PAA

Good day, and welcome to the PAA and PHGP first quarter 2026 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question, you will need to press star one one on your touchtone telephone. Please note this call is being recorded. I would now like to turn the call over to Blake Fernandez, Vice President of Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, and welcome to Plains All American 1st 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 Chiang, Chairman, CEO, and President, and Al Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I'll turn the call over to Willie.

Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA attributable to Plains of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure, and responsibly produced energy. The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis.

We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term. Longer term, as countries replenish depleted Strategic Petroleum Reserves globally. Post-war, we would not be surprised to see several countries restock their SPRs above pre-war levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity. On the supply side, OPEC production capacity post-war remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply. Against this backdrop, North America, including the Permian, remain well positioned to play a critical role in meeting global demand.

As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains is well positioned for both the near-term volatility and longer-term macro environment. Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on slide 4, we're increasing the midpoint of our full-year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million this year, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026. Our trajectory of growth this year is underpinned by 3 key drivers: the sale of our NGL assets, Cactus Three synergy capture, and streamlining.

The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next three quarters. We're also seeing increased producer interest in both Canada and the U.S. for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops. As global markets turn to North America for long-term energy supply, we are well-positioned across key producing basins and downstream markets to drive multi-year growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet, and continuing to return cash to unit holders via our disciplined capital allocation framework.

With that, I'll turn the call over to Al to cover our quarterly performance and other financial matters.

Thanks, Willie. Slides 5 and 6 contain adjusted EBITDA walks that provide additional details on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full quarter contribution from the Cactus Three acquisition, offset by a number of one-off items, including winter weather impacts in the Permian, system maintenance, and timing of minimum volume commitments. Moving to the NGL segment, we reported adjusted EBITDA of $145 million, reflecting a stronger than expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions are on slide 7. Growth capital remains $350 million, while maintenance capital was increased to $185 million, reflecting ownership of the NGL assets into May.

Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on slide 8. The NGL segment increased by $70 million, driven by outperformance in the first quarter, along with the ownership of NGL assets into May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes, and increased West Coast volumes. To the extent that elevated commodity environment persists into the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year-over-year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond.

We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. As illustrated on slide 9, we remain committed to generating significant free cash flow and returning capital to unit holders while maintaining financial flexibility. For 2026, we expect to generate approximately $1.85 billion of adjusted free cash flow, excluding changes in assets and liabilities and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1 times, reflecting the Cactus Three acquisition.

First quarter leverage, pro forma for the NGL sale would decrease to approximately 3.5 times, and we would expect leverage to migrate towards the low end of our target range of 3.25-3.75 times by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate. Our acquisition of Cactus Three last year has mitigated the tax liability to unit holders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale.

There was no cash tax impact in the quarter, as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie.

Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on executing our three initiatives for 2026: closing the NGL sale, driving synergies on Cactus Three, and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value. Importantly, the improving oil macro environment starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unit holders.

Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus Three, is proving timely as tensions in the Middle East position North America as a key source of global energy supply into the future. Before I turn the call over to Blake, I'd like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains in separate releases earlier this week, we're targeting to close the transaction this month. While it's unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains and Keyera are committing to do so.

I realize you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter, so we would appreciate it if you would refrain from asking questions regarding the transaction. Blake, I'm now gonna turn it over to you to lead us through Q&A.

Thanks, Willie. As we enter the Q&A session, please limit yourself to 2 questions. This will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we're ready for questions.

Thank you. As a reminder, to ask a question, please press star one one. If your question has been answered and you'd like to remove yourself from the queue, please press star one one again. Our first question comes from Brandon Bingham with Scotiabank. Your line is open.

Thanks. Good morning, everybody. Just wanted to maybe ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what's baked into the new guide and maybe the embedded outlook in there?

Sure. Brandon, this is Al. Our original guidance for the year assumed a $60-$65 environment for 2026, so kind of a $62. We came into the year highly hedged at roughly those levels.

The $85 environment that we're talking about for the future is roughly the strip from June through December when we looked at it. There would be some benefit based on crude prices on our PLA, but the fact that we had hedged quite a bit before entering the year, that sensitivity we give is just a raw sensitivity. In order to make it more meaningful, we would have had to have disclosed to you the hedge position at the beginning of the year, which we haven't historically done. What I would say is that the first quarter performance and the 9 months of our guide is very minimally impacted by actual PLA pricing.

Okay. Thank you. Very Yes, very helpful. Thank you. Maybe just wanted to ask about, you know, in light of some of the commentary in your prepared remarks about a more constructive longer-term market and just the whole macro environment as it stands today, how are you guys thinking about the potential for the EPIC expansion at this point?

Brandon, good morning. This is Jeremy. We're excited about the opportunities around our entire long-haul portfolio and are having a constructive dialogue with existing customers and new customers looking for secure supply from the U.S. That results in some spot activity, but longer term, the expectation is to contract at higher rates than maybe before this would happen with potentially new counterparties. That would apply to recontracting existing pipeline capacity and expansions as well. We're looking at all the above and hope to have updates in the coming quarters on how that looks.

Okay, great. Thank you.

Thank you. Our next question comes from Gabriel Moreen with Mizuho. Your line is open.

Hey, good morning, everyone. Maybe I'll just ask the Permian macro question, Willie, in terms of sort of your best outlook. I think, you know, previous years you had talked about 200,000-ish barrels a day, year-over-year growth. Best venture at this point, I realize there's a lot of things in play and things are changing quickly, but do you think that goes significantly higher from here, 400,000, 500,000 in 2027? I'm just curious what your latest thoughts are there.

Gabe, this is Willie. Jeremy may have some additional comments, but I'll give you my thoughts. They're looking really at the back end of the curve to see where it goes. You know, WTI is roughly $70, and our view is when you start getting into the 75 and above, increased activity happens. There's also some other things that more on the short-term operating bias that's that's limiting production or constraining it a bit. We've got some natural gas. The Permian has some natural gas takeaway constraints. There are new lines that are being built and being commissioned as early as later this year. The thought being that alleviates itself.

Our assumption for the Permian this year was flat. If there is some upside, obviously, we benefit from it. Our view going forward is we're not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes behind that's gonna increase production here, maybe with a little bit of a flush later this year or early next year. I think it really depends on the back of the curve, the systems are ready to go.

Thanks, Willie. Maybe if I can ask on the sustainability of some of the marketing opportunities you're currently seeing. Can you just talk about some of the spreads that you're seeing and also on the value of dock space, the extent you're debating internally, maybe terming some of those out at higher prices? Also the steepness of the curve and backwardation, you know, how that's playing with your storage. Is that helpful? Is that a hindrance? I'm just curious your thoughts on that.

Gabe, without getting into specific strategies, which, I would say, time, location, quality spreads, all that volatility, we benefit from all of those 'cause we have the assets, the supply position, and the trading function to capture those opportunities. It's hard to forecast those when they arrive, and that could be the time spreads. Could you sell a barrel now and buy it back later by emptying a tank? That type of thing. Could you, difference in grades between Canada and the United States, difference in grades on Gulf Coast grades. All of those are strategies and things we can take advantage of with our integrated system. We're excited about those opportunities. What we've put in this, as, Willie and Al both stated, we've substantially captured what's in this forecast. It's hard.

This is a very volatile time period. We've only been in this 60 to 70 days, so it's hard to forecast that to continue. If it continues, we would expect to capture more opportunities going forward. Just to add on to what Willie's saying, we do estimate there's close to 200,000 to 300,000 barrels a day of oil that's behind pipe in the Permian Basin. That flush production he's talking about is substantial, and a lot of that's in the more constrained areas of the Delaware Basin, which we have a broader footprint, so take New Mexico and other places. As Willie said, we're not giving a formal guide. If you look at the plot of spreads, the Waha spread.

It's almost flat price in Waha has been largely negative since last September. That's what's accumulating all of this to go. As gas prices recover, productive capacity is already there to add. As you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contracts at a greater rate. We're seeing more demand from new customers. We're seeing potentially flush production. Those should all benefit to taking short-term opportunities and convert them to longer-term opportunities.

Gabe, this is Willie again. If you look at our numbers, you know, long haul has increased and the margins on that has also improved. I think we're moving to a more structurally full pipe situation as we go forward, which should be constructive for us.

Appreciate it. Thanks, guys. Thank you. Our next question comes from Manav Gupta with UBS. Your line is open.

Good morning. I just wanted to focus a little bit on the weather impact. I think it is about $49 million quarter-over-quarter. I'm just trying to understand, you know, it says timing of minimum volume commitments. Is there a possibility some of this can be reversed in 2Q, some of what you lost in the current quarter comes back into the second quarter? If you could talk a little bit about that.

Yes, Manav. Those are two different things. First, with regard to weather is just production shut-in for a period. You can't make that back, but the flush production does come back. With regard to the timing of MVCs, that's continuous in our process. If you look at some of the earnings calls from others about their dock performance or other things in that first quarter, freight was really expensive and margins didn't have people moving, so long-haul volumes were down across the industry. That has completely reversed in timing, so you would absolutely expect that to be recovered. It's just a question of when those MVCs accrued versus when they're paid, but all the pipelines are full again and the MVCs are being reversed.

Manav, this is Willie. If you're referring to slide 5, I think the point of your question is on that negative $49, there's a bunch of one-time events in there that you're absolutely correct that will not occur again as we go forward.

Perfect. If you could also talk about the very strong results from the NGL segment in the first quarter versus the last quarter, some of the drivers of what helped you deliver a much stronger earnings on that segment quarter-over-quarter. Thank you.

Sure, Manav. This is Jeremy again. Higher border flows than expected. You had very full storage in Canada and continued production, which required the volumes to be exported, and those were exported through our Empress asset. Higher border flows leads to more straddle production, and that would all be unhedged. That was more border flow concept, but higher frac spreads as well in the first quarter, towards the end of the first quarter. I'd say those two. That has continued into the second quarter, which is the increase in guide for the NGL business through closing.

Thank you.

Thank you. Our next question comes from Michael Blum with Wells Fargo. Your line is open.

Thanks. Good morning, everyone. My question is really on the guidance, the crude segment. I think I'll just ask it all at once. The increase, just wanted to make sure I understood. It sounds like most of this is optimization, which you've already locked in, and then maybe the rest is PLA. I just wanna make sure I understood that. The second part is if prices stay elevated for the balance of the year, would there be upside to the guide in the crude segment, or is that already sort of baked into the numbers? Thanks.

Michael, this is Willie. Great question. Our assumptions are that the numbers that are in there really are what we've captured that roll off through the year that we'll actualize on optimization efforts. You're correct. If we have a stronger macro environment, higher prices, there definitely is upside.

Great. Thank you.

You bet.

Thank you. Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open.

Hi, good morning.

Hi, Jeremy.

Just wanted to see what you guys are seeing locally, ear to the ground there, as far as, you know, producer activity, and, you know, whether rigs being picked up by the independents or, if larger drillers could as well, and what would be needed to be seen, I guess, across this trip to gain the comfort to do that. Just wondering how you think, you know, production could uptick here or what do you see?

Jeremy, good morning. This is Jeremy. Since this started, you've already seen 15 rigs added back, and we would expect some to continue. As Willie mentioned, there's a bit of a throttle right now. You can't add more natural gas to the system, as flaring's not allowed. Productive capacity is there. Rigs being added now would impact 2027. I think there was a bit of confusion by the market in that if you take the products market and the physical crude market, they're substantially more tighter than the financial markets would indicate, which means the back end of the curve has to come up. It's very difficult, even if you open the Strait of Hormuz tomorrow, to get everything back in order the way it was. It's gonna take a while for shipping to start.

You have to empty tanks before you can start back up production. Products markets are just empty in some places. I think there's real dislocation that will take time. I think some of the integrated have stated it's for every day it's down, it's 3 days to get back up. It's potential for months to get out of this, even if they were resolved today. I think that's the part that probably producers are waiting on, is more assurity that the back end of the curve that they bring rigs on. Because at this point, the service companies have stacked equipment. It takes capital to get those back in. It takes commitments to make those back in. I think producers, to make those commitments, need commitment from prices that they'll be there. The longer this goes, the more likely that will occur.

I think it's just a dislocation in the back end of the curve right now that's maybe causing some hesitancy, but that's gonna prolong the problem.

Got it. That's, that is helpful there. Then, you know, just wanted to see, I guess, how you think that impacts basis over time here and, you know, what it could mean for future egress expansion.

Thanks, Jeremy. It's constructive for basis. More production is and more demand on the water. You're seeing a specific to the Corpus market and some of the on-the-water efficient docks. You're seeing higher pricing and relative to even the screens. That on a prolonged basis, as there's new buyers coming to America, there's vessels that used to be pointed at other locations that intend to come back and forth to the United States for a while. I think you're seeing that on the NGL side. I think you'll see it on the LNG side, and I think you'll see it on the crude side.

More buyers and more demand is generally constructive for spreads. We would expect to match either our supplier or our customers with that and hopefully, offer a service at a higher rate.

Jeremy, this is Willie. You're aware that on Cactus III, we have expansion capacity there. As we've always said, we're gonna pace that with market demand and commercial commercial contracts. The other highlight on that is, as we've gotten to know the project and have assessed it, we have the ability to do that in a phased approach. Also, it's really fairly flexible for us to get additional volumes, and it's not a long-term, you know, it's not a binary big expansion. There's ways to do it in phases which should match customer demand. Generally speaking, in a higher price environment, there are more opportunities because there's basically a pull on the whole system.

Typically in that kind of a market, the market opportunities and optimization opportunities become a little more prevalent versus a lower price where less is moving and there's less opportunities. I hope that helps.

That is helpful. Thank you.

Thank you. Our next question comes from Jackie Koletas with Goldman Sachs. Your line is open.

Hi, good morning. Thank you so much for the time. First, I was wondering if you could just comment on the progress of your, you know, cost reduction initiatives. You know, are these on track with expectations at this point? Is there any potential for upside capture here? You know, when should we expect to, you know, for Plains to realize more significant efficiencies through the year?

Good morning, Jacki. It's Chris Chandler. I'm happy to take that. We are on track to capture the efficiencies, $50 million by the end of 2026 and an additional $50 million in 2027. We've actually already made a number of changes, some unrelated to the NGL transaction, some in anticipation of the NGL transaction. We feel confident in the number. There's always upside. We're always looking for additional opportunities, we will certainly pursue any that we find. We're not prepared at this time to change the $100 million target we have through the end of 2027. On track there and things are going well.

Great to hear. Thank you. I'll just one on shifting to capital allocation. You know, with debt reduction as a near-term focus, particularly following, you know, the pending NGL sale, you know, when can we expect a shift or what would kind of allow a shift from debt paydown to a larger focus on, you know, potential buybacks or preferred paydowns?

This is Al. I'll take a shot at it. Clearly, with the proceeds from NGL, we anticipate taking that and paying down roughly a little over $3 billion of debt, which would be the term loan, the outstanding CP we have, and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage. We expect 3.5. We expect that to migrate down, which will then come back to where we've been for the last number of years prior to the EPIC acquisition, leverage towards the low end of our range.

Our view would be capital allocation, first and foremost, focused on maintaining distribution growth, funding investments, whether they're organic or M&A-related, as well as looking at taking out pref should leverage remain at or below the bottom end of the range and opportunistic share repurchases. Long-winded way of saying that once we get through the NGL sale and deployment of the proceeds back to where we've been operating for the last several years.

Great. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Willie Chiang, President, CEO, and Chairman, for closing remarks.

Michelle, thanks. We appreciate everyone's support and attention. We look forward to seeing you on the road. Stay safe. Thank you very much.

Thank you for your participation. You may now disconnect. Everyone, have a great day.