streamline our organization.Maintenance Capital . Maintenance capital consists of capital expenditures for the replacement and/or refurbishment of partially or fully depreciated assets in order to maintain the operating and/or earnings capacity of our existing assets. The decrease in maintenance capital for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was due to timing changes, the completion of multi-year reliability improvement programs and application of updated regulatory guidance, among other factors.
Facilities Segment
Our Facilities segment operations generally consist of fee-based activities associated with providing storage, terminalling and throughput services primarily for crude oil, NGL and natural gas, as well as NGL fractionation and isomerization services and natural gas and condensate processing services. The Facilities segment generates revenue through a combination of month-to-month and multi-year agreements.
The following tables set forth our operating results from our Facilities segment:
Operating Results (1) Year Ended December 31, Variance (in millions, except per barrel data) 2020 2019 $ % Revenues$ 1,138 $ 1,171 $ (33) (3) % Purchases and related costs (15) (15) - - % Field operating costs (316) (360) 44 12 % Segment general and administrative expenses (2) (84) (83) (1) (1) % Equity earnings in unconsolidated entities 5 - 5
N/A
Adjustments (3): Depreciation and amortization of unconsolidated entities 2 1 1
**
Gains from derivative activities (5) (13) 8
**
Deficiencies under minimum volume commitments, net 2 - 2
**
Equity-indexed compensation expense 4 4 - ** Segment Adjusted EBITDA$ 731 $ 705 $ 26 4 % Maintenance capital $ 51$ 97 $ (46) (47) % Segment Adjusted EBITDA per barrel$ 0.49 $ 0.47 $ 0.02 4 % Year Ended December 31, Variance Volumes (4) 2020 2019 Volumes % Liquids storage (average monthly capacity in millions of barrels) (5) 109 110 (1) (1) % Natural gas storage (average monthly working capacity in billions of cubic feet) 66 63 3 5 % NGL fractionation (average volumes in thousands of barrels per day) 129 144 (15) (10) % Facilities segment total volumes (average monthly volumes in millions of barrels) (6) 124 125 (1) (1) %
** Indicates that variance as a percentage is not meaningful. (1)Revenues and costs and expenses include intersegment amounts.
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Index to Financial Statements (2)Segment general and administrative expenses reflect direct costs attributable to each segment and an allocation of other expenses to the segments. The proportional allocations by segment require judgment by management and are based on the business activities that exist during each period. (3)Represents adjustments included in the performance measure utilized by our CODM in the evaluation of segment results. See Note 21 to our Consolidated Financial Statements for additional discussion of such adjustments. (4)Average monthly volumes are calculated as total volumes for the year divided by the number of months in the year. (5)Includes volumes (attributable to our interest) from facilities owned by unconsolidated entities. (6)Facilities segment total volumes are calculated as the sum of: (i) liquids storage capacity; (ii) natural gas storage working capacity divided by 6 to account for the 6:1 mcf of natural gas to crude Btu equivalent ratio and further divided by 1,000 to convert to monthly volumes in millions; and (iii) NGL fractionation volumes multiplied by the number of days in the year and divided by the number of months in the year.
The following is a discussion of items impacting Facilities segment operating results.
Revenues, Purchases and Related Costs and Volumes. Variances in revenues, purchases and related costs, and average monthly volumes were primarily driven by the following:
•Rail Terminals. Revenues from our rail terminals decreased by$33 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to decreased activity at certain of our rail terminals resulting from less favorable market conditions, as well as lower volumes due to voluntary shut-ins and curtailments of crude oil production by producers. •NGL Operations. Revenues from our NGL operations decreased by$21 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to the sale of certain NGL terminals in the fourth quarter of 2019 and the second quarter of 2020, net unfavorable foreign exchange impacts of approximately$4 million and lower revenues from our NGL processing facilities. Such unfavorable impacts were partially offset by the favorable impact of the receipt of a deficiency payment in 2020 of approximately$20 million upon the expiration of a multi-year contract. •Natural Gas and Condensate Processing. Net revenues from ourU.S. natural gas and condensate processing operations decreased by$11 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 primarily due to the unfavorable impact of a$5 million payment to resolve a contractual dispute as well as a decrease in condensate processing volumes and rates. •Crude Oil Storage. Revenues from our crude oil storage operations increased by$33 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to the addition of an aggregate of approximately 3 million barrels of storage capacity at ourCushing, Oklahoma ,St. James, Louisiana andMidland, Texas terminals and increased activity at certain of our Mid-Continent terminals. Additionally, the unfavorable impact on revenues from the sale of ourLos Angeles Basin terminals inOctober 2020 was largely offset by increased spot activity at certain of these terminals during the first three quarters of 2020. The increase in equity earnings over the comparative period was from our 50% interest in Eagle Ford Terminals, which owns a crude oil storage facility inCorpus Christi, Texas that was placed in service in September of 2019. Field Operating Costs. The decrease in field operating costs for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to (i) lower maintenance activities due to timing changes, (ii) reduced activity at our rail terminals and the divestiture of certain NGL terminals, (iii) reductions in compensation costs including the benefit of wage subsidies received by our Canadian subsidiary and (iv) lower property taxes. Such favorable impacts were partially offset by lower mark-to-market gains in the current period on fuel hedges (which impacts field operating costs but are excluded from Segment Adjusted EBITDA and thus are reflected as an "Adjustment" in the table above).Maintenance Capital . The decrease in maintenance capital spending for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to timing changes, the impact of asset sales, the completion of multi-year reliability improvement programs and application of updated regulatory guidance, among other factors. 94
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Index to Financial Statements Supply and Logistics Segment Revenues from our Supply and Logistics segment activities reflect the sale of gathered and bulk-purchased crude oil, as well as sales of NGL volumes. Generally, our segment results are impacted by (i) increases or decreases in our Supply and Logistics segment volumes (which consist of lease gathering crude oil purchases volumes and NGL sales volumes), (ii) the overall strength, weakness and volatility of market conditions, including regional differentials, and (iii) the effects of competition on our lease gathering and NGL margins. In addition, the execution of our risk management strategies in conjunction with our assets can provide upside in certain markets.
The following tables set forth our operating results from our Supply and Logistics segment:
Operating Results (1) Year Ended December 31, Variance (in millions, except per barrel data) 2020 2019 $ % Revenues$ 22,059 $ 32,276 $ (10,217) (32) % Purchases and related costs (22,099) (31,276) 9,177 29 % Field operating costs (191) (258) 67 26 % Segment general and administrative expenses (2) (89) (110) 21
19 %
Adjustments (3): Losses from derivative activities net of inventory valuation adjustments
484 173 311 **
Long-term inventory costing adjustments 44 (20) 64
**
Deficiencies under minimum volume commitments, net 1 - 1
**
Equity-indexed compensation expense 4 4 -
**
Net (gain)/loss on foreign currency revaluation (3) 14 (17)
**
Segment Adjusted EBITDA $ 210$ 803 $ (593) (74) % Maintenance capital $ 29$ 29 $ - - % Segment Adjusted EBITDA per barrel$ 0.43 $ 1.61 $ (1.18) (73) % Average Daily Volumes (4) Year Ended December 31, Variance (in thousands of barrels per day) 2020 2019 Volume
%
Crude oil lease gathering purchases 1,174 1,162 12 1 %
NGL sales 144 207 (63) (30) %
Supply and Logistics segment total volumes 1,318 1,369 (51) (4) %
** Indicates that variance as a percentage is not meaningful.
(1)Revenues and costs include intersegment amounts.
(2)Segment general and administrative expenses reflect direct costs attributable
to each segment and an allocation of other expenses to the segments. The
proportional allocations by segment require judgment by management and are based
on the business activities that exist during each period.
(3)Represents adjustments included in the performance measure utilized by our
CODM in the evaluation of segment results. See Note 21 to our Consolidated
Financial Statements for additional discussion of such adjustments.
(4)Average daily volumes are calculated as the total volumes for the period
divided by the number of days in the period.
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Index to Financial Statements The following table presents the range of the NYMEX West Texas Intermediate ("WTI") benchmark price of crude oil (in dollars per barrel):
NYMEX WTI
Crude Oil Price
During the Year Ended December 31, Low High
2020 $ (38) $ 63
2019 $ 46 $ 66
Our crude oil and NGL supply, logistics and distribution operations are not
directly affected by the absolute level of prices. Because the commodities that
we buy and sell are generally indexed to the same pricing indices for both sales
and purchases, revenues and costs related to purchases will fluctuate with
market prices. However, the margins related to those sales and purchases will
not necessarily have a corresponding increase or decrease. Additionally, net
revenues are impacted by net gains and losses from certain derivative activities
during the periods.
Our NGL operations are sensitive to weather-related demand, particularly during
the approximate five-month peak heating season of November through March, and
temperature differences from period-to-period may have a significant effect on
NGL demand and thus our financial performance.
Segment Adjusted EBITDA and Volumes. The following summarizes the significant items impacting our Supply and Logistics Segment Adjusted EBITDA:
•Crude Oil Operations. Net revenues from our crude oil operations decreased for year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to a combination of (i) less favorable crude oil differentials, particularly the differential between the value of crude oil in thePermian Basin compared to theGulf Coast market and (ii) the impact of lower volumes in higher margin areas, partially offset by volume increases in lower margin areas. Such unfavorable impacts were partially offset by the favorable impact of contango market conditions during the last three quarters of 2020. •NGL Operations. Net revenues from our NGL operations decreased for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , primarily due to (i) warmer weather during the fourth quarter of 2020, (ii) weaker fractionation spreads between the price of natural gas and the extracted NGL, (iii) lower border flows through our straddle plants and (iv) the absence of the favorable impact from certain non-recurring items recorded in the second quarter of 2019. •Impact from Certain Derivative Activities, Net of Inventory Valuation Adjustments. The impact from certain derivative activities on our net revenues includes mark-to-market and other gains and losses resulting from certain derivative instruments that are related to underlying activities in another period (or the reversal of mark-to-market gains and losses from a prior period), losses on derivatives that are related to investing activities (such as the purchase of linefill) and inventory valuation adjustments, as applicable. See Note 13 to our Consolidated Financial Statements for a comprehensive discussion regarding our derivatives and risk management activities. These gains and losses impact our net revenues but are excluded from Segment Adjusted EBITDA and thus are reflected as an "Adjustment" in the table above. •Long-Term Inventory Costing Adjustments. Our net revenues are impacted by changes in the weighted average cost of our crude oil and NGL inventory pools that result from price movements during the periods. These costing adjustments related to long-term inventory necessary to meet our minimum inventory requirements in third-party assets and other working inventory that was needed for our commercial operations. We consider this inventory necessary to conduct our operations and we intend to carry this inventory for the foreseeable future. These costing adjustments impact our net revenues but are excluded from Segment Adjusted EBITDA and thus are reflected as an "Adjustment" in the table above. •Foreign Exchange Impacts. Our net revenues are impacted by fluctuations in the value of CAD to USD, resulting in foreign exchange gains and losses onU.S. denominated net assets within our Canadian operations. These non-cash gains and losses impact our net revenues but are excluded from Segment Adjusted EBITDA and thus are reflected as an "Adjustment" in the table above. 96
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Index to Financial Statements •Field Operating Costs. The decrease in field operating costs for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily driven by a decrease in long-haul third-party trucking costs and a decrease in company personnel and truck costs as more of our supply was connected to pipelines and taken off trucks. •Segment General and Administrative Expenses. The decrease in segment general and administrative expenses for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily driven by (i) lower compensation costs including the benefit of wage subsidies received by our Canadian subsidiary, (ii) decreased travel and entertainment costs, (iii) a decrease in equity-based compensation costs on liability-classified awards (which are not included as an "Adjustment" in the table above) due to a decrease in our common unit price and (iv) general cost reductions associated with exiting low margin, high administrative cost businesses.
Other Income and Expenses
Depreciation and Amortization
Depreciation and amortization expense increased for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 largely driven by additional depreciation expense associated with acquired assets, the completion of various investment capital projects and a reduction in the useful lives of certain assets.
Gains/Losses on Asset Sales and Asset Impairments, Net
The net loss on asset sales and asset impairments for the year endedDecember 31, 2020 included (i) non-cash impairment losses on held and used assets of approximately$541 million related to the write-down of (a) certain pipeline and other long-lived assets due to the current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both the decrease in demand caused by the COVID-19 pandemic and excess supply, as well as changing market conditions and expected lower crude oil production in certain regions, and (b) idled or underutilized assets for which is it has been determined that it is unlikely that opportunities will exist in the future to recover our investment in these assets and (ii) net losses of approximately$178 million related to the sale of assets, including non-cash impairments recognized upon classification to assets held for sale. The net loss on asset sales and asset impairments for the year endedDecember 31, 2019 was largely driven by a loss on the sale of a storage terminal inNorth Dakota . See Note 6 and Note 7 to our Consolidated Financial Statements for additional information regarding these asset impairments.
Goodwill Impairment Losses
During the first quarter of 2020, we recognized a goodwill impairment charge of$2.5 billion , representing the entire balance of goodwill. See Note 8 to our Consolidated Financial Statements for additional information.
Gain on/(Impairment of) Investments in Unconsolidated Entities, Net
During the year endedDecember 31, 2020 , we recognized losses of$202 million related to the write-down of certain of our investments in unconsolidated entities. Additionally, we recognized a gain of$21 million related to our sale of a 10% interest inSaddlehorn Pipeline Company, LLC . During the year endedDecember 31, 2019 , we recognized a non-cash gain of$269 million related to a fair value adjustment resulting from the accounting for the contribution of our undivided joint interest in theCapline pipeline system for an equity interest inCapline Pipeline Company LLC . See Note 9 to our Consolidated Financial Statements for additional information regarding our unconsolidated entities. 97
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Index to Financial Statements Interest Expense
Interest expense is primarily impacted by:
•our weighted average debt balances; •the level and maturity of fixed rate debt and interest rates associated therewith; •market interest rates and our interest rate hedging activities; and •interest capitalized on capital projects.
The following table summarizes the components impacting the interest expense variance (in millions, except percentages):
Average Weighted Average
LIBOR Interest Rate (1)
Interest expense for the year ended December 31, 2019 $ 425 2.2 % 4.4 %
Impact of lower capitalized interest 10
Impact of borrowings under credit facilities and PAA commercial paper program
3
Impact of issuance and retirement of PAA senior notes (4)
Other 2
Interest expense for the year ended December 31, 2020 $ 436 0.5 % 4.1 %
(1)Excludes commitment and other fees.
Interest expense increased for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 primarily due to (i) a higher weighted average debt balance during 2020 driven by higher commercial paper and credit facility borrowings and (ii) lower capitalized interest in the 2020 period resulting from fewer capital projects under construction, partially offset by (iii) the impact from lower weighted average rates.
See Note 11 to our Consolidated Financial Statements for additional information regarding our debt activities during the periods presented.
Other Income, Net
The following table summarizes the components impacting Other income/(expense),
net (in millions):
Year Ended December 31,
2020 2019Gain related to mark-to-market adjustment of our Preferred Distribution Rate Reset Option (1)
$ 20 $ 2
Net gain on foreign currency revaluation (2) 13 15
Other 6 7
$ 39 $ 24
(1)See Note 13 to our Consolidated Financial Statements for additional
information.
(2)The activity during 2020 was primarily related to the impact from the change
in the USD to CAD exchange rate on the portion of our intercompany net
investment that is not long-term in nature.
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Index to Financial Statements Income Tax (Expense)/Benefit The decrease in current income tax expense for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to lower taxable earnings from our Canadian operations. The increase in the deferred income tax benefit for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 was primarily due to (i) the impact of lower earnings at PAA on income attributable to PAGP and (ii) lower year-over-year income as impacted by fluctuations in the derivative mark-to-market valuations in our Canadian operations, partially offset by the recognition of a deferred tax benefit of approximately$60 million during the second quarter of 2019 as a result of the reduction of the provincial tax rate inAlberta, Canada .
Liquidity and Capital Resources
General
Our primary sources of liquidity are (i) cash flow from operating activities (ii) borrowings under PAA's credit facilities or commercial paper program and (iii) funds received from sales of equity and debt securities. In addition, we may supplement these sources of liquidity with proceeds from our divestiture program. Our primary cash requirements include, but are not limited to, (i) ordinary course of business uses, such as the payment of amounts related to the purchase of crude oil, NGL and other products, other expenses and interest payments on outstanding debt, (ii) investment and maintenance capital activities, (iii) acquisitions of assets or businesses, (iv) repayment of principal on long-term debt and (v) distributions to our Class A shareholders and noncontrolling interests. In addition, we may use cash for repurchases of common equity. We generally expect to fund our short-term cash requirements through cash flow generated from operating activities and/or borrowings under PAA's commercial paper program or credit facilities. In addition, we generally expect to fund our long-term needs, such as those resulting from investment capital activities or acquisitions and refinancing long-term debt, through a variety of sources (either separately or in combination), which may include the sources mentioned above as funding for short-term needs and/or the issuance of additional equity or debt securities and the sale of assets. As ofDecember 31, 2020 , although we had a working capital deficit of$587 million , we had approximately$2.2 billion of liquidity available to meet our ongoing operating, investing and financing needs, subject to continued covenant compliance, as noted below (in millions):
As of
December 31, 2020
Availability under PAA senior unsecured revolving credit facility (1) (2) $ 1,507
Availability under PAA senior secured hedged inventory facility (1) (2)
1,197
Amounts outstanding under PAA commercial paper program (547)
Subtotal 2,157
Cash and cash equivalents 25
Total $ 2,182
(1)Represents availability prior to giving effect to borrowings outstanding
under the PAA commercial paper program, which reduce available capacity under
the facilities.
(2)Available capacity under the PAA senior unsecured revolving credit facility
and the PAA senior secured hedged inventory facility was reduced by outstanding
letters of credit of $93 million and $36 million , respectively.
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Usage of PAA's credit facilities, which provide the financial backstop for PAA's commercial paper program, is subject to ongoing compliance with covenants, as discussed further below. PAA's borrowing capacity and borrowing costs are also impacted by its credit rating. See Item 1A. "Risk Factors-Risks Related to PAA's Business-Loss of PAA's investment grade credit rating or the ability to receive open credit could negatively affect its borrowing costs, ability to purchase crude oil, NGL and natural gas supplies or to capitalize on market opportunities." Current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both the decrease in demand caused by the COVID-19 pandemic and excess supply has caused liquidity issues impacting many energy companies; however, we believe that we have, and will continue to have, the ability to access PAA's commercial paper program and credit facilities, which we use to meet our short-term cash needs. We believe that our financial position remains strong and we have sufficient liquid assets, cash flow from operating activities and borrowing capacity under PAA's credit agreements to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures; however, extended disruptions in the financial markets and/or energy price volatility that adversely affect our business may have a materially adverse effect on our financial condition, results of operations or cash flows. See Item 1A. "Risk Factors" for further discussion regarding risks that may impact our liquidity and capital resources.
Credit Agreements, Commercial Paper Program and Indentures
PAA has three primary credit arrangements, which we use to meet our short-term cash needs. These include PAA's$1.6 billion senior unsecured revolving credit facility maturing in 2024,$1.4 billion senior secured hedged inventory facility maturing in 2022 (excluding aggregate commitments of$45 million , which mature in 2021) and$3.0 billion unsecured commercial paper program that is backstopped by PAA's revolving credit facility and its hedged inventory facility. Additionally, PAA has two$100 million term loans. The credit agreements for PAA's revolving credit facilities (which impact PAA's ability to access its commercial paper program because they provide the financial backstop that supports PAA's short-term credit ratings) and PAA's term loans and the indentures governing its senior notes contain cross-default provisions. A default under PAA's credit agreements or indentures would permit the lenders to accelerate the maturity of the outstanding debt. As long as PAA is in compliance with the provisions in its credit agreements, its ability to make distributions of available cash is not restricted. PAA was in compliance with the covenants contained in its credit agreements and indentures as ofDecember 31, 2020 .
Cash Flow from Operating Activities
The primary drivers of cash flow from operating activities are (i) the collection of amounts related to the sale of crude oil, NGL and other products, the transportation of crude oil and other products for a fee, and the provision of storage and terminalling services for a fee and (ii) the payment of amounts related to the purchase of crude oil, NGL and other products and other expenses, principally field operating costs, general and administrative expenses and interest expense. Cash flow from operating activities can be materially impacted by the storage of crude oil in periods of a contango market, when the price of crude oil for future deliveries is higher than current prices. In the month we pay for the stored crude oil, we borrow under the PAA credit facilities or commercial paper program (or use cash on hand) to pay for the crude oil, which negatively impacts operating cash flow. Conversely, cash flow from operating activities increases during the period in which we collect the cash from the sale of the stored crude oil. Similarly, the level of NGL and other product inventory stored and held for resale at period end affects our cash flow from operating activities. In periods when the market is not in contango, we typically sell our crude oil during the same month in which we purchase it and we do not rely on borrowings under the PAA credit facilities or commercial paper program to pay for the crude oil. During such market conditions, our accounts payable and accounts receivable generally move in tandem as we make payments and receive payments for the purchase and sale of crude oil in the same month, which is the month following such activity. In periods during which we build inventory, regardless of market structure, we may rely on the PAA credit facilities or commercial paper program to pay for the inventory. In addition, we use derivative instruments to manage the risks associated with the purchase and sale of our commodities. Therefore, our cash flow from operating activities may be impacted by the margin deposit requirements related to our derivative activities. See Note 13 to our Consolidated Financial Statements for a discussion regarding our derivatives and risk management activities. Net cash provided by operating activities for the years endedDecember 31, 2020 , 2019 and 2018 was approximately$1.5 billion ,$2.5 billion and$2.6 billion , respectively, and primarily resulted from earnings from our operations. Additionally, as discussed further below, changes during these periods in our inventory levels and associated margin balances required as part of our hedging activities impacted our cash flow from operating activities. 100
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During 2020, we increased the volume of both our crude oil inventory to be stored during the contango market and our NGL inventory in anticipation of the 2020-2021 heating season as well as the margin balances required as part of our hedging activities, all of which was funded by short-term debt. The cash outflows associated with these activities were partially offset by lower prices for inventory purchased and stored at the end of the current period compared to the end of 2019. Cash provided by operating activities was favorably impacted by cash received for transactions for which the revenue has been deferred pending the completion of future performance obligations. See Note 3 to our Consolidated Financial Statements for additional information. During 2019, our cash provided by operating activities was positively impacted by the proceeds from the sale of NGL and crude oil inventory that we held and also by the lower weighted average price of NGL inventory compared to prior year amounts. During 2018, our cash provided by operating activities was favorably impacted by approximately$250 million of cash received for transactions for which the revenue has been deferred pending the completion of future performance obligations. The favorable impact was partially offset by an increase in the volume of crude oil inventory that we held, which was funded from earnings from our operations and proceeds from asset sales.
Investing Activities
In addition to our operating needs discussed above, we also use cash for our investment capital projects, maintenance capital activities and acquisition activities. Historically, we have financed these expenditures primarily with cash generated by operating activities discussed in "-Cash Flow from Operating Activities" above and the financing activities discussed in "-Financing Activities" below. In recent years, we have also used proceeds from our divestiture program, as discussed further below. We have made and will continue to make capital expenditures for investment capital projects, maintenance activities and acquisitions. However, in the near term, we do not plan to issue common equity to fund such activities.
Capital Expenditures
The following table summarizes our expenditures for acquisition capital, investment capital and maintenance capital (in millions):
Year Ended December 31,
2020 2019 2018
Investment capital (1) (2) (3) $ 921 $ 1,340 $ 1,888
Maintenance capital (1) 216 287 252
Acquisition capital (4) 310 50 -
$ 1,447 $ 1,677 $ 2,140
(1)Capital expenditures made to expand the existing operating and/or earnings
capacity of our assets are classified as "Investment capital." Capital
expenditures for the replacement and/or refurbishment of partially or fully
depreciated assets in order to maintain the operating and/or earnings capacity
of our existing assets are classified as "Maintenance capital."
(2)"Investment capital" was previously termed "expansion capital." We consider
the term "investment capital" to be more descriptive.
(3)Includes contributions to unconsolidated entities, accounted for under the
equity method of accounting, related to investment capital projects by such
entities.
(4)Acquisition capital for 2020 primarily includes a crude oil gathering system
located in the Delaware Basin .
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Investment Capital Projects
Our investment capital programs consist of investments in midstream
infrastructure projects that build upon our core assets and operations. For the
years presented, substantially all of the investment capital was invested in our
fee-based Transportation and Facilities segments. The majority of this
investment capital consists of highly-contracted projects that complement our
broader system capabilities and support the long-term needs of the upstream and
downstream sectors of the industry value chain. The following table summarizes
our investment in capital projects (in millions):
Year Ended December 31,
Projects 2020 2019 2018
Permian Basin Takeaway Pipeline Projects (1) (2) $ 292 $ 440 $ 880
Complementary Permian Basin Projects (1) 200 503 671
Long-Haul Pipeline Projects (Non-Permian) (1) 195 98 20
Selected Facilities/Downstream Projects (3) 115 93 62
Other Projects 119 206 255
Total $ 921 $ 1,340 $ 1,888
(1)These projects will continue into 2021. See "-2021 Investment Capital
Projects below."
(2)Represents pipeline projects with takeaway capacity out of the Permian Basin ,
including (i) our 16% interest in Wink to Webster Pipeline and (ii) our 65%
interest in the Cactus II Pipeline .
(3)Includes projects at our St. James and Cushing terminals.
2021 Investment Capital Projects. In April 2020 , in response to the current
dynamic and uncertain market conditions, we announced our plan to significantly
reduce and continue to challenge our capital program. The majority of our 2021
investment capital program will be invested in our fee-based Transportation and
Facilities segments. We expect that our investments will have minimal
contributions to our 2021 results, but will provide growth for 2022 and beyond.
Our 2021 capital program includes the following projects as of February 2021
with the estimated cost for the entire year (in millions):
Projects 2021
Permian Basin Takeaway Pipeline Projects
85
Selected Facilities/Downstream Projects 50
Other Projects 35
Total Projected 2021
Divestitures
We continue to evaluate potential sales of non-core assets and/or sales of partial interests in assets to strategic joint venture partners. The following table summarizes the proceeds received for sales of such assets, which were previously reported in our Transportation and Facilities segments:
Year Ended December 31,
2020 2019 2018
Proceeds from divestitures (1) $ 451 $ 205 $ 1,334
(1)Includes proceeds from (i) a multi-year supply agreement related to the sale
of certain NGL terminals in April 2020 and (ii) our formation of Red River
Pipeline Company LLC in May 2019 . See Note 7 and Note 12 to our Consolidated
Financial Statements for additional information.
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Index to Financial Statements Proceeds from asset sales were used to fund our investment capital projects and reduce debt levels. See Note 7 to our Consolidated Financial Statements for additional detail regarding our divestiture transactions.
Ongoing Activities Related to Strategic Transactions
We are continuously engaged in the evaluation of potential transactions that support our current business strategy. While in the past such transactions have included acquisitions and large capital projects, consistent with our current strategic focus on capital discipline, leverage reduction, portfolio optimization and free cash flow generation, we are currently primarily focused on evaluating whether we should (i) sell assets that we regard as non-core or that we believe might be a better fit with the business and/or assets of a third-party buyer or (ii) sell partial interests in assets to strategic joint venture partners, in each case to optimize our asset portfolio and strengthen our balance sheet and leverage metrics. With respect to a potential divestiture, we may also conduct an auction process or may negotiate a transaction with one or a limited number of potential buyers. Such transactions could involve assets that, if sold or put into a joint venture or joint ownership arrangement, could have a material effect on our financial condition and results of operations. We typically do not announce a transaction until after we have executed a definitive agreement. However, in certain cases in order to protect our business interests or for other reasons, we may defer public announcement of a transaction until closing or a later date. Past experience has demonstrated that discussions and negotiations regarding a potential transaction can advance or terminate in a short period of time. Moreover, the closing of any transaction for which we have entered into a definitive agreement may be subject to customary and other closing conditions, which may not ultimately be satisfied or waived. Accordingly, we can give no assurance that our current or future efforts with respect to any such transactions will be successful, and we can provide no assurance that our financial expectations with respect to such transactions will ultimately be realized. See Item 1A. "Risk Factors-Risks Related to PAA's Business-Divestitures, joint ventures, joint ownership arrangements and acquisitions involve risks that may adversely affect PAA's business."
Financing Activities
Our financing activities primarily relate to funding investment capital projects, acquisitions and refinancing of debt maturities, as well as short-term working capital (including borrowings for NYMEX and ICE margin deposits) and hedged inventory borrowings related to our NGL business and contango market activities.
Borrowings and Repayments Under Credit Arrangements
During the year ended
During the year ended
During the year endedDecember 31, 2018 , we had net repayments on the PAA credit facilities and commercial paper program of$901 million . The net repayments resulted primarily from cash flow from operating activities and proceeds from asset sales, which offset borrowings during the period related to funding needs for capital investments, inventory purchases and other general partnership purposes. InAugust 2018 , PAA entered into an agreement for two$100 million term loans from the remarketing of its two$100 million bonds. The purchasers of the two term loans have the right to put, at par, the term loans inJuly 2023 . The bonds mature by their terms inMay 2032 andAugust 2035 , respectively. See Note 11 to our Consolidated Financial Statements for additional information. 103
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Senior Notes
Issuances of PAA Senior Notes. During 2020 and 2019, PAA issued senior unsecured notes as summarized in the table below (in millions):
Gross Net
Year Description Maturity Face Value Proceeds(1) Proceeds(2)
3.80% Senior Notes issued at 99.794% $ 750
2020 of face value September 2030 $ 748 $ 742 (3)
3.55% Senior Notes issued at 99.801% $ 1,000
2019 of face value December 2029 $ 998 $ 989 (4)
(1)Face value of notes less the applicable premium or discount (before deducting
for initial purchaser discounts, commissions and offering expenses).
(2)Face value of notes less the applicable premium or discount, initial
purchaser discounts, commissions and offering expenses.
(3)PAA used the net proceeds from the offering to repay the principal amounts of
its 5.00% senior notes due February 2021 .
(4)PAA used the net proceeds from the offering to partially repay the principal
amounts of its 2.60% senior notes due December 2019 and 5.75% senior notes due
January 2020 and for general partnership purposes.
Repayments of PAA Senior Notes. During 2020 and 2019, PAA repaid the following senior unsecured notes in full (in millions):
Year Description
Repayment Date
2020
2019
2019
(1)PAA repaid these senior notes with proceeds from its 3.80% senior notes
issued in
Additionally, during the year ended
Registration Statements
PAGP Registration Statements. We have filed with theSEC a shelf registration statement that, subject to effectiveness at the time of use, allows us to issue up to an aggregate of$939 million of equity securities ("PAGP Traditional Shelf"). AtDecember 31, 2020 , we had approximately$939 million of unsold securities available under the PAGP Traditional Shelf. We also have access to a universal shelf registration statement ("PAGP WKSI Shelf"), which provides us with the ability to offer and sell an unlimited amount of equity securities, subject to market conditions and its capital needs. We did not conduct any offerings under the PAGP Traditional Shelf or PAGP WKSI Shelf during the years endedDecember 31, 2020 , 2019 or 2018. PAA Registration Statements. PAA periodically accesses the capital markets for both equity and debt financing. PAA has filed with theSEC a universal shelf registration statement that, subject to effectiveness at the time of use, allows PAA to issue up to an aggregate of$1.1 billion of debt or equity securities ("PAA Traditional Shelf"). PAA did not conduct any offerings under the PAA Traditional Shelf during the years endedDecember 31, 2020 , 2019 or 2018. AtDecember 31, 2020 , PAA had approximately$1.1 billion of unsold securities available under the PAA Traditional Shelf. PAA also has access to a universal shelf registration statement ("PAA WKSI Shelf"), which provides it with the ability to offer and sell an unlimited 104
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Index to Financial Statements amount of debt and equity securities, subject to market conditions and capital needs. The offering of PAA's$750 million , 3.80% senior notes inJune 2020 was conducted under the PAA WKSI Shelf.
Common Equity Repurchase Program
InNovember 2020 , the board of directors of our general partner approved a$500 million common equity repurchase program (the "Program") to be utilized as an additional method of returning capital to investors. The Program authorizes the repurchase from time to time of up to$500 million of PAA's common units and/or our Class A shares via open market purchases or negotiated transactions conducted in accordance with applicable regulatory requirements. Ultimately, the amount, timing and pace of potential repurchase activity will be determined by a number of factors, including market conditions, PAA's financial performance and flexibility, PAA's actual and expected Free Cash Flow after distributions, the absolute and relative equity prices of PAA's common units and our Class A shares, and the extent to which PAA is positioned to achieve and maintain its targeted leverage ratio. No time limit has been set for completion of the Program, and the Program may be suspended or discontinued at any time. The Program does not obligate PAA or us to acquire a particular number of common units or Class A shares. Any PAA common units or Class A shares that are repurchased will be canceled. PAA repurchased 6.2 million common units under the Program through open market purchases that settled during the year endedDecember 31, 2020 . The total purchase price of these repurchases was$50 million , including commissions and fees. The remaining available capacity under the Program as ofDecember 31, 2020 was$450 million . Additionally, PAA repurchased 350,000 common units under the Program for$3 million through open market purchases at the end ofDecember 2020 that settled inJanuary 2021 .
Distributions to Our Class A Shareholders
We distribute 100% of our available cash to our Class A shareholders of record within 55 days following the end of each quarter. Available cash is generally defined as all of our cash and cash equivalents on hand at the end of each quarter less reserves established in the discretion of our general partner for future requirements. Our levels of financial reserves are established by our general partner and include reserves for the proper conduct of our business (including future capital expenditures and anticipated credit needs), compliance with law or contractual obligations and funding of future distributions to our shareholders. See Item 5. "Market for Registrant's Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities-Cash Distribution Policy" for additional discussion regarding available cash and distributions. In response to the challenging near-term market conditions, we took steps to further strengthen our balance sheet, liquidity and long-term financial flexibility. In this regard, beginning with theMay 2020 distribution, PAA's distribution per common unit and our distribution per Class A share were reduced by 50% versus the distributions paid inFebruary 2020 , which reflects a reduction of$525 million on an annualized basis. See "-Executive Summary-Recent Events and Outlook" for further discussion.
On
Distributions to Noncontrolling Interests
Distributions to noncontrolling interests represent amounts paid on interests in consolidated entities that are not owned by us. As ofDecember 31, 2020 , noncontrolling interests in our subsidiaries consisted of (i) limited partner interests in PAA including a 69% interest in PAA's common units and PAA's Series A preferred units combined and 100% of PAA's Series B preferred units, (ii) an approximate 21% limited partner interest in AAP and (iii) a 33% interest inRed River Pipeline Company LLC . Distributions to PAA's Series A preferred unitholders. Holders of PAA's Series A preferred units are entitled to receive quarterly distributions, subject to customary anti-dilution adjustments, of$0.525 per unit ($2.10 per unit annualized). Subject to certain limitations, followingJanuary 28, 2021 , the holders of PAA's Series A preferred units may make a one-time election to reset the distribution rate. See Note 12 to our Consolidated Financial Statements for additional information. 105
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Index to Financial Statements Distributions to PAA's Series B preferred unitholders. Holders of PAA's Series B preferred units are entitled to receive, when, as and if declared by PAA's general partner out of legally available funds for such purpose, cumulative cash distributions, as applicable. Through and includingNovember 15, 2022 , holders are entitled to a distribution equal to$61.25 per unit per year, payable semiannually in arrears on the 15th day of May and November. See Note 12 to our Consolidated Financial Statements for further discussion of PAA's Series B preferred units, including distribution rates and payment dates afterNovember 15, 2022 .
Distributions to PAA's common unitholders. On
Contingencies
For a discussion of contingencies that may impact us, see Note 19 to our Consolidated Financial Statements.
Commitments
Contractual Obligations. In the ordinary course of doing business, we purchase crude oil and NGL from third parties under contracts, the majority of which range in term from thirty-day evergreen to five years, with a limited number of contracts with remaining terms extending up to 14 years. We establish a margin for these purchases by entering into various types of physical and financial sale and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other. The table below includes purchase obligations related to these activities. Where applicable, the amounts presented represent the net obligations associated with our counterparties (including giving effect to netting buy/sell contracts and those subject to a net settlement arrangement). We do not expect to use a significant amount of internal capital to meet these obligations, as the obligations will be funded by corresponding sales to entities that we deem creditworthy or who have provided credit support we consider adequate.
The following table includes our best estimate of the amount and timing of these
payments as well as other amounts due under the specified contractual
obligations as of
2021 2022 2023 2024 2025 Thereafter Total
Long-term debt and related
interest payments (1) $ 406 $ 1,183 $ 1,662 $ 1,083 $ 1,300 $ 8,337 $ 13,971
Leases (2) 108 100 77 63 49 304 701
Other obligations (3) 542 368 325 281 254 934 2,704
Subtotal 1,056 1,651 2,064 1,427 1,603 9,575 17,376
Crude oil, NGL and other
purchases (4) 11,565 10,353 9,643 9,035 7,507 26,845 74,948
Total $ 12,621 $ 12,004 $ 11,707 $ 10,462 $ 9,110 $ 36,420 $ 92,324
(1)Includes debt service payments, interest payments due on PAA's senior notes
and the commitment fee on assumed available capacity under the PAA credit
facilities, as well as long-term borrowings under PAA's credit agreements and
commercial paper program, if any. Although there may be short-term borrowings
under PAA's credit agreements and commercial paper program, we historically
repay and borrow at varying amounts. As such, we have included only the maximum
commitment fee (as if no short-term borrowings were outstanding on PAA's credit
agreements or commercial paper program) in the amounts above. For additional
information regarding our debt obligations, see Note 11 to our Consolidated
Financial Statements.
(2)Includes both operating and finance leases as defined by FASB guidance.
Leases are primarily for (i) railcars, (ii) land, (iii) office space, (iv)
storage tanks, (v) tractor trailers and (vi) vehicles. See Note 14 to our
Consolidated Financial Statements for additional information.
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Index to Financial Statements (3)Includes (i) other long-term liabilities, (ii) storage, processing and transportation agreements (including certain agreements for which the amount and timing of expected payments is subject to the completion of underlying construction projects), (iii) certain rights-of-way easements and (iv) noncancelable commitments related to our investment capital projects, including projected contributions for our share of the capital spending of our equity method investments. The storage, processing and transportation agreements include approximately$2.0 billion associated with agreements to store crude oil at facilities and transport crude oil on pipelines owned by equity method investees at posted tariff rates or prices that we believe approximate market. A portion of our commitment to transport is supported by crude oil buy/sell or other agreements with third parties with commensurate quantities. (4)Amounts are primarily based on estimated volumes and market prices based on average activity duringDecember 2020 . The actual physical volume purchased and actual settlement prices will vary from the assumptions used in the table. Uncertainties involved in these estimates include levels of production at the wellhead, weather conditions, changes in market prices and other conditions beyond our control. Letters of Credit. In connection with supply and logistics activities, we provide certain suppliers with irrevocable standby letters of credit to secure our obligation for the purchase and transportation of crude oil, NGL and natural gas. Our liabilities with respect to these purchase obligations are recorded in accounts payable on our balance sheet in the month the product is purchased. Generally, these letters of credit are issued for periods of up to seventy days and are terminated upon completion of each transaction. Additionally, we issue letters of credit to support insurance programs, derivative transactions, including hedging-related margin obligations, and construction activities. AtDecember 31, 2020 and 2019, we had outstanding letters of credit of approximately$129 million and$157 million , respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined by Item 303 of Regulation S-K.
Investments in Unconsolidated Entities
We have invested in entities that are not consolidated in our financial statements. Certain of these entities are borrowers under credit facilities. We are neither a co-borrower nor a guarantor under any facilities of such entities. We may elect at any time to make additional capital contributions to any of these entities. The following table sets forth selected information regarding these entities as ofDecember 31, 2020 (unaudited, dollars in millions): Total Cash Our Total and Total Ownership Entity Restricted Entity Entity Type of Operation Interest Assets Cash DebtBridgeTex Pipeline Company , LLC Crude Oil Pipeline 20%$ 856 $ 35 $ - Cactus II Pipeline LLC Crude Oil Pipeline (1) 65%$ 1,167 $ 44 $ - Capline Pipeline Company LLC Crude Oil Pipeline 54%$ 1,217 $ 16 $ - Diamond Pipeline LLC Crude Oil Pipeline (1) 50%$ 951 $ 8 $ - Eagle Ford Pipeline LLC Crude Oil Pipeline (1) 50%$ 808 $ 33 $ - Eagle Ford Terminals Corpus Crude Oil Terminal and Dock Christi LLC (1) 50%$ 220 $ 4 $ - Red Oak Pipeline LLC Crude Oil Pipeline 50%$ 205 $ - $ -Saddlehorn Pipeline Company , LLC Crude Oil Pipeline 30%$ 662 $ 40 $ - STACK Pipeline LLC Crude Oil Pipeline (1) 50%$ 146 $ 1 $ - White Cliffs Pipeline, LLC Crude Oil Pipeline 36%$ 518 $ 24 $ - Wink to Webster Pipeline LLC Crude Oil Pipeline 16%$ 2,068 $ 68 $ - Other investments$ 531 $ 49 $ 3
(1)We serve as operator of the asset.
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