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Plains All American Pipeline: A must-know comparative analysis

Avik Chowdhury

Takeaways from Plains All American Pipeline’s analyst day meeting (Part 7 of 7)

(Continued from Part 6)

Analyzing Plains All American Pipeline

Plains All American Pipeline LP (PAA) is a master limited partnership (or MLP) that operates in the midstream energy business. PAA provides energy infrastructure and logistics services for crude oil, natural gas liquids (or NGLs), natural gas, and refined products. Other MLP names operating in the space include Enterprise Products Partners (EPD), ONEOK Partners LP (OKS), Magellan Midstream Partners LP (MMP), and Atlas Pipeline Partners LP (APL). All these companies are part of the Alerian MLP ETF (AMLP).

PAA business overview

PAA has three operating segments. Its Transportation segment owned 16,900 miles of crude oil and NGL pipelines and gathering systems, 24 million barrels of pipeline throughput, 744 trailers, and a number of transport and storage barges. PAA’s Facilities segment provides fee-based storage and terminaling services for crude oil, refined products, and NGLs and offers NGL an fractionation service. As of December 31, 2013, PAA ownership included storage capacity for approximately 74 million barrels of crude oil and refined products, 23 million barrels of NGL, 97 billion cubic feet of natural gas, and 11 natural gas processing plants.

The Supply and Logistics segment offers marketing activities like the purchase of U.S. and Canadian crude oil and NGLs from the producers, storage of inventory, resale or exchange of crude oil and NGL to refiners, or other resellers and transportation of crude oil and NGL from various delivery points to the end users.

EPD business overview

Enterprise Products Partners (EPD) is one of the largest master limited partnerships operating in the midstream energy space. The company operates a vast portfolio of energy infrastructure, storage, and transportation assets, based mostly in the U.S. EPD’s services include natural gas gathering, treating, processing, transportation, and storage, natural gas liquids transportation, fractionation, storage, and import and export terminals, crude oil gathering, transportation, storage, and terminals, offshore production platforms, and petrochemical and refined products transportation.

OKS business overview

ONEOK Partners LP (OKS) engages in the business of gathering, processing, storing, and transporting natural gas and natural gas liquids in the United States. As a leading NGL supplier, the company connects the Mid-Continent and Rocky Mountain regions with key market centers. It operates in three segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines.

MMP business overview

Magellan Midstream Partners, L.P. (MMP) is a master limited partnership that operates in the midstream energy space. The company is engaged in the transportation, storage, and distribution of refined petroleum products and crude oil. As of March 31, 2014, the company’s assets include a 9,500-mile refined products pipeline system with 54 terminals, a 1,100-mile ammonia pipeline system, 1,100 miles of crude oil pipelines and storage facilities with approximately 18 million barrels of storage capacity, and five marine terminals with aggregate storage capacity of approximately 27 million barrels. The company’s three operating segments are Refined Products, Crude Oil, and Marine Storage.

APL business overview

Atlas Pipeline Partners LP (APL) operates in the gathering and processing segments of the midstream natural gas industry. The company’s assets are primarily in the Anadarko, Arkoma, and Permian basins, located in the southwestern and mid-continent regions of the United States, and in the Eagle Ford Shale in south Texas and the Appalachian Basin in the northeast. APL also provides NGL transportation services in the southwestern region of the United States. Atlas Pipeline Partners operates through two segments. The first segment is Gathering and Processing, while the second segment is Transportation, Treating, and Other. The Gathering and Processing segment has 14 natural gas processing plants with aggregate capacity of approximately 1,500 million cubic feet per day, a gas treating facility, and approximately 11,200 miles of active natural gas gathering systems located in Oklahoma, Kansas, Tennessee, and Texas.

A comparative analysis of PAA, EPD, MMP, OKS, and APL

From the comparative analysis table above, we note that EPD had the highest market capitalization in the peer group, while APL had the lowest market capitalization. The last-12-month EV-to-EBITDA ratio was the highest for MMP and lowest for PAA. The distribution yield was the highest for APL and lowest for EPD, primarily because APL had the lowest share price. The distribution yield is measured as the latest quarterly distribution annualized divided by the current share price. Distribution coverage (distributable cash flows / distributed cash flows) was the highest for MMP and lowest for OKS. A higher coverage ratio is positive for investment, as it implies the business has ample cash to continue paying distributions to unitholders. The last year’s and year-to-date total returns were also the lowest for APL and highest for MMP. Consensus EBITDA growth in 2015 over 2014 is also the highest for APL and lowest for EPD.

EPD had the biggest last-12-month debt, while the total debt of APL was the lowest in the group. The LTM debt-to-EBITDA ratio was also the maximum for APL. However, it was the least for MMP. Debt-to-EBITDA is one of the key financial ratios used in assessing a corporation’s leverage or creditworthiness. A high leverage ratio may indicate an indebted company that may not be able to service its debt. This would adversely affect the credit rating of the company.

Where does PAA stand among the peers?

PAA’s EV-to-EBITDA ratio (14.5x) was lower than the industry average (17.1x). So we may say that PAA is relatively underpriced. While the last-12-months total return from holding PAA is below average returns, the year-to-date return (13.3%) from PAA is higher than the peer group average (11.5%). As of June 9, 2014, PAA’s dividend yield, at 4.4%, was lower than the industry average of 4.8%.

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