管理層發言
Good day, and thank you for standing by. Welcome to the PAA and PAGP's Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Blake Fernandez, Vice President of Investor Relations. Please go ahead.
Thank you, Andrea. Good morning, and welcome to Plains All American's Third Quarter 2025 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following the call today. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2. An overview of today's call is provided on Slide 3. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, Chairman, CEO and President; and Al Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I'll turn the call over to Willie.
Thank you, Blake, and good morning, everyone. Thanks for joining us. Earlier this morning, we reported solid third quarter adjusted EBITDA attributable to Plains of $669 million, which Al will cover in more detail. It's an exciting time for Plains as we continue our multiyear strategy of building the premier North American pure-play crude midstream company. Over the past few years, our team has successfully executed on our strategy by meaningfully lowering our leverage profile, maximizing free cash flow and optimizing across our broad system, all while remaining capital disciplined and returning cash to our unitholders through meeting and beating our targeted annual distribution increases. With the pending sale of our NGL assets expected to close early next year, our portfolio will become even more crude-focused with a more stable and durable cash flow stream. As discussed on our previous calls, the NGL sale is a win-win transaction at an attractive valuation for Plains and our capital allocation priority has been to redeploy those proceeds to strong return, DCF accretive bolt-ons while staying within our targeted leverage range over the long term.
To that point, we're pleased to announce that we now own and operate 100% of the entity that owns the EPIC Crude pipeline. This past Friday, we closed on the previously announced acquisition of a 55% nonoperated interest in EPIC from Diamondback and Kinetik. And on Monday this week, we signed and closed the acquisition of the remaining 45% operating interest in EPIC Crude Holdings from a portfolio company of Ares private equity funds for approximately $1.3 billion inclusive of approximately $500 million of debt. As part of the 45% transaction, Plains has also agreed to a potential earn-out payment of up to $157 million tied to the sanctioning of potential expansions of the pipeline system by year-end 2028. The EPIC acquisitions are summarized on Slide 4. These transactions are highly synergistic and very strategic to Plains' existing footprint and are expected to generate a mid-teens unlevered return.
We anticipate a 2026 adjusted EBITDA multiple of approximately 10x which we expect to improve meaningfully over the next few years. Going forward, we intend to rename the pipeline system, Cactus III, which complements our integrated Cactus long-haul system that we have operated for years. The acquisition of the remaining 45% of EPIC gives us the opportunity to assume operatorship, which accelerates and increases the synergy capture of the full pipeline, including meaningful cost, capital and operational synergies while improving the takeaway flexibility of our crude system to meet customer needs. Near term, we're poised to benefit from contractual step-ups, reduced operating costs and overhead, quality optimization opportunities and utilizing the broader Plains, Permian and Eagle Ford asset base to drive volumes to EPIC crude's downstream assets. Longer term, the potential expansion capacity of the system provides Plains and its customers with additional egress to the U.S. Gulf Coast and will generate strong returns as demand dictates further expansions.
Regarding the divestiture of our NGL business, we're on schedule to complete the transaction by the end of the first quarter 2026. We have received 2 of the 3 required regulatory approvals, U.S. Hart-Scott-Rodino and the Canadian Transportation Act while the approval process for the Canadian Competition Bureau is ongoing. Importantly, the majority of the proceeds to be received upon closing of the divestiture have effectively been redeployed through our acquisition of EPIC, which will result in an accretive and more durable cash flow stream. Due to timing differences between the closing of the transactions, we do anticipate our leverage ratio will temporarily exceed the upper end of our target range until the NGL divestiture is finalized, at which point we expect our leverage ratio to trend towards the midpoint of our target range of 3.5. With that, I'll turn the call over to Al to cover our quarterly performance and financial matters.
Thank you, Willie. For the third quarter, we reported Crude Oil segment adjusted EBITDA of $593 million, which benefited from higher volumes and contributions from recently completed bolt-on acquisitions as well as the impact of annual tariff escalation. This was partially offset by certain Permian long-haul contract rates resetting to market in September. Please note that the fourth quarter should serve as a baseline, representing the full impact of lower contract rates out of the Permian. Moving to the NGL segment, we reported adjusted EBITDA of $70 million which was down sequentially due to lower sales volume tied to temporary downtime on a third-party transmission system as well as the start-up of LNG Canada. Slides 5 and 6 in today's presentation contain adjusted EBITDA walks that provide additional details on our performance. We are narrowing our full year 2025 adjusted EBITDA guidance range to $2.84 billion to $2.89 billion to reflect lower realized crude prices and contributions from our completed acquisition of EPIC.
Please note the benefit from EPIC for the remainder of the year is forecast to be approximately $40 million. A summary of our 2025 guidance metrics and assumptions are located on Slide 7. Overall capital spending remains consistent with our prior forecast. Growth capital spending for the year is expected to be approximately $490 million. The $15 million increase is primarily associated with new lease connects and capital associated with acquisitions, while the 2025 maintenance capital is trending closer to $215 million, representing a $15 million decrease from our last forecast. In September, we issued $1.25 billion of senior unsecured notes consisting of a $700 million due in 2031 at a rate of 4.7% and $550 million due in 2036 at a rate of 5.6%. Proceeds were used to repay the senior notes that matured in October and to partially fund the EPIC acquisitions. With that, I'll turn the call back to Willie.
Thanks, Al. We've made significant progress on our journey of becoming the premier crude midstream provider over the last several months, and we believe there are significant opportunities to continue to create value for unitholders through initiatives that are within our control. As seen on Slide 8, the combined benefits from bolt-on M&A, synergy capture and streamlining efforts across the broader organization will provide Plains with self-help tailwinds through the near-term volatility. As part of our 2026 guidance in February, we intend to share additional details on these initiatives. Our strategy centers on the view that crude oil remains essential to global energy and society for decades as outlined on Slide 9. And despite near-term volatility, we remain confident in our ability to navigate current market dynamics and we expect improving fundamentals longer term, anchored by continued global energy demand growth, coupled with underinvestment in organic oil supply growth and diminishing OPEC+ spare capacity. I'll now turn over the call to Blake to help lead us into Q&A.
Thanks, Willie. The IR team is also available after the call to address any additional questions. Andrea, we're ready to open up the call for questions, please.
分析師問答
Our first question comes from Michael Blum with Wells Fargo.
Wanted to ask on the EPIC deal. Can you give us a little more detail on the synergy capture? How much of that is going to be cost savings versus commercial synergies? And where do you see the timeline? Will you capture those synergies and then reach that mid-teens return?
Michael, this is Willie. First thing I want to do is I want to compliment our team. If you think about these transactions, these are never perfect timing and they're hard to do. And we were able to do the 2 portions, and particularly with the 45% just announced, it gives us the ability to have more control over every question that you asked. I would also refer you to Slide 4. And if you look at the map and you see how integrated it is with the system, I think that helps illustrate the number of ways that we can win. There are a lot of ways we can do this. There's a lot of cost structure savings. There's overhead savings and a lot of this will be immediate, and we'll be able to capture it in 2026. And if you think about the expansion opportunities, it's not one step change function on expansion because we operate it, we'll be able to dictate partial expansions as we go and whatever market demands will be. So there's a lot of different ways to win, and it's not simply the expansion. And I would tell you, a good portion of it is the cost synergies, capital synergies, and integration with our existing systems. Jeremy, do you have anything to add to that?
No. Just from a timing standpoint, I think Willie hit a lot of it. But just the compression in multiple to next year is step-ups in contract and cost savings. So things that are almost immediate and contractual. Beyond that, that is all the things Willie talked about. So we're very confident in the ability to compress this over time and part synergies, but part expansions and just recognize we sell a substantial amount of barrels at Midland, and we can move those barrels. We have demand from customers to go to the docs, the docs are willing to expand and ready to expand. There's additional markets that we're not connected to in Corpus that we can move barrels from Midland today that we sell into that pipeline. So as Willie mentioned, we can expand the pipeline system, we can capture cost synergies, there's a lot we can do immediately, and that's contractual. That will compress to the 10x we announced and the compression beyond that, a lot of that's in our control as well.
And remember, Michael, we operate in that quarter, right? Hence, the Cactus III. So it's not that we have to learn new ways of doing business. This really fits hand in glove with our existing system.
Great. For my second question, after selling your Canadian NGL business and with the EPIC acquisition, could you update us on your expectations for capital return and whether this allows for extended opportunities to achieve the significant distribution growth you've been delivering for some time?
Michael, this is Al. Yes, our view is that we will continue to increase distributions by $0.15 until we hit our targeted coverage. The year where we're transacting here, part of it will depend on when does the NGL sales close. But we expect to continue to grow the company in 2026, 2027 and beyond. Again, once we hit our coverage target, we will revert back to a DCF growth concept. But again, we expect to be able to grow again, if you think of the embedded growth in EPIC from today through next year, that's pretty significant. And again, as that multiple kind of compresses from 10% to 15% unlevered, we see significant growth on this asset. So really no change in our approach there.
Michael, this is Willie again. We have a lot to consider. As you can see, we are examining various options. However, if we decide to make any transactions, they will likely be smaller acquisitions that integrate well into our existing system, as we have discussed previously. We have a lot to accomplish in the next six months.
Next question comes from Keith Stanley with Wolfe Research.
I want to follow up on the distribution question first that Michael just asked. So Al, on your answer, you referenced how there's some noise potentially next year related to the Canadian NGL sales. So to the extent you weren't at the coverage threshold for a $0.15 increase next year because of timing factors related to that sale and redeployment of proceeds, would that impact how you look at the distribution? Or would you see through that and look more at kind of where the run rate DCF would be?
I'll take a shot and Willie jump in. Yes, clearly, we would look through noise to run rate as to how we would think about that. Clearly, if the NGL asset doesn't close early in the year and takes longer, we'll have more DCF. So some of that noise necessarily wouldn't be a limitation per se. But again, our view would be to look beyond the current year as we evaluate this. Clearly, management and the Board have robust discussions around distributions and what we're expecting to do. And clearly, the first call on that will be early January when we announce our distribution for February.
And Keith, Willie here, you know our coverage target is 160% of DCF to coverage. So that gives us a little bit of flexibility. And as Al said, we always play for the long term. Our focus is the return of cash to our unitholders. So I think a lot of that would play into it, and I would agree with everything that Al said.
The second question, going back to EPIC. Can you give some color on the duration of the contracts and how you would characterize rates on that pipeline relative to the market? It sounds like 2026, there's somewhat of a recontracting benefit already that gets you to the 10x?
Sure, Keith. This is Jeremy. There's a substantial portion of the pipeline that's contracted for long-term, and I believe that was announced in the restructuring last year that EPIC did. The balance of the pipe has medium duration contracts, and we feel comfortable in our ability to work with those shippers to either extend those contracts or add new shippers to those contracts. We're just taking over this week, so it would be premature to talk about everything associated with it, but I'd say we like where we sit. The rates are at current market rates, they're not meaningfully above market rates, which means longer-term, we expect this to be a stable and growing cash flow profile, which at least to Michael's question earlier about DCF accretion between the sale of the NGL in this business? We think that will be substantially DCF accretive over time with the trade of those two assets.
And Keith, I might just help. I think publicly and previously, we said the portfolio had a weighted average duration through 2028 with EPIC, this should extend that out to October of '29 in case that's helpful.
Our next question comes from A.J. O'Donnell with TPH.
I wanted to revisit the topic of EPIC. With three pipelines now under your control in the Permian and Corpus Christi corridor, how are you approaching portfolio optimization, and what opportunities do you see for moving flows across your pipelines or reducing operating costs for these three assets?
Thank you for the question, A.J. It really depends on market conditions. As the pipeline pressures change, we will take different actions. We can optimize operating costs and variable costs throughout the pipeline system, provide flexibility for shippers to access various markets, and manage capital effectively across the system. Our team is actively engaged in optimizing tank usage and has a great plan in place. We are only beginning to explore the potential here. This goes beyond just long-haul operations; we are improving flows through our partnerships to ensure quality at various points, including the Eagle Ford. This initiative spans hundreds of miles across multiple assets, giving us numerous opportunities to improve our operating costs and enhance quality and connectivity for our customers. The strategies that have enabled us to succeed in the gathering business in the Permian can be applied to extend our success into long-haul operations, docks, and markets in Corpus and the broader Eagle Ford area.
Okay. Great. Appreciate that detail. Maybe just one more on EPIC and thinking about potential capital requirements to achieve some of these synergies excluding larger projects such as powering the pipeline up to the full design capacity. What kind of additional capital requirements do you see for making these connections either in the Eagle Ford or downstream? Are they relatively small in nature? Or could we potentially see CapEx moving a little bit higher next year beyond the normal range?
AJ, this is Chris Chandler. I'll take that. The short answer is the investments for the activities you talked about are expected to be on the modest side. Our near-term capital spending related to EPIC is certainly going to be directed towards that synergy capture. I think about connecting the systems throughout whether it's at the origin for supply optionality or throughout for our operating and quality optimization. So we see some good opportunities there, but it won't be significant from a capital standpoint. The update to the guidance we gave for 2025 certainly incorporates what I just mentioned there, and our guidance in '26 and beyond will capture that as well, but we don't expect it to be significant.
Our next question comes from Brandon Bingham with Scotiabank.
Just wanted to maybe look into 2026 a little bit, if we could. Operator commentary so far this earnings season seems a little mixed with some guys talking about flat crude and others still blown and going to a certain extent and everything in between. So just wondering what you guys are hearing currently you're seeing from your customer base and how that fits with this year's expected Permian growth. And it also looks like the Permian volumes guide is implying a decent step up in 4Q. So just anything that you guys can comment on as we set up for 2026?
Brandon, let me start with that. For the reasons you've mentioned, it's quite challenging to predict 2026 accurately. From my observations, two of the major players are very stable and continue to grow, while others are taking a more cautious approach. Forecasting oil prices in the near term is difficult. However, we are very optimistic about the long-term outlook. We have a positive view on the Permian Basin and are bullish on oil growth in North America, particularly in Canada. There are many signals that need to unfold in this regard. In relation to our portfolio, I previously mentioned that global demand is likely to continue growing, which I believe it will, because oil is essential for various reasons tied to quality of life. One aspect I've been monitoring is organic investment or drill bit activity. Trends from independent studies indicate that reserves are not being replaced adequately, with organic replacement rates below 100%, which is not sustainable long-term.
This underpins our strong belief in North American oil resources. The restructuring of trade flows, including barrels moving into North America rather than leaving, is an ongoing process. We are only in the middle stages of optimizing this efficiency with oil, while also managing exports like NGLs and gas. There are significant opportunities ahead. However, making predictions for 2026 is quite challenging, which is why we plan to provide insights in February with the best information available. I apologize for the lengthy response, but I hope it clarifies our perspective and our position in the long-term outlook.
Yes. Very helpful. And then just a quick one. The sales proceeds are effectively utilized now for the most part. So could you just maybe discuss your thoughts on fresh retirement and how it fits into the capital allocation strategy moving forward and just kind of what the pecking order is? I think you discussed a little bit in your prepared remarks, but just any updates there?
Sure. This is Al. Since we announced the sale in June, we've deployed $3.1 billion through acquisitions, including the BridgeTex acquisition earlier in the year and now $2.9 billion here. Essentially, the proceeds will be directed towards debt reduction. This will help us reach about the midpoint of our leverage range. After closing and reducing debt, and being at that midpoint, we'll return to our normal capital allocation, which includes returning cash to shareholders through distributions, as well as pursuing bolt-on acquisitions, paying down debt, or opportunistic repurchases of common stock. However, when we're at the midpoint of the leverage range and still see promising opportunities for capital deployment with good returns, we'll probably focus more on bolt-on acquisitions at that stage.
Our next question comes from Sunil Sibal with Seaport Global.
So just a quick one for me. Now that you transitioned to a pure-play crude. The DCF coverage ratio of 1.6x. Could you talk about that in terms of how you think about that in more medium to longer term with the new business mix?
Yes, Sunil, this is Willie. The coverage that we said on 160, you'll recall, I think it was late '22 that we announced that. It's something our Board looks at regularly, clearly without the NGL assets and in the more durable cash flow stream that we have, that's something else we can look at, but we still expect to be conservative in our approach. No change to the 160. But as we go forward, the way I would characterize it is we've got a lot more levers that we can work with as we go forward and get a better triangulation of what the future brings.
Okay. And then when you look at your crude portfolio in Permian post the EPIC, could you talk a little bit about your operating leverage in the system vis-a-vis between your gathering and in-basin pipeline and the long haul. Where do you see the most operating leverage?
Sure, Sunil, this is Jeremy. We've been working on contracting. You saw additional volumes on-basin through the summer. We've done more contracting there. With the acquisition of BridgeTex with ONEOK, we've worked with them to put more barrels on that system. So we're executing with operating leverage now. So despite the falloff in contractual rates, we're backfilling that using operating leverage. We see a lot of opportunity to do that with EPIC. So that creates a new opportunity for us to use operating leverage in a substantial way, given that the rest of our system is heavily contracted. And then within the gathering system, there's a few underutilized laterals within the EPIC, we'll work with our POP JV partners to fill those up. So that creates capital avoidance opportunities and the ability to reduce operating expenses through it. So EPIC provides us additional operating leverage in the gathering, intra-basin and the long-haul system for us to then go fill through the long-term contracts we have on the gathering business. So we're excited about the pull-through benefits for the entire system.
Sunil, this is Willie. You didn't ask about the Permian? I might make a broader comment on North America. When you think about the broader macro, there's been a lot of chatter in North America, particularly around Canadian crude, the ability to get more Canadian crude to markets. And you're very aware of the expansion that has happened on or the new line of TMX going to the West. Canada has vast resources that could get produced if they are more export routes to markets. And when you think about our system and other systems across North America, one of the challenges are, if you can stitch all that together, there's a lot of ability to get to global markets, primarily by going south to the U.S. And as you know, we have a large pipeline called Capline that goes from Patoka down to the Gulf Coast that's got a lot of spare capacity to your point on leverage. So we haven't taken our eye off the ball of being able to solve a broader problem of oil that might be in the next inning or even the next inning to be able to get more energy and oil to global markets. And with the footprint we have, we've got a lot of flexibility around that also.
Our next question comes from Jeremy Tonet with JPMorgan Securities.
Just wanted to pick up with thoughts you might be able to share in 2026, and granted, as you said, with the Permian, it's too early to really have much specificity there. But just wondering at a high level outside the Permian for other basins that you're in, if you could provide any kind of high-level thoughts as far as direction of travel in volumes there over time, that would be helpful.
What we've noticed this year is a slight decrease in the Rockies and Mid-Continent regions regarding our gathering assets, as well as some modest declines in the Eagle Ford. However, we believe that activity levels can support this. A significant part of the growth in the DJ and Bakken came from completing previously drilled but uncompleted wells, which are now out of the system. Therefore, we expect more stable production in these areas next year. In the Permian, we anticipate maintenance-level activity in the short term, but we see substantial potential to increase that. As you may have observed, many are cutting capital while still maintaining production. Thus, through this fourth quarter, earnings have shown that efficiencies are improving, and we expect to see resource expansion in New Mexico and other areas. In the long term, this boosts our confidence in our ability to grow in the Permian while keeping the other basins at a lower breakeven price. This outlook gives us some reassurance, although it is primarily focused on the near term.
Got it. That's helpful. And just a smaller question, if I could, on Keyera sale. How are you guys going about managing FX risk there given the volatility we're seeing in FX?
We fully hedged that basically at the time of the transaction. So we did a deal contingent structure that effectively locked down the rate. And if for some reason the transaction didn't happen, we're not exposed to the adverse movement that could have happened.
Our next question comes from Manav Gupta with UBS.
So a quick follow-up. I think you answered it in a way, but I just wanted to follow up. There are some good deals out there, and you have been very prudent and very smart about these bolt-on deals. So I'm just trying to understand if there is a good deal out there, which meets all your criteria, even if you're slightly above the midpoint of your leverage targets, would you hold back, or you probably are okay with moving towards the top end and closing on a good opportunity we think should not be just let go just because you're slightly over the midpoint of leverage. If you could talk a little bit about that.
Yes, Manav, thanks for the question. Well, we always look for opportunities to grow the enterprise value. And I would like to think that our judgment would be good enough to be able to shift through what I would call short-term noise versus long-term noise. And if it was characterized as you did, something that met all of our thresholds was strategic with a high risk of being able to execute it, that's something we would absolutely consider.
Can you clarify what the main hurdle is that needs to be addressed before the deal can be finalized?
Well, I wish I could help you understand it better as I'm not an expert in this, but it's the Canadian Competition Bureau in the process that they go through similar to our FTC HSR process which is ongoing.
Next question comes from Jean Ann Salisbury with Bank of America.
Just one for me. As you're considering whether or not to expand EPIC? Can you give us an update of the relative attractiveness of Houston and to Corpus for export? It seems like over the next few years, there are roll-offs on pipelines to both destinations that would be competing for recontracting. I know Corpus has historically been more desirable, but is that narrowing at all with the Houston Ship Channel expansion?
Jean Ann, this is Jeremy. I would say nothing has materially changed. Certainly, both ports are competing. You've seen expansions in Corpus as well. The Ingleside dredging has been done. The channel has largely been dredged. It's way more efficient than it's ever been. So for me, Corpus is getting more and more efficient, even more so than Houston from a large ship standpoint. But the quality differential is a big one, just because it's only Permian barrels touching the docs first, touching a lot of barrels that come from the Mid-Continent. So there's a quality benefit and the logistical benefit and that continues to hold the advantage. That's why you see the premium of it on the water at Corpus versus Houston.
Our next question comes from John Mackay with Goldman Sachs.
Willie, I wanted to pick up on your comments around potential involvement on some incremental Canadian crude egress. Could you maybe just talk to us about what some of the moving pieces are? I know you don't have a formal project yet, but I would love to hear a little bit more color on maybe what you guys are thinking?
Fundamentally, there are resources that are stuck, and when you consider the Canadian market down to the U.S. Gulf Coast, refiners are eager to process that heavy crude. Different companies have their unique advantages and challenges. There are some significant long-distance pipelines from Canada that could expand their capacity. Once you reach the border, there are several options for transporting crude to key hubs, with Patoka being one of them. Additionally, there is substantial unused capacity at Capline that could be part of the solution, although it is not the only option. The point I want to emphasize is that when we discuss a midstream business focused on crude, we are examining these factors to find low-cost, reliable solutions to access more markets without the need to construct a completely new long-haul pipeline from source to destination. I hope that clarifies things, John.
No, that's clear. The second question will be quick for Al. Regarding the EPIC debt, do you expect to refinance it at some point? Or could that be a net use of cash from the Plains side?
Yes. Our plan was to take ownership, which we have successfully done. We intend to use the proceeds from the NGL sale to repay it. The timing of this repayment will depend on when the NGL transaction closes. If it doesn’t close until later in the first quarter, we might consider taking out a term loan at the parent level to facilitate an earlier repayment. The decision will be based on how long that term loan needs to be. We will evaluate this option now that we have finalized the agreement.
I'm showing no further questions at this time. I'd now like to turn it back to management for closing remarks.
Well, listen, everyone, thanks for joining us this morning. We'll look forward to giving you further updates and seeing you on the road in the near term. Have a great day.
Thank you for your participation in today's conference. This concludes the program. You may now disconnect.