PLAINS GP HOLDINGS LP $documentTitle

Welcome to an in-depth look at PLAINS GP HOLDINGS LP (PAGP)'s annual performance. As the General Partner of Plains All American Pipeline, L.P. (PAA), PAGP's value comes primarily from its ownership of PAA's incentive distribution rights (IDRs) and a significant general partner interest. This structure means PAGP's financial health directly reflects PAA's operational success and its ability to generate distributable cash flow. Let's explore their year, focusing on what matters most to you as an investor.

Business Overview: Understanding PLAINS GP HOLDINGS LP's Core Business

PAGP, through its control of PAA, plays a crucial role in the North American energy supply chain. It primarily operates in the midstream sector, which involves transporting, storing, and marketing crude oil and natural gas liquids (NGLs) from production areas to refineries and markets. Most of their operations are fee-based, providing a relatively stable revenue stream less exposed to volatile commodity prices.

• Crude Oil Segment: This remains their main focus. They boast an extensive network of pipelines, storage terminals, and gathering systems. Key assets include significant ownership interests in major pipelines such as the EPIC Crude Oil Pipeline, BridgeTex Pipeline, Capline Pipeline, Diamond Pipeline, Eagle Ford Pipeline, Saddlehorn Pipeline, White Cliffs Pipeline, and Wink to Webster Pipeline. These pipelines collectively move over 6.5 million barrels of crude oil per day across critical regions like the Permian Basin, Cushing, and the Gulf Coast. Their storage capacity exceeds 150 million barrels, offering crucial market flexibility.
• Natural Gas Liquids (NGL) Segment: Historically, this segment included NGL storage, fractionation (separating NGLs into components like propane and butane), and processing facilities. However, this segment is undergoing a significant strategic change.

Management Discussion: Major Strategic Shift & Operational Highlights

The Management's Discussion and Analysis (MD&A) section explains the company's financial condition, operational results, and strategic initiatives. A pivotal development for PAGP highlighted in the MD&A is the reclassification of its NGL Business as "Discontinued Operations Held for Sale" in the latest annual report. This means the company has committed to selling this segment and actively seeks a buyer.

• Why the Sale? This strategic move aims to streamline operations, reduce debt, and sharpen the company's focus on its core crude oil transportation and storage business. Management seeks to optimize its capital structure and enhance long-term financial flexibility.
• Financial Impact: The NGL segment's financial results now appear separately, allowing investors to see the performance of the continuing crude oil operations more clearly. The company expects to receive approximately $1.5 billion in proceeds from this sale, which it anticipates completing by March 31, 2026. These proceeds are primarily earmarked for debt reduction and general corporate purposes, which should strengthen the balance sheet.

PAGP has also actively optimized its portfolio through other strategic investments. This includes minority interests in Ironwood Midstream Energy Partners II LLC and the OMO JV LLC. These investments expand their footprint in key production basins and enhance connectivity within their crude oil network, reinforcing their long-term market position.

Financial Performance Highlights (Year Ended December 31, 2023)

PAGP, through PAA, delivered solid financial performance, reflecting the stability of its fee-based model and strategic focus.

• Total Revenue: $45.2 billion, primarily from crude oil transportation and marketing activities.
• Net Income: $1.6 billion, demonstrating efficient operations and effective cost management.
• Adjusted EBITDA: A key metric for midstream companies, Adjusted EBITDA reached $3.4 billion, indicating strong operational cash generation before non-cash charges and financing costs.
• Cash Flow from Operations: The company generated $2.7 billion in cash from operating activities, providing ample liquidity for capital expenditures and distributions.
• Capital Expenditures: Totaled $550 million, with approximately $300 million allocated to maintenance capital and $250 million to strategic growth projects, reflecting disciplined investment.
• Distributions: PAGP maintained a stable annual distribution of $1.00 per unit to its unitholders, supported by PAA's consistent distributable cash flow.

Financial Health: Balance Sheet and Liquidity

PAGP maintains a robust balance sheet, essential for navigating the capital-intensive midstream sector.

• Total Debt: As of year-end, total consolidated debt stood at $10.5 billion.
• Net Debt to Adjusted EBITDA: A healthy 2.9x, well within management's target range and indicative of prudent financial management.
• Liquidity: The company boasts strong liquidity, with approximately $1.8 billion available under its revolving credit facilities, in addition to cash on hand.
• Senior Notes: PAGP has various senior notes outstanding, including:
  • $750 million of 4.65% Senior Notes due October 2025
  • $1.0 billion of 4.50% Senior Notes due December 2026
  • $1.25 billion of 3.85% Senior Notes due September 2027
  • $800 million of 3.60% Senior Notes due June 2028
  • $1.5 billion of 4.00% Senior Notes due August 2029
  • Other tranches extend maturities out to 2034, with a weighted average interest rate of approximately 4.2%.

Future Outlook

Looking ahead, PAGP's strategy focuses on maximizing value from its crude oil assets, disciplined capital allocation, and further strengthening its balance sheet through debt reduction, particularly with the anticipated NGL sale proceeds. The successful divestiture of its NGL business is a key event to monitor for its impact on future financial performance and strategic direction.

Competitive Position

PLAINS GP HOLDINGS LP, through PAA, holds a strong competitive position in the North American midstream sector, especially in crude oil transportation and storage. Its extensive, integrated asset base, which includes a vast network of pipelines and significant storage capacity in strategic locations like the Permian Basin and Cushing, provides a substantial competitive advantage. The fee-based nature of a significant portion of its operations offers stability compared to more commodity-price-sensitive businesses. Furthermore, strategic investments and joint ventures aim to enhance connectivity and expand its footprint in key production basins, reinforcing its long-term market position. The company's ability to offer integrated services, from gathering to long-haul transportation and storage, differentiates it from smaller, more localized operators. However, the industry remains competitive, with other large midstream players and new infrastructure developments continually vying for market share.

Risk Factors

Investors should be aware of several key risks:

• Commodity Price Volatility: While largely fee-based, sustained low crude oil prices can indirectly affect throughput volumes and future development.
• Regulatory and Environmental Changes: Evolving regulations for pipeline operations and environmental compliance could increase costs or impose operational restrictions.
• Interest Rate Fluctuations: As a company with significant debt, rising interest rates could increase financing costs.
• Competition: The midstream sector is competitive, requiring continuous investment and operational efficiency.
• Operational Risks: Potential for accidents, spills, or disruptions to pipeline operations.

In summary, PLAINS GP HOLDINGS LP actively transforms its business, focusing on its core crude oil assets while maintaining a strong financial position and delivering consistent distributions to unitholders. The successful divestiture of its NGL business is a key event to monitor for its impact on future financial performance and strategic direction.