Plains All American announced April 7 that is has reduced capital spending by 33 percent, decreased its shareholder distribution by 50 percent and completed the sale of $165 million in assets in response to current market conditions.
The company’s 33 percent reduction to its 2020-2021 capital program represents $750 million in cost cutting. However, including the elimination of assumed joint venture project financing, the reduction jumps to $1.35 billion, or 47 percent, according to a company statement.
The 50 percent decrease in Plains All American share distribution (for PAA common units and PAGP Class A shares) payable in May represents approximately $525 million on an annualized basis.
Plains All American has closed approximately $440 million in asset sales so far this year. The company announced it would continue to pursue capital and cost reductions throughout the organization and supply chain, as well as additional asset sales.
“We are taking a number of actions in response to the current dynamic and uncertain market conditions to further strengthen our balance sheet and further enhance our liquidity and long-term financial flexibility,” said Willie Chiang, chairman and CEO of Plains All American. “These actions include significantly reducing and continuing to challenge our capital program, reducing our distribution, progressing asset sales, and reducing costs, while remaining focused on operating safely and responsibly.”
Total expansion capital for Plains All American in 2020-2021 is now targeted to be approximately $1.55 billion, compared to the previously targeted $2.3 billion capital program. Further cost savings come with the elimination of $600 million of assumed joint venture project financing for the Red Oak project, which has been deferred. The balance of the capital reductions relate to cancelations, cost savings and scope adjustments to other capital projects. First quarter 2020 expansion capital expenditures are estimated to be approximately $350 million. The company will continue to work closely with customers and industry partners to optimize, defer and potentially further reduce the capital program, subject to producer activity levels on its system.
“We are committed to further strengthening our balance sheet, reducing leverage, and further enhancing our financial flexibility for the benefit of all of our stakeholders,” said Al Swanson, executive vice president and CFO of Plains All American. “Importantly, we ended the first quarter with approximately $2.5 billion of committed liquidity and no near-term needs to access either the debt or equity capital markets. We continue to actively monitor the current environment and intend to address forward guidance and related matters on our first-quarter earnings conference call in May.”
Regarding the asset sales program, the company closed an incremental sale on April 1, which generated proceeds of $165 million and brings year-to-date proceeds to approximately $245 million. An additional $195 million asset sale remains under definitive agreement and is expected to close later in the year. Plains is continuing its efforts to advance additional asset sales opportunities.