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Permian Rhapsody - Plains All American Targets Long-Term Growth from Key Shale Infrastructure

The seven years since the heady days of $100/bbl oil in mid-2014 have been a tumultuous time for midstream companies tasked with funding a massive infrastructure build-out to support surging crude oil and natural gas production. Midstreamers have been buffeted by volatile commodity prices, waves of E&P bankruptcies, rapidly shifting investor sentiment, and, finally, a global pandemic. Perhaps no company has had a more challenging road than master limited partnership (MLP) Plains All American, which had to cut unitholder distributions three times over a turbulent five years as it built out a crude gathering and long-haul transportation portfolio focused on the Permian Basin. With its capital program winding down, commodity prices rising, and a new joint venture in the works, can Plains performance rebound and win back investor support? In today’s blog, we discuss highlights from our new Spotlight report on Plains, which lays out how the company arrived at this juncture and how well-positioned it is to benefit from the significant recovery in commodity prices and Permian E&P activity.

Spotlight is a joint venture of RBN Energy and East Daley Capital Advisors. With the support of Oil & Gas Financial Analytics, Spotlight reports provide “deep dives” into the fundamentals that shape the outlook for midstream energy companies and are included as part of our Drill Down report series, which is available to RBN Backstage Pass members. Spotlight should not be viewed as investment advice.

Plains All American (PAA), which was founded in 1989, built what is now the largest U.S. network of crude oil gathering systems, takeaway pipelines, and terminals, along with significant crude and NGL transportation, processing, and storage assets in Western Canada. After the onset of the Shale Revolution, Plains invested heavily to build out its infrastructure network with a focus on increasing the capacity of its Permian operations. The strategy paid off as oil prices exceeded $100/bbl, and Plains’ MLP unit price surged to an all-time high of $60/unit in July 2014 as it raised its distributions to unit-holders 41 times in 43 quarters through early 2015. However, persistently low crude prices in 2015 eroded the company’s performance and sent its unit price tumbling as distribution coverage plunged to a projected 0.86x for 2016. In response, as we detailed in a 2017 Spotlight report on the company, PAA responded by cutting its distribution twice over the next year as it dramatically changed its corporate structure and budget allocation process to fund organic growth, reduce debt, and rebuild shareholder returns.

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