Plains All American Pipeline PAA announced three bolt-on acquisitions for an aggregate cash consideration of nearly $670 million, the purchase of nearly 18% of its outstanding PAA Series A Preferred Units and a 20% increase in its annualized distribution rate.
The firm’s board of directors has approved an increase in its quarterly distribution (payable in February 2025), for both PAA common units and Plains Group PAGP Class A shares, from 31.75 cents per unit to 38 cents. On an annualized basis, the distribution represents an increase of 25 cents per unit, or 20%, from that paid in November 2024.
Details of PAA’s Three Bolt-on Acquisitions
Plains All American agreed to buy Ironwood Midstream Energy (for nearly $475 million), which owns a gathering system in the Eagle Ford Basin, from EnCap Flatrock Midstream. The transaction is expected to be closed in the first quarter of 2025, following the satisfaction of customary closing conditions.
As of Jan. 1, 2025, Medallion Midstream's Delaware Basin crude oil collecting business was purchased from The Energy & Minerals Group by Plains Oryx Permian Basin LLC, a subsidiary of the Plains Permian Basin joint venture, for about $160 million ($105 million net to PAA's interest).
On Dec. 23, 2024, a subsidiary of Plains All American acquired the remaining 50% interest in Midway Pipeline LLC from a subsidiary of CVR Energy for approximately $90 million.
Benefits From Acquisitions
The above-mentioned bolt-on acquisitions are an outstanding strategic fit for the firm and allow it to progress its efficient growth strategy by adding high-quality assets adjacent to its existing footprint. These transactions should expand PAA's crude oil footprint in the Permian Basin, Eagle Ford and Mid-Con at returns consistent with its additional investment framework.
In particular, these transactions create immediate value by accelerating sustainable additions to profits, addition to distributable cash flow and accelerating return of capital to unitholders.
During third-quarter 2024, the firm’s crude oil segment’s adjusted EBITDA increased 4% year over year. This was primarily due to higher tariff volumes on its pipelines, tariff escalations and contributions from acquisitions. In 2023, the firm high-graded its asset base through continued portfolio optimization, including three bolt-on acquisitions.
In 2024, PAA acquired an additional 0.7% interest in the Wink to Webster Pipeline Company for an aggregate cash consideration of $20 million. It expects $300 million of free cash flow after cash distributions to be available for value-creating opportunities in 2024, including potential bolt-on acquisitions or further debt reduction.
The firm’s numerous joint ventures, partnerships and joint ownership agreements provide it with robust opportunities.
PAA’s Initiative to Optimize Capital Structure
Plains All American has also agreed to purchase approximately 12.7 million units, or 18%, of its outstanding Series A Preferred Units at par ($26.25) for a purchase price of nearly $330 million (plus accrued and unpaid distributions) from EnCap Flatrock Midstream. This transaction is expected to be closed in late January 2025.
After implementing all these transactions, Plains All American’s leverage ratio is expected to be at or below the lower end of its target range of 3.25x to 3.75x, continuing to provide significant balance sheet optionality and flexibility.
PAA’s Price Performance
In the past month, units of PAA have lost 1.5% compared with the industry’s 0.1% decline.
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PAA’s Zacks Rank & Other Stocks to Consider
The firm currently carries a Zacks Rank #1 (Strong Buy).
Some other top-ranked companies from the same sector are NextDecade NEXT and DT Midstream DTM, both sporting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for NEXT’s 2024 earnings per share (EPS) indicates a year-over-year increase of 54%. The Zacks Consensus Estimate for 2025 EPS indicates a year-over-year decrease of 61.1%.
The Zacks Consensus Estimate for DTM’s 2025 sales indicates a year-over-year increase of 14.4%. The company delivered an average earnings surprise of 10.5% in the trailing four quarters.
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