Plains GP Holdings, L.P. (NASDAQ:PAGP) is a leading midstream energy company that owns and operates an extensive network of pipeline transportation, terminalling, storage, and gathering assets across North America. With a strong presence in key crude oil and natural gas liquids (NGL) producing basins, PAGP has established itself as a critical infrastructure provider, connecting major supply regions to key demand centers and export terminals.

Financials

In the first quarter of 2024, PAGP reported net income of $336 million, a decrease from $443 million in the same period of the prior year. However, this decline was primarily driven by favorable impacts in the 2023 period, including gains on asset sales and a mark-to-market adjustment of the Preferred Distribution Rate Reset Option. PAGP's annual net income for 2023 was $1.98 billion, while its annual revenue reached $48.699 billion. The company's annual operating cash flow and free cash flow for 2023 were $2.722 billion and $2.163 billion, respectively.

During the first quarter of 2024, PAGP's Crude Oil segment generated revenues of $11.582 billion, while the NGL segment contributed $507 million in revenues. The Crude Oil segment benefited from higher tariff volumes on the company's pipeline systems, tariff escalations, and contributions from acquisitions, partially offset by fewer market-based opportunities. The NGL segment experienced a decrease in segment adjusted EBITDA due to lower realized frac spreads and lower propane and butane sales volumes.

Recent Developments

PAGP's management team remains focused on capital discipline, free cash flow generation, and returning capital to investors. The company recently announced the successful recontracting of its Permian long-haul pipeline portfolio, extending the weighted average contract duration to approximately 5 years through 2028. This includes new contracts or extensions on Cactus I, Cactus II, Basin, and Sunrise pipelines, with certain Cactus I capacity contracted at rates in the range of $1.25 to $1.50 per barrel.

Outlook

Looking ahead, PAGP expects the Permian Basin to continue growing by 200,000 to 300,000 barrels per day, with a back-half weighted ramp-up providing momentum for the remainder of 2024. The company's NGL segment remains highly hedged, with frac spreads at approximately $0.65 per gallon for 2024. PAGP has reaffirmed its 2024 adjusted EBITDA guidance range of $2.625 billion to $2.725 billion.

In terms of capital allocation, PAGP plans to self-fund its targeted $375 million in growth capital expenditures and $230 million in maintenance capital expenditures (net to its interest) for 2024. The company also expects to allocate approximately $1.15 billion to common and preferred distributions, reflecting its commitment to returning capital to shareholders.

PAGP's strategic initiatives have positioned the company as a leading midstream player, with a diversified asset base and a focus on generating significant free cash flow. The company's recent bolt-on acquisitions, including the additional 10% stake in the Saddlehorn Pipeline Company and the Mid-Con terminal asset, are expected to generate unlevered returns in line with PAGP's targeted threshold of approximately 300 to 500 basis points above its weighted average cost of capital.

Liquidity

The company's liquidity position remains strong, with approximately $2.5 billion of available liquidity as of March 31, 2024, subject to continued covenant compliance. PAGP's debt profile is well-managed, with a focus on maintaining financial flexibility to support its growth and distribution strategies.

Conclusion

PAGP's business model and asset footprint provide a unique value proposition for current and potential unitholders. The company's double-digit adjusted free cash flow yield and a distribution yield of approximately 7% to 7.5%, with a multi-year targeted annual increase of $0.15 per unit, make it an attractive investment opportunity in the midstream space.

In conclusion, PAGP's consistent performance, strategic initiatives, and commitment to capital discipline and shareholder returns position the company as a compelling investment in the midstream energy sector. With its diversified asset base, strong liquidity, and favorable industry dynamics, PAGP is well-equipped to continue generating significant cash flows and delivering value to its investors.