Plains All American Pipeline Is into Payout Increases

August 10, 2012 /

Many companies take pride in boosting the dividend payout every year.

Oil storage and pipeline company Plains All American Pipeline ( PAA ) has increased its distribution in 31 of the past 33 quarters.

The distribution’s current annualized yield is 5%, and the payout has about doubled since 2002.

The company is a master limited partnership, which usually means much of the cash flow is paid out to unit holders.

Business operations consist of three segments. The transportation operations involve transporting crude oil and refined products via pipelines, trucks and barges. The facilities operations provide storage and terminaling of oil, natural gas and refined products. The supply and logistics operations consist of merchant activities such as buying and reselling oil.

The supply and logistics segment provides an opportunity to benefit from oil-price differences, which have been significant recently.

During Q2, supply and logistics was the top contributor to performance. Chief Operating Officer Harry Pefanis said at the Aug. 7 earnings call that “the Midland to Cushing differential was probably the big blowout for the quarter,” and “probably the largest driver for the overperformance, first half of the year.”

The West Texas Intermediate Midland-West Texas Intermediate Cushing price differential averaged about $4.90 a barrel in Q2 vs. $1.50 a barrel in Q1. At one point in April the differential was about $9 per barrel, the widest in 11 years.

Refinery downtime issues were the main cause of the difference.

Plains’ third-quarter guidance is now lower than Q2 results partly due to the lower Midland-Cushing differential, CEO Greg Armstrong said at the call.

Armstrong noted that “market conditions may not be as favorable during the second half of 2012 as they were in the first half.”

Earnings increased 46% in the second quarter on a 10% pop in revenue. The Street expects EPS to drop 14% in Q3 vs. the year-ago period as revenue edges up 1%.

Given the company’s history, though, the distribution might be increased yet again.


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