Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Plains GP Holdings LP (PAGP, Financial) reported second quarter adjusted EBITDA of $674 million, exceeding expectations.
- The company raised its full-year 2024 adjusted EBITDA guidance by $75 million to a new range of $2.725 billion to $2.775 billion.
- Plains GP Holdings LP (PAGP) facilitated and acquired an additional 0.7% interest in the Wink-to-Webster Pipeline Company, demonstrating efficient growth strategy.
- The company expects to generate approximately $1.55 billion of adjusted free cash flow for 2024, with significant allocations to common and preferred distributions.
- Plains GP Holdings LP (PAGP) issued $650 million of senior unsecured notes due in 2034 at a rate of 5.7%, showcasing strong financial management.
Negative Points
- Operating expenses are expected to increase in the second half of the year, reversing some of the lower-than-expected costs seen in the first half.
- The company's production outlook remains unchanged despite rigs trending slightly below initial expectations.
- There are infrastructure constraints and lower natural gas prices affecting production growth in certain areas like the Delaware Basin.
- The NGL segment's favorable spreads may not be sustainable, with some benefits expected to diminish in the latter half of the year.
- The company faces potential challenges in maintaining its current level of EBITDA in the crude segment through 2026, despite recent performance.
Q & A Highlights
Q: The crude segment saw an increase in guidance. Are producer efficiencies the main driver for this change, and are these gains sustainable into 2025?
A: Jeremy Goebel, EVP, Chief Commercial Officer: The guidance change is partly due to opportunistic captures in Canada and the US. Producer efficiencies have allowed them to do more with less, maintaining the 200,000 to 300,000 barrel a day production growth guidance. These efficiencies are positive for long-term business but are not the sole reason for the guidance increase.
Q: How should we think about the NGL segment becoming more fee-based and its impact on earnings variability?
A: Jeremy Goebel, EVP, Chief Commercial Officer: We have entered into 15-plus year contracts, replacing a third of our frac spread exposure. This shift will make the NGL segment more predictable, moving from 60-40 frac spread exposure to less than 50-50. This will flatten seasonal variability but will still allow us to capitalize on straddle business opportunities.
Q: Is the expectation for crude segment EBITDA in 2026 to be roughly flat with 2024 still valid given the increase in 2024 guidance?
A: Wilfred Chiang, Chairman and CEO: Yes, our perspective hasn't changed. We do not expect a significant drop-off in 2026 despite the renegotiations and contract extensions.
Q: What are your thoughts on Permian production growth and the potential for crude takeaway constraints over the next few years?
A: Jeremy Goebel, EVP, Chief Commercial Officer: Near-term growth is impacted by infrastructure constraints and lower gas prices, but we expect continued growth of 200,000 to 300,000 barrels a day annually. Contracting discussions reflect industry expectations for tighter basin conditions, which is positive for our business.
Q: How deep is the M&A opportunity set for bolt-on acquisitions, and what is your approach to broader M&A?
A: Wilfred Chiang, Chairman and CEO: We have a robust opportunity set for bolt-on acquisitions, which provide great returns and are a good use of free cash flow. We are also open to broader M&A if it makes sense for unitholders, but we will remain disciplined and focused on synergies and value addition.
Q: Can you provide more color on customer conversations regarding Permian egress and how they see the market tightening?
A: Jeremy Goebel, EVP, Chief Commercial Officer: We are having constructive dialogues with customers about available capacity and future needs. Our strategy of retaining some open space to capture margins between Midland and the Gulf Coast is aligned with market tightening expectations.
Q: What part of the lower operating expenses in the first half of 2024 is sustainable, and what was deferred to the second half?
A: Chris Chandler, COO: Some of the lower costs were due to deferred spending into the second half, which is not sustainable. However, we continue to optimize operating costs and manage expenses diligently.
Q: Given the strong performance, is there potential for raising the distribution sooner or in larger amounts?
A: Wilfred Chiang, Chairman and CEO: We are committed to returning capital to unitholders and will consider increasing distributions if sustainable EBITDA growth continues. We review distribution increases annually and are open to adjusting based on performance.
Q: Any early thoughts on Permian volume trajectory for 2025 given current efficiencies and producer consolidation?
A: Wilfred Chiang, Chairman and CEO: We expect continued growth of 200,000 to 300,000 barrels a day annually, with some lumpiness due to infrastructure constraints. We remain bullish on the Permian's long-term potential.
Q: How are you approaching hedging for the NGL segment given the forward frac spread?
A: Jeremy Goebel, EVP, Chief Commercial Officer: We continuously monitor and hedge forward positions opportunistically. While we won't provide specific guidance now, we remain active in managing our exposure to forward frac spreads.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
