Plains Gp Holdings LP (PAGP) Q3 2026 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Plains All-American Third Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please revise that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Blake Fernandez, Vice President, Investor Relations. Please go ahead.

Thank you, Marvin. Good morning, and welcome to the Plains All-American Third Quarter 2026 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at ir.plains.com. An audio replay will also be available following today's call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on slide two. An overview of today's call is provided on slide three. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chang, Chairman and CEO and President, Al Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I'm going to turn the call over to Willie.

Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported strong third quarter adjusted EBITDA attributable to planes of $711 million. Al will provide additional details on the quarterly results in his portion of the call. Our business is operating well, and we continue to demonstrate steady growth as we executed on the three initiatives that we established at the beginning of the year. First, we closed on the sale of our Canadian NGL business in May, which completes our shift to a premier crude oil midstream company and improves the quality of our cash flow and our opportunities for growth going forward. Second, we have captured 50 million of synergies in connection with the Cactus 3 pipeline acquisition. And third, we remain on track to deliver 50 million of efficiencies across the organization by year in 2026. As we outlined on slide four, we have multiple levers to efficiently grow the business through a combination of organic and inorganic investment opportunities that complement our existing asset base. To further expand on the organic growth projects that we detailed in the second quarter, we're pleased to announce a 10-year agreement for the large integrated producer to further build out our Permian Midland gathering system. This new agreement includes 270,000 dedicated acres, and it provides additional growth opportunities to the POPJV, bringing our total dedicated acreage in the Permian to more than 5.3 million acres. Outside of the Permian, we successfully closed the Silver Creek Acquisition, which we have renamed Silver Spur, on October 1st. This further expands our presence within the Powder River Basin, where substantial drilling location with attractive economics Support robust producer development into the future. Silver Spur is a strategic addition to our Rockies platform. The system currently transports approximately 125,000 barrels a day, underpinned by a diversified customer base, and includes 915,000 dedicated acres with long-term contractual commitments. By integrating these gathering assets into our existing network, we enhance our customer offering with long-haul connectivity to Cushing, creating commercial and operational synergies that support long-term cash flow growth. During the quarter, we also took steps to optimize our balance sheet with a successful junior subordinated notes offering and the subsequent redemption of our preferred securities. Al will provide more detail, but these transactions meaningfully simplify our capital structure and our creative distributable cash flow moving forward. On the macro front, the geopolitical landscape remains volatile, with ongoing disruptions to global oil supply and damage to energy infrastructure. Global demand has remained resilient, and oil inventories, including strategic petroleum reserves, continue depleting. which is supporting the crude oil futures curve through this environment North America remains critical to help meet global energy needs more specific to the Permian we expect production growth to be towards a high end of our previous range about 200,000 barrels a day on a year-end exit to exit basis for 2026 improving natural gas egress higher rig counts over the past six months Continued developments of various formations in the Permian and continued advancements in drilling efficiencies and enhanced recovery techniques should and will provide momentum into 2027. We will provide a more formal outlook for 2027 Permian growth on our call in February. With that, I'll turn the call over to Al to cover our quarterly performance and other financial matters.

Thanks, Willie. Slide five contains adjusted EBITDA walks that provide additional details on our performance. Please note that three key reporting removes the NGL segment and includes one single consolidated segment for the entire company, which aligns with the sale of our Canadian NGL business that closed in May. For the third quarter, we reported adjusted EBITDA of $711 million. Reflecting the benefit of operating efficiencies, annual for a pair of rate escalations, and a reduction in environmental remediation expenses relative to the second quarter. As highlighted on slide six, we are on track to achieve our guidance targets for the year and narrowing the EBITDA range to plus or minus $50 million. With a midpoint of $2.88 billion. Based on prevailing macro environment, we would expect to be at or slightly above the midpoint of the range for the year. A summary of 2026 guidance and key assumptions are on slide 7. We will provide guidance for 2027 on our call in February. Slide 8 illustrates strong distributable cash flow generation. In September, we successfully raised $1.5 billion of 30-year junior sub-subordinated notes, which mature in 2056, consisting of $700 million of 6.75% Series A notes, which are callable in five years, and $800 million of 7% Series B notes, which are callable in 10 years. Subsequently, we use the proceeds along with cash on hand and commercial paper borrowings to redeem all of our series A and series B preferred units. This capital structure optimization is expected to increase annual distributable cash flow to common unit holders by approximately $60 million or $0.09 per unit while maintaining leverage within our targeted range. With that, I will turn the call back to Willie.

Thank you, Al. I'm pleased with our performance year-to-date and the continued execution on our key initiatives. Our crude oil business, with a more durable and predictable cash flow stream post-NGL sale, really positions us well for a variety of macro market conditions. As we show on slide 9, we continue to execute our efficient growth strategy. The three announcements this quarter again demonstrate the multiple levers that we have to drive growth, including organic investments, inorganic Voltan M&A, And balance sheet optimization. We remain committed to capital discipline, maintaining a stable and flexible balance sheet, and continuing to return cash to unit holders. With that, I'll turn the call back to Blake to lead us into Q&A.

Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. This will allow us to address as many questions as possible from our participants in our available time this morning. With that, Marvin, we're ready for questions.

Thank you. At this time, we'll conduct the question and answer session. As a reminder, if you have a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and a follow-up. Please stand by when we compile the Q&A roster. And our first question comes on the line of Manal Gupta of UBS. Your line is now open.

Good morning, team. Congrats. I wanted to ask you a little bit more on the 270,000-acre Midland dedication. As you ramp towards the 225 target of volumes, how should we think about the earnings uplift that this opportunity provides?

Manav, this is Jeremy Goble. We're going to give you some more guidance on that in February, but think of that as existing production. So it's not a ramp to production. It's just a matter of timing for connection. So that contribution will likely be late 2027, early 2028 when the connection's done, but we'll give you more guidance on capital and timing next year. But we're excited about the opportunity to partner with a top-tier producer and look forward to providing those services over long time. and expanding our midland footprint.

Perfect, sir. The second question I wanted to ask you, I mean, we understand there's crude volatility, but what are you hearing from the producers generally in the Permian? Do they expect to continue to grow production? We know the big guys, the exons of the world definitely want to grow. And what we're trying to solve from our side is, when does the Permian egress start to get tightened again? Is it late 2028? Is it 2029? When do you see to the point where, you know, these existing Permian pipes, even with the cactus expansion, are like almost 90% full.

Got it. Manav, that is a great question. What I would say is the volatility you experience every day in waking up and seeing a headline in crude move $8 to $10, they're experiencing the same. So from a planning perspective, I think you can expect 200,000 to 300,000 barrels a day of growth for the foreseeable future based on the activity you see today. You've added 30 rigs this year. You've gotten more efficient this year. You're just starting to add completion crews. So the 200,000 barrels a day of growth that keeps going. that we've seen through this year. We expect that to continue. The pipes to the coast are close to 90 percent. The total bacon... We continue to recap.

I just wanted to add one thing. Your question is spot on. It's very difficult to predict the exact timing of it because just of the global volatility. But as I step back and we think about what's going on in the world, global demand has remained fairly resilient. There's a lot of noise in the supply chains. If you look at where the resources are, where the demand centers are for the world, it all points to North America really being an incremental producer. So the capacity that we've got out of the Permian is meaningful, and we've got the ability to expand Cactus III, and as we've said before, we're going to match that expansion capacity to what the demand is to get to the water. But I think it really sets up for a strong macro environment going forward. Trying to analyze and pick exactly when it's going to happen is very, very difficult. But we'll be patient and stand ready to be able to meet the needs.

Thank you so much.

Thanks, Minab.

Thank you. One moment for our next question. Our next question comes from the line of Julian Dumoulin-Smith of Jeffries. Your line is now open.

Hey, good morning, team. It's a pleasure to be here. Can you hear me okay?

We can hear you loud and clear.

Excellent. Thank you for the opportunity. Look, a couple things. Maybe just zeroing in and nitpicking. On the quarter itself, 4Q, what's implied here, how do you think a little bit about just implying down? Is there any specific drag here on the fourth coming quarter? And then thinking a little bit more strategically to the last question here, what do you think the timing of evaluating that Cactus 3 expansion is? Vis-a-vis, you talk about that 28 timeline for a brownfield expansion. When do you start moving on that? We're getting a little bit more detail on, I presume that that's the brownfield expansion you're getting at here.

Julian, this is Al. I'll do the first part. Implied, obviously, in our guidance is about $700 million for the fourth quarter, down about 10 from the third quarter. The real change is the market opportunities. That we've experienced in 2Q and 3Q, that really masks, that's really driving the $10 million lower number, plus the inclusion of Silver Creek for the fourth quarter. If you recall, our view is Silver Creek's an asset that's going to grow meaningfully over the next few years. 4Q included in our forecast is without the benefit of some of that growth, some transition services cost, integration cost, etc. And without the synergy, so those two basically offset the step down and some of the market opportunities that we captured kind of as the war started for second quarter and third quarter.

Julian, for your second part, the short answer is we're continually evaluating them. Just as you saw this summer, we added 75,000 barrels a day. We're looking at incremental ability to add as the market demands. And so I think you'll see us ramp over that time period. There's segments of pipe we have to build to access additional markets. So I don't know that you'll see one grand announcement, just a series of announcements to get the pipeline ready, and then as contracts and rates are appropriate, we'll add the additional capacity. So I don't think it's going to be one step change, another 300,000 barrels a day. We're going to see a series of expansions that go.

Got it. Excellent. Thank you. You picked up what I was trying to put down on that 4Q and on the Silver Creek piece and the contribution. But maybe talking about the PRB more broadly here, I mean, obviously you're acquiring here. How do you think about diversification in that geography here, post midterms, et cetera? Anything that you'd flag in terms of just more strategic repositioning and adding on the margin maybe, but any points to complement your latest position there?

Yeah, Julian, we're very excited about the Silver Spur asset. I think the Powder River Basin is one that's been candidly evaluated for over some time period, and they're just starting to figure it out. So I think... It's going to ramp into 2028. We have to continue to build out the system now through 2027, but there's a series of MVCs. There's 915,000 of acres dedications. There's four to five producers that are already telling us that The wells are better, and they cost less, and they're looking to potentially add a rig into the system so we can see the Powder River Basin as the next growth wedge in the Rockies, and that positions well for us not only on the Silver Spur asset from a gathering standpoint, but it also from a pull-through benefit to our pipelines and terminals in the Guernsey area headed south through to Cushing. So it's an integrated play for us. Growth on a stand-alone basis, but also an integrated place. We're excited about the opportunity to work with some of our large producers that they're on.

Awesome, guys. I'll leave it there. Thank you very much.

It's a pleasure. See you around. Thank you. One moment for our next question. Our next question comes from the line of Jeremy Toney of JPMorgan Securities. The line is now open.

Good morning, team. Thank you so much for taking questions. This is Francina on for Jeremy. Just wanted to zoom in a bit more on that kind of Silver Creek contribution point in 4Q. How would you kind of maybe frame or size run rate contributions and then the kinds of projects that might be incremental to kind of reach that run rate in terms of thinking about capital needs, you know, to really capture that low-hanging fruit? Thank you.

So, think of the fourth quarter as transition. There's a transition services agreement, which has some additional costs that will go away. So, typically it takes us a few... We're doing some pull-through benefits on the assets. 2028 forward will be a great thing for the asset, but it's inside of ten times when we start, and it compresses well in. From an EBITDA standpoint.

That's very helpful. Thank you. And then just wanted to maybe talk more broadly about the M&A landscape. You know, a lot of your peers have taken on packages this year, and so is there anything that's remaining, anything that looks interesting at this point?

Yeah, I'll go ahead and take that one. This is Willie. Clearly, we've done a lot of bolt-on M&A or bolt-on acquisitions, so I'll speak about bolt-ons and then broader activities. We've actually been... Ones that have been executing on a lot of these bolt-ons. We look at everything. I would tell you that I think the bolt-on opportunities are probably a little less than the pace we've gone in the past. I think we've done 15 of these over the last three or four years, so it's been very critical to our piece. A broader M&A is obviously an opportunity, but right now we focus on our crew business. We've got, you know, anything we do focuses on returns. So if we think about assets that we might bring in or things we may do, it's really focused around capital, discipline, and returns. And it's with that lens that we think about broader M&A. But look at everything. Well-positioned. Opportunities come our way. We'll be able to hopefully capture them.

Thank you, team. Appreciate it.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of A.J. O'Donnell of TPH Research Alliance, now open.

Hey, morning, everyone. I was just hoping maybe I could sneak in one more question about the new Midland dedication. Just wondering, you know, as far as the makeup of the... The volumes, are there any MVC components that are built into that? And then if you could talk about any of the volumes that are currently producing, because I thought you said it was existing production, are any of those volumes currently moving on your intra-basin or long-haul systems?

AJ, this is Jeremy. What I would say is these are acreage dedications, consistent with the rest of the system on the contract structure. The vast majority of this would be going into existing systems just into the Midland Complex to say whether a specific barrel is flowing through us. They're not providing any meaningful contribution to us today. And so this is just something that it's a new contract from the Gathering System.

Okay, thank you for that. Maybe just going back to the Permian macro, you know, if we start to see this kind of compounding multiple hundred thousands of barrels of growth over the next few years, where do you see the most upside or what part of your system do you get most excited about? Is it like the incremental C3 expansions that you can do or market-based opportunities on your marketing affiliate? Thank you. The highest torque, maybe higher utilization on your northbound assets out of the Permian.

AJ, that's a great question. I'd say it's a bit of all of the above, because filling the pipes is one thing. What we really get excited about is longer term, the additional improvement. Sustaining this for a long time. The excitement around the surfactant. Yes, Ms. Exxon. There's a lot of gas and a lot of NGLs. The long-haul business should be better, market-based opportunities around it, so it's just an integrated platform that we have to serve our customers.

Okay, thank you. I'll turn it back.

Thank you. One moment for our next question. Our next question comes from the line of John McKay of Goldman Sachs. Your line is now open. Hey, team.

Thank you for the time. I'll go back to the Midland dedication. Congrats on that. I just want to make sure we're thinking about it correctly. I know we'll get color later on kind of associated EBITDA and any associated spend, but given this is production that's already flowing elsewhere, I mean, is there a... Is there an acquisition opportunity here for you guys over time on kind of whatever this production is touching right now?

John, I'd say at this point that's inappropriate for us to talk about, but from our standpoint, we look forward to executing under the contract that we have today.

All right.

I'm sorry, John. This is Willie. I mean, as I think about at high level, right, our whole business is integrated. So, we've got gathering, interbasin, long haul. So, the thought of getting another 900,000 dedicated acres into the system, this is just what we do.

No, absolutely, that makes sense.

I'm sorry. I was quoting, I misquoted it. It's 270,000 acres here versus the 900 was up in Silver Creek, in the Powder River. My apologies on that. Thank you, but you guys.

Absolutely. And maybe just on that point, you've probably increased the size of the dedicated acreage on the JV by looks like 30% since you kind of put it together about five years ago. I think we're just past that five-year anniversary. Can we take this opportunity to give us your view on kind of the longer-term strategic plan here? You know, is there an opportunity to kind of buy in the other piece at some point? Is this going to be a kind of vehicle you can kind of continue to grow in? Maybe just give us an update now that we're kind of five years past the launch of it.

We've had a great partnership with... That's their decision on when they decide to get out, but we've proven with them that we can grow, like you said, a 30% growth over five years is really a 50% growth. It's been a great run. It will continue to be a great run. We're happy for them to grow with us, but just like everything else, we've bought a lot of our partnerships in when that's the right time. If that works, great. If they want to stay outstanding, great. If a new partner comes in. We're going to continue to grow as we've proven. It's very different than the opportunity to buy.

Absolutely. That makes sense. Congrats again on the dedication. Thank you. Thanks, John.

Thank you. One moment for our next question. Our next question comes from the line of Pernit Satish of Wells Fargo. Your line is now open.

Thanks. Good morning. So, I know it's early, but maybe you can help us think through some of the puts and takes for 2027 EBITDA. I know, you know, you've got a few tailwinds here, 50 million cost energies or cost efficiencies in a full year of Silver Creek, Cactus 3. Probably going to see, you know, volume growth on the oil side with the flush volumes coming in. So, you put that all together, it does seem like you could see some reasonable growth in 27. So, maybe what are some of the key headwinds or kind of offsetting factors that we should think about when modeling 27 growth?

Al? Hey, this is Al. Yeah, I mean, we've articulated kind of the four things, and I think you answered a meaningful part of the question. Clearly, PLA, we came in this year pretty highly hedged in the low 60s. We'll probably be in the low to mid 60s by the time we exit with realized prices this year. Clearly, it's setting up for meaningful improvement there. $10 a barrel is a little over $40 million, so that's a definite tailwind. Clearly, the production growth, the 200,000 barrels a day that Jeremy mentioned, you know, a lot of that came late. We expect that to benefit 27 in addition to the excess rigs and the 27 growth itself. So we see the Permian volumes as a benefit. Clearly, the investment capital, whether it's our true investment expansion capital, like the recent Cactus expansion, in addition, the Silver Creek acquisition as well, those benefits will come to 27, and then the additional efficiency gains that we've talked about, the incremental $50 million. Probably the one caveat or, quote, headwind we would point to, if you're taking that, the last three quarters of this year, the crude is right around $700 million a quarter. If you were just taking that. Annualizing it and then putting all this growth on it. Clearly, we've had some market benefits in those numbers. So we would encourage you to maybe dial in a little bit of taking out some of those market opportunities. Maybe we'll see the opportunity to get those in 27, but it wouldn't be, we wouldn't come into the year expecting to see a repeat of some of that opportunity.

Gotcha. No, that's helpful. And then, you know, there's several proposed Western Canadian egress projects that could bring more barrels into the mid-continent. I think at least one project that would go directly into Cushing, and I don't think they're expanding capacity from Cushing down. So I guess as you look across your asset footprint, and I don't know whether it's Kapline or other systems, do you see any opportunities to participate or capture that incremental flow?

That's a great question, and certainly any of the crude projects we're looking to see if we can benefit, complement, participate. So we'll keep you posted along the way, but we're constantly looking at opportunities to see if we can either partner with good projects, participate, create new projects. So we'll have more updates in the next six months if any of that comes to fruition. But certainly things that complement us, we're actively looking at on the organic side as well.

Very good, thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Willie Chang, Chairman and CEO, for closing remarks.

Great. Well, listen, thanks for your ongoing support questions, and we look forward to seeing you on the road soon. Have a safe day. Thanks.

Thank you for your participation in today's conference. This has concluded the program. You may now disconnect.