Plains All American Pipeline, L.P. (PAA) announced fourth-quarter 2011 operating earnings of $1.65 per unit, beating the Zacks Consensus Estimate by 4 cents. The results of the partnership were also substantially higher than 99 cents reported in the year-ago quarter.
The year-over-year growth was attributable to the strong performance of all its reporting segments and benefits from the investments made in its operations.
On a GAAP basis, Plains reported earnings of $1.37 per unit in the fourth quarter versus 67 cents per unit a year ago. The difference of 28 cents between operating and GAAP earnings during the quarter was due to the impact of certain one-time items. These are 24 cents relating to equity compensation expenses, 7 cents due to loss on derivative activities and 4 cents due to acquisition related expenses. The partnership recorded a 7 cent gain on revaluation of foreign exchange.
Plains’ 2011 operating earnings were $5.24 per unit compared with $3.03 per unit reported in 2010. The results of the partnership were 10 cents higher than the Zacks Consensus Estimate.
Total revenue at Plains All American Pipeline at the end of the fourth quarter was $8.88 billion versus $7.23 billion in the year-ago period, reflecting a growth of 22.9%.
Reported quarter revenue fell short of the Zacks Consensus Estimate of $9.3 billion.
Plains’ total revenue for 2011 was $34.28 billion versus $25.89 billion reported in the prior fiscal year, reflecting a growth of 32.4%.
Fiscal year 2011 revenue surpassed the Zacks Consensus expectation of $34.08 billion.
Operational Update
Total cost and expenses during the quarter as well as the fiscal year increased 21.5% and 31.2%, respectively. However, expenses decreased, as a percentage of total revenue, by 110 basis points and 82 basis points, respectively, in both periods.
The revenue upsurge and the relative decline in total costs boosted the operating margin of the partnership both in the current quarter and fiscal year. Operating income increased a respective 68.5% and 69.2% in the quarter and the fiscal on a year-over-year basis.
In 2011, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose to $1.60 billion from $1.11 billion reported in the prior-year.
Segment Details
Transportation: The profit from this segment increased 16% in the quarter and 8% in the fiscal year from the comparable 2010 periods. The growth was attributable to higher pipeline tariffs and volumes, offset partially by higher operating expenses.
Facilities: Profit surged 43% in the reported quarter and 34% in the fiscal year, both year over year. The growth was attributable to the Southern Pines gas storage facility acquisition and capacity increases from organic growth capital projects.
Supply & Logistics: Profit shot up 83% in the reported quarter and 121% in the fiscal year, both year over year. The growth was attributable to increased crude oil lease gathering volumes and margins related to high levels of drilling activity in areas of the partnership’s operations.
Financial Update
Cash from operating activities during the year was $2.36 billion versus $0.25 billion in 2010.
Long-term debt of the partnership as of December 31, 2011, was $4.6 billion versus $4.1 billion as of December 31, 2010. A debt of $500 million, which is expected to mature in September 2012, was treated as short term.
The partnership issues units from time to time to fund its capital requirements like it did in the first and final quarter of 2011. The partnership used the proceeds to lower outstanding borrowings under its credit facilities, to fund its pending and future acquisition and for general partnership purposes.
Cash Distribution
The new quarterly distribution rate of the partnership is $1.025 per unit ($4.10 per unit on an annualized basis). The new distribution rate reflects quarterly growth of 3.0% and year-over-year rise of 7.0%.
The partnership expects to benefit from strong industry fundamentals in 2012 and share more with unitholders by increasing the distribution rate by 8% to 9% in 2012.
A Quick Look into 2012
The partnership expects capital investment in 2012 to be $2.5 billion, surpassing the prior-year level of $1.9 billion. The partnership has allocated $0.8 billion for organic capital programs and $1.7 billion for the acquisition of BP Plc.‘s (BP) Canadian NGL business.
At the Peer
EnterpriseProducts Partners LP(EPD), which competes with Plains All American Pipeline L.P., announced operating earnings for the fourth quarter 2011 of 82 per unit versus 33 cents per unit in the year-ago quarter. Earnings were ahead of the Zacks Consensus Estimate of 56 cents per unit.
The 2011 operating earnings of the partnership were $2.38 per unit compared with $1.15 per unit in 2010. The results also surpassed the Zacks Consensus estimate of $2.11.
Our View
During the year the company resorted to the acquisition of strategic assets to expand operations like it did in 2010. We believe the decision to acquire the BP assets, which is likely to close in 2012, will boost the partnership’s midstream business through additional pipelines, storage capacity, fractionation plants and supply contracts.
Plains All American recorded a sound fiscal year with revenues bounding across all segments. We believe the partnership is uniquely poised to deliver attractive results riding on its strong business model and opportunistic acquisitions.
Plains All American Pipeline currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
Houston, Texas based Plains All American Pipeline owns assets strategically located in well-established oil producing regions, catering to major U.S. refinery and distribution markets. Other than organic growth opportunities, the partnership also relies on acquisitions to spur growth.
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