EnergyPlains raises pipeline transportation earnings forecast as costs decline

Devika Kumar
3 minute read

Plains All American Pipeline LP (PAA.O) on Tuesday raised its forecast for 2021 transportation segment earnings, as lower operating costs helped offset a decline in volumes shipped on its pipelines.

Adjusted EBITDA in the transportation segment is expected to decline to $1.58 billion in 2021, higher than the previous forecast of $1.53 billion.

Average daily volumes on the company's pipelines are expected to drop to 6.05 million barrels per day (bpd) in 2021 from 6.34 million bpd in 2020. The company previously expected 2021 volumes to average about 6.2 million bpd.

Plains said first-quarter transportation-segment adjusted EBITDA fell 12% compared with a year earlier due to lower volumes driven mainly by the impact of excess pipeline capacity in most regions of the country, exacerbated by the coronavirus-related reset to North American production.

An extreme cold spell in February that hit Texas and other parts of the United States also weighed on volumes during the quarter, Plains said. read more

Overall, Plains said its full-year guidance incorporated an estimated $25 million net benefit from the severe weather.

Pipeline companies went on a construction spree throughout 2018 and 2019 to handle blistering growth in U.S. crude production to a record 13 million bpd. But the pandemic crushed both fuel demand and oil production, and neither has recovered fully, leaving many pipelines unused. read more

Companies, including Plains, are exploring ways to ship other products on those lines and considering selling stakes in operations to raise cash.

Drilling activity is starting to pick up and output from the Permian Basin, the biggest in the country, is expected to grow in the second half of 2021, Chief Executive Willie Chiang said during an earnings call with analysts.

"We expect the Permian to exit 2021 at 4.4 million to 4.5 million bpd, which is an increase of 200,000 to 300,000 bpd from year-end 2020 to year-end 2021," Chiang said.

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