What changed in this filing

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Item 1A. Risk Factors

2021-03-01 compared with 2020-02-27 · 300 added, 206 removed, 465 unchanged (52% of the section changed)

References to the “PAGP Entities” include PAGP GP, PAGP, GP LLC, AAP and PAA GP LLC (“PAA GP”).

References to the “Plains Entities” include the PAGP Entities and PAA and its subsidiaries.

Summary of Risk Factors

Risks Inherent in an Investment in Us

Our partnership structure carries inherent risks, including but not limited to:

• our cash flow will be entirely dependent upon the ability of PAA to make cash distributions to AAP, and the ability of AAP to make cash distributions to us;

• the distributions AAP is entitled to receive may fluctuate, which may reduce cash distributions to our Class A shareholders;

• if distributions on our Class A shares are not paid with respect to any fiscal quarter, our Class A shareholders will not be entitled to receive that quarter’s payments in the future;

• the amount of cash that we and PAA distribute each quarter may limit our ability to grow;

• the Class B shareholders own a significant number of shares, which may make the removal of our general partner difficult;

• Our general partner may cause us to issue additional Class A shares or other equity securities, including equity securities that are senior to our Class A shares, or cause AAP to issue additional securities, in each case without shareholder approval, which may adversely affect our shareholders.

Risks Related to Conflicts of Interest

Our existing organizational structure and the relationships among us, PAA, our respective general partners, the Legacy Owners and affiliated entities present the potential for conflicts of interest.

Moreover, additional conflicts of interest may arise in the future among us and the entities affiliated with any general partner or similar interests we acquire or among PAA and such entities.

Risks Related to PAA’s Business

PAA’s business, results of operations, financial condition, cash flows and unit price can be adversely affected by many factors including but not limited to:

• the volume of crude oil, natural gas and NGL shipped, processed, purchased, stored, fractionated and/or gathered at or through the use of PAA’s facilities, which can be negatively impacted by a variety of factors outside of its control;

• pandemics, epidemics or other public health emergencies, such as the recent COVID-19 pandemic;

• competition in PAA’s industry, including recontracting and other risks associated with the general capacity overbuild of midstream energy infrastructure in some of the areas where PAA operates;

• fluctuations in supply and demand, which can be caused by a variety of factors outside of PAA’s control;

• natural disasters, catastrophes, terrorist attacks (including eco-terrorist attacks), process safety failures or other events, including pipeline or facility accidents and cyber or other attacks on PAA’s electronic and computer systems, could interrupt its operations and/or result in severe personal injury, property damage and environmental damage;

• cybersecurity breaches and other disruptions could compromise PAA’s information and operations, and expose it to liability;

• societal and political pressures, including opposition to the development or operation of PAA’s pipelines and facilities from various groups;

• the overall forward market for crude oil and NGL, and certain market structures, the absence of pricing volatility and other market factors;

• an inability to fully implement or realize expected returns or other anticipated benefits associated with joint venture and joint ownership arrangements, divestitures, acquisitions and other projects;

Index to Financial Statements

• loss of PAA’s investment grade credit rating or the ability to receive open credit;

• the credit risk of PAA’s customers and other counterparties it transacts with in the ordinary course of business activities;

• tightened capital markets or other factors that increase PAA’s cost of capital or otherwise limit its access to capital;

• the insufficiency of, or non-compliance with, PAA’s risk policies;

• PAA’s insurance coverage may not fully cover its losses and it may in the future encounter increased costs related to, and lack of availability of, insurance;

• PAA’s current or future debt levels, or inability to borrow additional funds or capitalize on business opportunities;

• changes in currency exchange rates;

• difficulties recruiting and retaining PAA’s workforce;

• an impairment of long-term assets;

• significant under-utilization of certain assets due to fixed costs incurred to obtain the right to use such assets;

• many of PAA’s assets have been in service for many years and require significant expenditures to maintain them.

As a result, PAA’s maintenance or repair costs may increase in the future;

• PAA does not own all of the land on which its pipelines and facilities are located, which could result in disruptions to its operations;

• PAA’s inability to perform all of its obligations under our contracts, which could lead to increased costs;

• failure to obtain materials or commodities in the quantity and the quality PAA needs, and at commercially acceptable prices, whether due to supply disruptions, tariffs, quotas or other factors.

Risks Related to Laws and Regulations Impacting PAA’s Business

PAA’s business may be adversely impacted by existing or new laws, executive orders and regulations relating to protection of the environment and wildlife, operational safety, cross-border import/export and tax matters, financial and hedging activities, climate change and related matters.

Risks Inherent in an Investment in PAA

PAA’s partnership structure carries inherent risks, including but not limited to:

• cost reimbursements due to PAA’s general partner may be substantial and will reduce PAA’s cash available for distribution to its unitholders;

• cash distributions are not guaranteed and may fluctuate with PAA’s performance and the establishment of financial reserves;

• PAA’s preferred units have rights, preferences and privileges that are not held by, and are preferential to the rights of, holders of PAA’s common units.

Our shares are subject to tax risks, which may adversely impact the value of or market for our shares and may reduce our cash available for distribution or debt service, including but not limited to:

• the tax treatment of PAA depends on its status as a partnership for U.S.

federal income tax purposes, and it not being subject to a material amount of entity-level taxation.

The cash available for distribution to us from PAA may be substantially reduced if PAA were to become subject to entity-level taxation as a result of the Internal Revenue Service (“IRS”) treating PAA as a corporation or legislative, judicial or administrative changes, and may also be reduced by any audit adjustments if imposed directly on PAA.

Additionally, the treatment of PAA as a corporation would increase the portion of our distributions treated as taxable dividends;

• our current tax treatment may change, which could affect the value of our Class A shares or reduce our cash available for distribution, and any decrease in our Class A share price could adversely affect our amount of cash available for distribution.

Index to Financial Statements

Risks Inherent in an Investment in Us

Our cash flow will be entirely dependent upon the ability of PAA to make cash distributions to AAP, and the ability of AAP to make cash distributions to us.

The source of our earnings and cash flow currently consists exclusively of cash distributions from AAP, which currently consist exclusively of cash distributions from PAA.

The amount of cash that PAA will be able to distribute to its partners, including AAP, each quarter principally depends upon the amount of cash it generates from its business.

For a description of certain factors that can cause fluctuations in the amount of cash that PAA generates from its business, please read “—Risks Related to PAA’s Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” PAA may not have sufficient available cash each quarter to continue paying distributions at its current level or at all.

For a description of certain factors that can cause fluctuations in the amount of cash that PAA generates from its business, please read “—Risks Related to PAA’s Business”, “—Risks Related to Laws and Regulations Impacting PAA’s Business”, “—Risks Inherent in an Investment in PAA” and Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” PAA may not have sufficient available cash each quarter to continue paying distributions at its current level or at all.

If PAA reduces its per unit distribution, either because of reduced operating cash flow, higher expenses, capital requirements or otherwise, we will have less cash available for distribution and would likely be required to reduce our per share distribution.

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Consequently, if distributions on our Class A shares are not paid with respect to any fiscal quarter, our Class A shareholders will not be entitled to receive that quarter’s payments in the future.

Index to Financial Statements

The amount of cash that we and PAA distribute each quarter may limit our ability to grow.

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• the market price of the Class A shares may decline.

Index to Financial Statements

If PAA’s unitholders remove PAA GP, AAP may be required to sell or exchange its indirect general partner interest and we would lose the ability to manage and control PAA.

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As a result, the price at which our Class A shares will trade may be lower because of the absence or reduction of a takeover premium in the trading price.

Index to Financial Statements

If PAA’s general partner, which is owned by AAP, is not fully reimbursed or indemnified for obligations and liabilities it incurs in managing the business and affairs of PAA, its value, and, therefore, the value of our Class A shares, could decline.

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We may also issue additional Class A shares or convertible securities in subsequent public or private offerings.

Index to Financial Statements

We cannot predict the size of future issuances of our Class A shares or securities convertible into Class A shares or the effect, if any, that future issuances and sales of our Class A shares will have on the market price of our Class A shares.

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A valuation allowance on our deferred tax asset could reduce our earnings.

As of December 31, 2019, we have a gross deferred tax asset of approximately $1.4 billion.

GAAP requires that a valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized.

As of December 31, 2020, we had a gross deferred tax asset of approximately $1.5 billion.

Generally accepted accounting principles in the United States (“GAAP”) requires that a valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized.

We believe that the deferred tax asset we recorded through 2020 will be realized and that a valuation allowance is not required.

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federal deferred tax asset created after 2017.

The New York Stock Exchange (“NYSE”) does not require a limited partnership like us to comply with certain of its corporate governance requirements.

Because we are a limited partnership, the NYSE does not require our general partner to have a majority of independent directors on its board of directors or to establish a compensation committee or a nominating and corporate governance committee.

Accordingly, our shareholders do not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements.

In addition, as a limited partnership we are not required to seek shareholder approval for issuances of Class A shares, including issuances in excess of 20% of our outstanding equity securities, or for issuances of equity to certain affiliates.

We may incur liability as a result of our ownership of our and PAA’s general partner.

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The resolution of these conflicts may not always be in our best interest or that of our shareholders.

Index to Financial Statements

Our partnership agreement defines our general partner’s duties to us and contains provisions that reduce the remedies available to our shareholders for actions that might otherwise be challenged as breaches of fiduciary or other duties under state law.

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• provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal.

Index to Financial Statements

The Legacy Owners may have interests that conflict with holders of our Class A shares.

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PAA’s profitability depends on the volume of crude oil, natural gas and NGL shipped, processed, purchased, stored, fractionated and/or gathered at or through the use of its facilities, which can be negatively impacted by a variety of factors outside of its control.

PAA’s profitability could be materially impacted by a decline in the volume of crude oil, natural gas and NGL transported, gathered, stored or processed at or through its facilities.

A material decrease in crude oil or natural gas production or crude oil refining, as a result of depressed commodity prices, natural decline rates attributable to crude oil and natural gas reservoirs, a decrease in exploration and development activities, supply disruptions, economic conditions, reduced demand, governmental or regulatory action or otherwise, could result in a decline in the volume of crude oil, natural gas or NGL handled by PAA’s facilities.

Drilling activity, crude oil production and benchmark crude oil prices can fluctuate significantly over time.

If producers reduce drilling activity in response to future declines in benchmark crude oil prices, reduced capital market access, increased capital raising costs for producers or adverse governmental or regulatory action, it could adversely impact production.

In turn, such developments could lead to reduced throughput on PAA’s pipelines and at PAA’s other facilities, which, depending on the level of production declines, could have a material adverse effect on PAA’s business.

Also, except with respect to some of our recently constructed pipeline assets, third-party shippers generally do not have long-term contractual commitments to ship crude oil on PAA’s pipelines.

For example, the current COVID-19 pandemic has resulted in a swift and material decline in global crude oil demand and crude oil prices, which has led to a significant reduction of domestic crude oil, NGL and natural gas production, and it is unclear if or when global demand will recover to pre-pandemic levels.

This has had an adverse effect on the demand for the midstream services PAA offers and the commercial opportunities that are available to it.

If demand remains depressed or declines further it is likely to have an adverse impact on PAA’s financial performance.

A turnaround of these adverse macroeconomic factors depends largely on an increase in global demand for crude oil, which will be driven primarily by the extent to which consumer demand and demand for crude oil rebound following the pandemic.

Index to Financial Statements

Crude oil prices may also decline due to actions of domestic or foreign oil producers—they may take actions that create an over-supply of crude oil, and decrease benchmark crude oil prices.

If producers reduce drilling activity in response to future declines in such prices, reduced capital market access, increased capital raising costs for producers or adverse governmental or regulatory action, it could adversely impact production.

In turn, such developments could lead to reduced throughput on PAA’s pipelines and at its other facilities, which, depending on the level of production declines, could have a material adverse effect on PAA’s business.

Also, except with respect to some of PAA’s recently constructed long haul pipeline assets, third-party shippers generally do not have long-term contractual commitments to ship crude oil on PAA’s pipelines.

A decision by a shipper to substantially reduce or cease to ship volumes of crude oil on PAA’s pipelines could cause a significant decline in its revenues.

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If production declines, competitors with under-utilized assets could impair PAA’s ability to secure additional supplies of crude oil.

PAA’s business, results of operations, financial condition, cash flows and unit price can be adversely affected by pandemics, epidemics or other public health emergencies, such as the current COVID-19 pandemic.

PAA’s business, results of operations, financial condition, cash flows and unit price can be adversely affected by pandemics, epidemics or other public health emergencies.

The current COVID-19 pandemic has caused widespread economic disruption, and resulted in material reductions in demand for crude oil, NGL and other petroleum products, which in turn has resulted in significant declines in the actual or expected volume of crude oil and NGL shipped, processed, purchased, stored, fractionated and/or gathered at or through the use of many of PAA’s assets.

Future pandemics, epidemics or other public health emergencies may have greater economic impacts.

As a result of the COVID-19 pandemic, many of PAA’s support functions are operating remotely, which presents technical and communication challenges, including increased vulnerability to cybersecurity breaches, risk management oversights or delays in, or disruptions to, communications.

In addition, pandemic-related restrictions may adversely impact PAA’s ability to operate and maintain its assets, and may adversely impact the supply chain to source goods and services required for its operating activities.

The long term impacts of the COVID-19 pandemic remain highly uncertain and depend on a wide variety of factors that are outside of PAA’s control, including the development, deployment and effectiveness of vaccines, treatments and testing protocols;

mutations of the virus resulting in increased transmissibility or severity of the disease or decreasing the effectiveness of vaccines or treatments;

the capacity of our healthcare systems and public health infrastructure to manage current and future outbreaks;

and various political and economic considerations.

It is unknown whether consumption of petroleum products will return to pre-COVID levels due to changes in consumer habits or preferences.

As a result, PAA is unable to predict the timing of any such market recovery, including a return to market conditions that are more conducive to an increase in drilling and production activities in the United States and Canada.

PAA’s profitability can be negatively affected by a variety of factors stemming from competition in its industry, including risks associated with the general capacity overbuild of midstream energy infrastructure in some of the areas where it operates.

PAA faces competition in all aspects of its business and can give no assurances that it will be able to compete effectively against its competitors.

In general, competition comes from a wide variety of participants in a wide variety of contexts, including new entrants and existing participants and in connection with day-to-day business, expansion capital projects, acquisitions and joint venture activities.

In general, competition comes from a wide variety of participants in a wide variety of contexts, including new entrants and existing participants and in connection with day-to-day business, investment capital projects, acquisitions and joint venture activities.

Some of PAA’s competitors have capital resources many times greater than PAA’s or control greater supplies of crude oil, natural gas or NGL.

In addition, other competitors with significant excess capacity and high financial leverage may attempt to survive and compete by reducing transportation rates to levels approaching variable operating costs, without regard to whether they are generating an acceptable return on their investment.

These competitive risks make it more difficult for PAA to attract new customers and expose PAA to increased contract renewal and customer retention risk with respect to its existing customers.

Index to Financial Statements

A significant driver of competition in some of the markets where PAA operates (including, for example, the Eagle Ford, Permian Basin, and Rockies/Bakken areas) stems from the rapid development of new midstream energy infrastructure capacity that was driven by the combination of (i) significant increases in oil and gas production and development in the applicable production areas, both actual and anticipated, (ii) relatively low barriers to entry and (iii) generally widespread access to relatively low cost capital.

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Supply and demand for crude oil and other hydrocarbon products PAA handles is dependent upon a variety of factors, including price, current and future economic conditions, fuel conservation measures, alternative fuel adoption, governmental regulation, including climate change regulations, and technological advances in fuel economy and energy generation devices.

For example, the adoption of legislation or regulatory programs to reduce emissions of greenhouse gases could increase the cost of consuming crude oil and other hydrocarbon products, thereby causing a reduction in the demand for such products.

For example, legislative, regulatory or executive actions intended to reduce emissions of greenhouse gases could increase the cost of consuming crude oil and other hydrocarbon products, thereby causing a reduction in the demand for such products.

Given that crude oil and petroleum products are global commodities, demand can also be significantly influenced by developments in other countries and markets, particularly in key consumption markets like China.

For example, the recent coronavirus outbreak in China resulted in a meaningful drop in the demand for crude oil and petroleum products.

Ultimately, this can lead to a reduction in demand for the services PAA provides.

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Although the negative impact may be mitigated or overcome by PAA’s ability to capture differentials created by demand fluctuations, this ability is dependent on location and grade of crude oil, and thus is unpredictable.

particularly propane, or other reasons, could result in a decline in the volume of NGL products PAA handles or a reduction of the fees it charges for its services.

Index to Financial Statements

Fluctuations in demand for NGL products, whether because of general or industry specific economic conditions, new government regulations, global competition, reduced demand by consumers for products made with NGL products, increased competition from petroleum-based feedstocks due to pricing differences, mild winter weather for some NGL products, particularly propane, or other reasons, could result in a decline in the volume of NGL products PAA handles or a reduction of the fees it charges for its services.

Also, increased supply of NGL products could reduce the value of NGL PAA handles and reduce the margins realized by it.

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Any reduced demand or increased supply for ethane, propane, normal butane, iso-butane or natural gasoline in the markets PAA accesses for any of the reasons stated above could adversely affect demand for the services PAA provides as well as NGL prices, which could negatively impact its operating results.

A natural disaster, catastrophe, terrorist attack (including eco-terrorist attacks), process safety failure or other event, including pipeline or facility accidents and cyber or other attacks on PAA’s electronic and computer systems, could interrupt its operations and/or result in severe personal injury, property damage and environmental damage, which could have a material adverse effect on its financial position, results of operations and cash flows.

Natural disasters, catastrophes, terrorist attacks (including eco-terrorist attacks), process safety failures or other events, including pipeline or facility accidents and cyber or other attacks on PAA’s electronic and computer systems, could interrupt its operations and/or result in severe personal injury, property damage and environmental damage, which could have a material adverse effect on its financial position, results of operations and cash flows.

Some of PAA’s operations involve risks of personal injury, property damage and environmental damage that could curtail its operations and otherwise materially adversely affect its cash flow.

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If one or more of PAA’s pipelines or other facilities, including electronic and computer systems, or any facilities or businesses that deliver products, supplies or services to PAA or that it relies on in order to operate its business, are damaged by severe weather or any other disaster, accident, catastrophe, terrorist attack or event, its operations could be significantly interrupted.

These interruptions could involve significant damage or injury to people, property or the environment, and repairs could take from a week or less for minor incidents to six months or more for major interruptions.

Any such event that interrupts the revenues generated by its operations, or which causes PAA to make significant expenditures not covered by insurance, could reduce its cash available for paying distributions to its partners and, accordingly, adversely affect its financial condition and the market price of its securities.

In addition, PAA’s supply and logistics operations include purchasing crude oil and NGL that is carried on railcars, tankers or barges.

Such cargos are at risk of being damaged or lost because of events such as derailment, marine disaster, inclement weather, mechanical failures, grounding or collision, fire, explosion, environmental accidents, piracy, terrorism and political instability.

These incidents or interruptions could involve significant damage or injury to people, property or the environment, and repairs could take from a week or less for minor incidents to six months or more for major interruptions.

Any such event that interrupts the revenues generated by its operations, or which causes PAA to make significant expenditures not covered by insurance, could reduce its profitability, cash flows and its cash available for paying distributions to its partners and, accordingly, adversely affect its financial condition and the market price of its securities.

PAA may also suffer damage (including reputational damage) as a result of a disaster, accident, catastrophe, terrorist attack or other such event.

The occurrence of such an event, or a series of such events, especially if one or more of them occurs in a highly populated or sensitive area, could negatively impact public perception of PAA’s operations and/or make it more difficult for PAA to obtain the approvals, permits, licenses or real property interests PAA needs in order to operate its assets or complete planned growth projects.

Index to Financial Statements

Cybersecurity breaches and other disruptions could compromise PAA’s information and operations, and expose it to liability, which would cause its business and reputation to suffer.

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User access of PAA’s sites and information technology systems are critical elements to its operations, as is cloud security and protection against cyber security incidents.

In the ordinary course of its business, PAA collects and stores sensitive data in its data centers and on its networks, including intellectual property, proprietary business information, information regarding its customers, suppliers, royalty owners and business partners, and personally identifiable information of its employees.

In the ordinary course of its business, PAA collects and stores sensitive data in its data centers and on its networks, including intellectual property, proprietary business information, critical operating information and data, information regarding its customers, suppliers, royalty owners and business partners, and personally identifiable information of its employees.

The secure processing, maintenance and transmission of this information is critical to PAA’s operations and business strategy.

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Potential risks to PAA’s IT systems include unauthorized attempts to extract business sensitive, confidential or personal information, denial of access extortion, corruption of information or disruption of business processes, or by inadvertent or intentional actions by PAA’s employees or vendors.

Breaches in PAA’s information technology

infrastructure or physical facilities, or other disruptions, could result in damage to its assets, safety incidents, damage to the environment, remediation costs, potential liability, regulatory enforcement, violation of privacy or securities laws and regulations or the loss of contracts, any of which could have a material adverse effect on its operations, financial position and results of operations.

Breaches in PAA’s information technology infrastructure or physical facilities, or other disruptions, could result in damage to its assets, safety incidents, damage to the environment, remediation costs, potential liability, regulatory enforcement, violation of privacy or securities laws and regulations or the loss of contracts, any of which could have a material adverse effect on its operations, financial position and results of operations.

PAA self-insures and thus does not carry insurance specifically for cybersecurity events;

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Any such event that interrupts the revenues generated by PAA’s operations, or which causes PAA to make significant expenditures not covered by insurance, could reduce PAA’s cash available for paying distributions to its partners and, accordingly, adversely affect PAA’s financial condition and the market price of its securities.

PAA’s business plans are based upon the assumption that societal sentiment will continue to enable, and existing regulations will stay intact, for the future development, transportation and use of carbon-based fuels.

Policy decisions relating to the production, refining, transportation and marketing of carbon-based fuels are subject to political pressures, the media’s negative portrayal of the industry in which PAA operates and the influence and protests of environmental and other special interest groups.

Such negative sentiment regarding the fossil fuel industry could influence consumer preferences and government or regulatory actions, which could, in turn, have an adverse impact on PAA’s business.

Recently, activists concerned about the potential effects of climate change have directed their attention towards sources of funding for fossil-fuel energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in energy-related activities.

Ultimately, this could make it more difficult to secure funding for exploration and production activities or energy infrastructure related projects, and consequently could both indirectly affect demand for PAA’s services and directly affect PAA’s ability to fund construction or other capital projects.

PAA’s business plans are based upon the assumption that societal sentiment will continue to enable, and existing regulations will stay intact for, the future development, transportation and use of hydrocarbon-based fuels.

Policy decisions relating to the production, refining, transportation and marketing of hydrocarbon-based fuels are subject to political pressures, the negative portrayal of the industry in which PAA operates by the media and others, and the influence and protests of environmental and other special interest groups.

Such negative sentiment regarding the hydrocarbon energy industry could influence consumer preferences and government or regulatory actions, which could, in turn, have an adverse impact on PAA’s business.

Index to Financial Statements

Recently, activists concerned about the potential effects of climate change have directed their attention towards sources of funding for hydrocarbon energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in energy-related activities.

Ultimately, this could make it more difficult to secure funding for exploration and production activities or energy infrastructure related projects and ongoing operations, and consequently could both indirectly affect demand for PAA’s services and directly affect PAA’s ability to fund construction or other capital projects, as well as properly run its ongoing operations.

The results of PAA’s Supply and Logistics segment are influenced by the overall forward market for crude oil and NGL, and certain market structures, the absence of pricing volatility and other market factors may adversely impact its results.

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In the past, the results from PAA’s Supply and Logistics segment have varied significantly based on market conditions and this segment may continue to experience highly variable results as a result of future changes to the markets for crude oil and NGL.

PAA may not be able to fully implement or realize expected returns or other anticipated benefits associated with planned growth projects.

PAA has a number of organic growth projects that involve the construction of new midstream energy infrastructure assets or the expansion or modification of existing assets.

PAA may not be able to fully implement or realize expected returns or other anticipated benefits associated with joint venture and joint ownership arrangements, divestitures, acquisitions and other projects.

PAA is undertaking, or is participating with various counterparties in, a number of projects that involve the construction of new midstream energy infrastructure assets or the expansion, modification, divestiture or combination of existing assets.

Many of these projects involve numerous regulatory, environmental, commercial, economic, weather-related, political and legal uncertainties that are beyond its control, including the following:

• PAA may construct pipelines, facilities or other assets in anticipation of market demand that dissipates or market growth that never materializes;

• Despite the fact that PAA will expend significant amounts of capital during the construction phase of growth or expansion projects, revenues associated with these organic growth projects will not materialize until the projects have been completed and placed into commercial service, and the amount of revenue generated from these projects could be significantly lower than anticipated for a variety of reasons;

• As these projects are undertaken, required approvals, permits and licenses may not be obtained, may be delayed, may be obtained with conditions that materially alter the expected return associated with the underlying projects or may be granted and then subsequently withdrawn;

• PAA may face opposition to its planned growth projects from environmental groups, landowners, local groups and other advocates, including lawsuits or other actions designed to disrupt or delay PAA’s planned projects;

• PAA may face opposition to its planned projects from environmental groups, landowners, local groups and other advocates, including lawsuits or other actions designed to disrupt or delay PAA’s planned projects;

• PAA may not be able to obtain, or PAA may be significantly delayed in obtaining, all of the rights of way or other real property interests it needs to complete such projects, or the costs PAA incurs in order to obtain such rights of way or other interests may be greater than PAA anticipated;

• Despite the fact that PAA will expend significant amounts of capital during the construction phase of these projects, revenues associated with these organic growth projects will not materialize until the projects have been completed and placed into commercial service, and the amount of revenue generated from these projects could be significantly lower than anticipated for a variety of reasons;

• PAA may construct pipelines, facilities or other assets in anticipation of market demand that dissipates or market growth that never materializes;

• Due to unavailability or costs of materials, supplies, power, labor or equipment, including increased costs associated with any import duties or requirements to source certain supplies or materials from U.S.

suppliers or manufacturers, the cost of completing these projects could turn out to be significantly higher than PAA budgeted and the time it takes to complete construction of these projects and place them into commercial service could be significantly longer than planned;

• The completion or success of PAA’s projects may depend on the completion or success of third-party facilities over which PAA have no control.

As a result of these uncertainties, the anticipated benefits associated with PAA’s capital projects may not be achieved or could be delayed.

• The completion or success of PAA’s projects may depend on the completion or success of third-party facilities over which PAA has no control.

As a result of these uncertainties, the anticipated benefits associated with PAA’s planned projects may not be achieved or could be delayed.

In turn, this could negatively impact PAA’s cash flow and its ability to make or increase cash distributions to its partners.

Index to Financial Statements

Loss of PAA’s investment grade credit rating or the ability to receive open credit could negatively affect its borrowing costs, ability to purchase crude oil, NGL and natural gas supplies or to capitalize on market opportunities.

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In August 2017, Moody’s Investors Service downgraded its rating of PAA’s senior unsecured debt to a level below investment grade.

A further downgrade by Standard & Poor’s or Fitch Ratings, Inc.

to a level below PAA’s current ratings levels assigned by such rating agencies could increase its borrowing costs, reduce its borrowing capacity and cause its counterparties to reduce the amount of open credit we receive from them.

A further downgrade by any of such agencies to a level below PAA’s current ratings levels assigned by such rating agencies could increase its borrowing costs, reduce its borrowing capacity and cause its counterparties to reduce the amount of open credit it receives from them.

This could negatively impact PAA’s ability to capitalize on market opportunities.

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Loss of PAA’s remaining investment grade credit ratings could also adversely impact its cash flows, its ability to make distributions at its current levels and the value of its outstanding equity and debt securities.

Acquisitions, divestitures and joint ventures involve risks that may adversely affect PAA’s business.

Any acquisition involves potential risks, including:

• performance from the acquired businesses or assets that is below the forecasts PAA used in evaluating the acquisition;

• a significant increase in PAA’s indebtedness and working capital requirements;

• the inability to timely and effectively integrate the operations of recently acquired businesses or assets;

• the incurrence of substantial unforeseen environmental and other liabilities arising out of the acquired businesses or assets for which PAA is either not fully insured or indemnified, including liabilities arising from the operation of the acquired businesses or assets prior to PAA’s acquisition;

• risks associated with operating in lines of business that are distinct and separate from PAA’s historical operations;

• customer or key employee loss from the acquired businesses;

• the diversion of management’s attention from other business concerns.

Any of these factors could adversely affect PAA’s ability to achieve anticipated levels of cash flows from its acquisitions, realize other anticipated benefits and its ability to pay distributions to its partners or meet its debt service requirements.

PAA’s ability to execute its growth strategy is in part dependent on its ability to raise capital through strategic divestitures or sales of interests to strategic partners.

If PAA is unable to successfully complete planned divestitures, PAA may be unable to fund its capital needs or it may have to raise additional funding in the capital markets.

In addition, in connection with its divestitures, PAA may agree to retain responsibility for certain liabilities that relate to PAA’s period of ownership, which could adversely impact its future financial performance.

PAA is also involved in many strategic joint ventures and other joint ownership arrangements.

PAA may not always be in complete alignment with its joint venture or joint owner counterparties;

PAA may have differing strategic or commercial objectives or PAA may disagree on governance matters with respect to the joint venture entity or the jointly owned assets.

When PAA enters into joint ventures or joint ownership arrangements it may be subject to the risk that its counterparties do not fund their obligations.

In some joint ventures and joint ownership arrangements PAA may not be responsible for construction or operation of such projects and will rely on its joint venture or joint owner counterparties for such services.

Joint ventures and joint ownership arrangements may also require PAA to expend additional internal resources that could otherwise be directed to other projects.

If PAA is unable to successfully execute and manage its existing and proposed joint venture and joint owner projects, it could adversely impact PAA’s financial and operating results.

The implementation of PAA’s strategy requires access to new capital.

Tightened capital markets or other factors that increase its cost of capital could impair its ability to grow.

PAA continuously considers potential acquisitions and opportunities for expansion capital projects.

Acquisition transactions can be effected quickly, may occur at any time and may be significant in size relative to its existing assets and operations.

PAA’s ability to fund its capital projects and make acquisitions depends on whether it can access the necessary financing to fund these activities.

Any limitations on its access to capital or increase in the cost of that capital could significantly impair the implementation of its strategy.

PAA’s ability to maintain its targeted credit profile, including maintaining its credit ratings, could affect PAA’s cost of capital as well as its ability to execute its strategy.

In addition, a variety of factors beyond its control could impact the availability or cost of capital, including domestic or international economic conditions, increases in key benchmark interest rates and/or credit spreads, the adoption of new or amended banking or capital market laws or regulations, the re-pricing of market risks and volatility in capital and financial markets.

Due to these factors, PAA cannot be certain that funding for its capital needs will be available from bank credit arrangements, capital markets or other sources on acceptable terms.

If funding is not available when needed, or is available only on unfavorable terms, PAA may be unable to implement its development plans, enhance its existing business, complete acquisitions and construction projects, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on its revenues and results of operations.

PAA is exposed to the credit risk of its customers and other counterparties it transacts within the ordinary course of its business activities.

Risks of nonpayment and nonperformance by customers or other counterparties are a significant consideration in PAA’s business.

PAA is exposed to the credit risk of its customers and other counterparties it transacts with in the ordinary course of its business activities.

Risks of nonpayment and nonperformance by customers or other counterparties are a significant consideration in PAA’s business, and the economic fallout of the COVID-19 pandemic has had an adverse impact on the creditworthiness of many companies in the energy sector.

Although PAA has credit risk management policies and procedures that are designed to mitigate and limit its exposure in this area, there can be no assurance that PAA has adequately assessed and managed the creditworthiness of its existing or future counterparties or that there will not be an unanticipated deterioration in their creditworthiness or unexpected instances of nonpayment or nonperformance, all of which could have an adverse impact on PAA’s cash flow and its ability to pay or increase its cash distributions to its partners.

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Pursuant to such contracts, shippers are obligated to pay for a minimum volume of transportation service regardless of whether such volume is actually shipped (typically referred to as a deficiency payment), subject to the receipt of credits that typically expire if not used by a certain date.

revenue associated with such deficiency payment may not be recognized until the applicable transportation credit has expired or has been used.

While such contracts provide greater revenue certainty, if the applicable shipper fails to transport the minimum required volume and is required to make a deficiency payment, under applicable accounting rules, the revenue associated with such deficiency payment may not be recognized until the applicable transportation credit has expired or has been used.

Deferred revenue associated with non-performance by shippers under minimum volume contracts could be significant and could adversely affect PAA’s profitability and earnings.

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Furthermore, nonpayment by the counterparties to PAA’s interest rate, commodity and/or foreign currency derivatives could expose it to additional interest rate, commodity price and/or foreign currency risk.

Index to Financial Statements

Divestitures, joint ventures, joint ownership arrangements and acquisitions involve risks that may adversely affect PAA’s business.

PAA’s ability to execute its financial strategy is in part dependent on its ability to complete strategic divestitures or sales of interests to strategic partners.

If PAA is unable to successfully complete planned divestitures (due to reduced investment in the energy sector, governmental action, litigation, counterparty non-performance or other factors), it may be more difficult for PAA to achieve its desired leverage levels, increase returns to equity holders or otherwise accomplish its financial goals.

PAA is also involved in many strategic joint ventures and other joint ownership arrangements.

PAA may not always be in complete alignment with its joint venture or joint owner counterparties;

PAA may have differing strategic or commercial objectives and may be outvoted by its joint venture partners or PAA may disagree on governance matters with respect to the joint venture entity or the jointly owned assets.

When PAA enters into joint ventures or joint ownership arrangements it may be subject to the risk that its counterparties do not fund their obligations.

Joint ventures and joint ownership arrangements may also require PAA to expend additional internal resources that could otherwise be directed to other projects.

If PAA is unable to successfully execute and manage its existing and proposed joint venture and joint owner projects, it could adversely impact PAA’s financial and operating results.

Although PAA’s near-term strategy does not include a focus on acquisitions, it has completed a number of acquisitions in the past and may pursue future acquisitions on a selective basis.

Any acquisition involves potential risks, including:

• performance from the acquired businesses or assets that is below the forecasts PAA used in evaluating the acquisition;

• a significant increase in PAA’s indebtedness and working capital requirements;

• the inability to timely and effectively integrate the operations of recently acquired businesses or assets;

• risks associated with operating in lines of business that are distinct and separate from PAA’s historical operations;

• customer or key employee loss from the acquired businesses;

• the diversion of management’s attention from other business concerns.

Tightened capital markets or other factors that increase PAA’s cost of capital or otherwise limit its access to capital could impair its ability to achieve its strategic objectives.

Any limitations on PAA’s access to capital or increase in the cost of that capital could significantly impair the implementation of its strategy.

PAA’s ability to maintain its targeted credit profile, including maintaining its credit ratings, could affect PAA’s cost of capital as well as its ability to execute its strategy.

Due to these factors, PAA cannot be certain that funding for its capital needs will be available from bank credit arrangements, capital markets or other sources on acceptable terms.

If funding is not available when needed, or is available only on unfavorable terms, PAA may be unable to implement its development plans, enhance its existing business, complete strategic projects and transactions, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on its revenues and results of operations.

Index to Financial Statements

PAA’s risk policies cannot eliminate all risks.

In addition, any non-compliance with its risk policies could result in significant financial losses.

In addition, the insufficiency of, or non-compliance with its risk policies could result in significant financial losses.

Generally, it is PAA’s policy to establish a margin for crude oil or other products it purchases by selling such products for physical delivery to third-party users, or by entering into a future delivery obligation under derivative contracts.

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PAA is also exposed to basis risk when crude oil or other products are purchased against one pricing index and sold against a different index.

PAA may also face disruptions to futures markets for crude oil, NGL and other petroleum products, which may impair its ability to execute its commercial or hedging strategies related to the COVID-19 pandemic, future pandemics, epidemics, other public health emergencies or other factors.

Margin requirements due to spikes or crashes in commodity prices may require us to exit hedge strategies at inopportune times.

Moreover, PAA is exposed to some risks that are not hedged, including risks on certain of its inventory, such as linefill, which must be maintained in order to transport crude oil on its pipelines.

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however, PAA can provide no assurance that these steps will detect and prevent all violations of its risk policies and procedures, particularly if deception, collusion or other intentional misconduct is involved.

PAA’s operations are also subject to laws and regulations relating to protection of the environment and wildlife, operational safety, climate change and related matters that may expose it to significant costs and liabilities.

The current laws and regulations affecting our business are subject to change and in the future PAA may be subject to additional laws and regulations, which could adversely impact PAA’s business.

PAA’s insurance coverage may not fully cover its losses and it may in the future encounter increased costs related to, and lack of availability of, insurance.

While PAA maintains insurance coverage at levels that it believes to be reasonable and prudent, PAA can provide no assurance that its current levels of insurance will be sufficient to cover any losses that it has incurred or may incur in the future, whether due to deductibles, coverage challenges or other limitations.

In addition, over the last several years, as the scale and scope of PAA’s business activities has expanded, the breadth and depth of available insurance markets has contracted.

As a result of these factors and other market conditions, as well as the fact that PAA has experienced several incidents over the last several years, premiums and deductibles for certain insurance policies have increased substantially.

Accordingly, PAA can give no assurance that it will be able to maintain adequate insurance in the future at rates or on other terms PAA considers commercially reasonable.

In addition, although PAA believes that it currently maintains adequate insurance coverage, insurance will not cover many types of interruptions or events that might occur and will not cover all risks associated with its operations.

In addition, the proceeds of any such insurance may not be paid in a timely manner and may be insufficient if such an event were to occur.

The occurrence of a significant event, the consequences of which are either not covered by insurance or not fully insured, or a significant delay in the payment of a major insurance claim, could materially and adversely affect PAA’s financial position, results of operations and cash flows.

The terms of PAA’s indebtedness may limit its ability to borrow additional funds or capitalize on business opportunities.

In addition, PAA’s current or future debt levels, or inability to borrow additional funds or capitalize on business opportunities may limit its future financial and operating flexibility.

As of December 31, 2020, the face value of PAA’s consolidated debt outstanding was approximately $10.3 billion, consisting of approximately $9.5 billion face value of long-term debt (including senior notes, term loan borrowings and finance lease obligations) and approximately $0.8 billion of short-term borrowings.

As of December 31, 2020, PAA had approximately $2.2 billion of liquidity available, including cash and cash equivalents and available borrowing capacity under its senior unsecured revolving credit facility and its senior secured hedged inventory facility, subject to continued covenant compliance.

Lower Adjusted EBITDA could increase PAA’s leverage ratios and effectively reduce its ability to incur additional indebtedness.

The amount of PAA’s current or future indebtedness could have significant effects on its operations, including, among other things:

• a significant portion of PAA’s cash flow will be dedicated to the payment of principal and interest on its indebtedness and may not be available for other purposes, including the payment of distributions on its units and capital expenditures;

Index to Financial Statements

• credit rating agencies may view PAA’s debt level negatively;

• covenants contained in PAA’s existing debt arrangements will require it to continue to meet financial tests that may adversely affect its flexibility in planning for and reacting to changes in its business;

• PAA’s ability to obtain additional financing for working capital, capital expenditures, acquisitions and general partnership purposes may be limited;

• PAA may be at a competitive disadvantage relative to similar companies that have less debt;

• PAA may be more vulnerable to adverse economic and industry conditions as a result of its significant debt level.

PAA’s credit agreements prohibit distributions on, or purchases or redemptions of, units if any default or event of default is continuing.

In addition, the agreements contain various covenants limiting PAA’s ability to, among other things, incur indebtedness if certain financial ratios are not maintained, grant liens, engage in transactions with affiliates, enter into sale-leaseback transactions, and sell substantially all of its assets or enter into a merger or consolidation.

PAA’s credit facilities treat a change of control as an event of default and also requires PAA to maintain a certain debt coverage ratio.

PAA’s senior notes do not restrict distributions to unitholders, but a default under its credit agreements will be treated as a default under the senior notes.

Please read Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Agreements, Commercial Paper Program and Indentures.”

PAA’s ability to access capital markets to raise capital on favorable terms will be affected by its debt level, its operating and financial performance, the amount of its current maturities and debt maturing in the next several years, and by prevailing market conditions.

Moreover, if the rating agencies were to downgrade PAA’s credit ratings, then it could experience an increase in its borrowing costs, face difficulty accessing capital markets or incurring additional indebtedness, be unable to receive open credit from its suppliers and trade counterparties, be unable to benefit from swings in market prices and shifts in market structure during periods of volatility in the crude oil market or suffer a reduction in the market price of its common units.

If PAA is unable to access the capital markets on favorable terms at the time a debt obligation becomes due in the future, it might be forced to refinance some of its debt obligations through bank credit, as opposed to long-term public debt securities or equity securities, or sell assets.

The price and terms upon which PAA might receive such extensions or additional bank credit, if at all, could be more onerous than those contained in existing debt agreements.

Any such arrangements could, in turn, increase the risk that PAA’s leverage may adversely affect its future financial and operating flexibility and thereby impact its ability to pay cash distributions at expected rates.

Increases in interest rates could adversely affect PAA’s business and the trading price of its units.

As of December 31, 2020, the face value of PAA’s consolidated debt was approximately $10.3 billion, of which approximately $9.4 billion was at fixed interest rates and approximately $0.9 billion was at variable interest rates.

PAA is exposed to market risk due to the short-term nature of its commercial paper borrowings and the floating interest rates on its credit facilities.

PAA’s results of operations, cash flows and financial position could be adversely affected by significant increases in interest rates above current levels.

Additionally, increases in interest rates could adversely affect PAA’s Supply and Logistics segment results by increasing interest costs associated with the storage of hedged crude oil and NGL inventory.

Further, the trading price of PAA’s common units may be sensitive to changes in interest rates and any rise in interest rates could adversely impact such trading price.

Changes in currency exchange rates could adversely affect PAA’s operating results.

Because PAA is a U.S.

dollar reporting company and also conducts operations in Canada, it is exposed to currency fluctuations and exchange rate risks that may adversely affect the U.S.

dollar value of its earnings, cash flow and partners’ capital under applicable accounting rules.

For example, as the U.S.

dollar appreciates against the Canadian dollar, the U.S.

dollar value of PAA’s Canadian dollar denominated earnings is reduced for U.S.

reporting purposes.

PAA’s business requires the retention and recruitment of a skilled workforce, and difficulties recruiting and retaining its workforce could result in a failure to implement PAA’s business plans.

PAA’s operations and management require the retention and recruitment of a skilled workforce, including engineers, technical personnel and other professionals.

PAA and its affiliates compete with other companies in the energy industry for this skilled workforce.

The COVID-19 pandemic and associated restrictions may also place additional demands on our employees, which may in turn make it more challenging to retain or recruit talented labor.

If PAA is unable to (i) retain current employees;

and/or (ii) recruit new employees of comparable knowledge and experience, PAA’s business could be negatively impacted.

In addition, PAA could experience increased costs to retain and recruit these professionals.

Index to Financial Statements

An impairment of long-term assets could reduce PAA’s earnings.

At December 31, 2020, PAA had approximately $14.6 billion of net property and equipment, $982 million of linefill and base gas, $3.8 billion of investments accounted for under the equity method of accounting and $805 million of net intangible assets capitalized on its balance sheet.

GAAP requires an assessment for impairment in certain circumstances, including when there is an indication that the carrying value of property and equipment may not be recoverable.

If PAA was to determine that any of its property and equipment, linefill and base gas, intangibles or equity method investments was impaired, it could be required to take an immediate charge to earnings, which could adversely impact its operating results, with a corresponding reduction of partners’ capital and increase in balance sheet leverage as measured by debt-to-total capitalization.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” for additional discussion of our accounting policies and use of estimates associated with impairments.

During the year ended December 31, 2020, PAA recognized goodwill impairment losses of $2.5 billion and non-cash impairment charges of approximately $914 million related to the write-down of certain pipeline and other long-lived assets, certain of PAA’s investments in unconsolidated entities, and assets upon classification as held for sale.

See Note 6, Note 7, Note 8 and Note 9 to our Consolidated Financial Statements for additional information regarding these impairments.

PAA is dependent on the use or availability of third-party assets for certain of its operations.

Certain of PAA’s business activities require the use or availability of third-party assets over which it may have little or no control.

If at any time the availability of these assets is limited or denied, and if access to alternative assets cannot be arranged, it could have an adverse effect on PAA’s business, results of operations and cash flow.

Significant under-utilization of certain assets could significantly reduce PAA’s profitability due to fixed costs incurred to obtain the right to use such assets.

From time to time in connection with its business, PAA may lease or otherwise secure the right to use certain assets (such as railcars, trucks, barges, ships, pipeline capacity, storage capacity and other similar assets) with the expectation that the revenues it generates through the use of such assets will be greater than the fixed costs it incurs pursuant to the applicable leases or other arrangements.

However, when such assets are not utilized or are under-utilized, PAA’s profitability could be negatively impacted because the revenues it earns are either non-existent or reduced, but it remains obligated to continue paying any applicable fixed charges, in addition to the potential of incurring other costs attributable to the non-utilization of such assets.

Significant under-utilization of assets PAA leases or otherwise secures the right to use in connection with its business could have a significant negative impact on PAA’s profitability and cash flows.

Many of PAA’s assets have been in service for many years and require significant expenditures to maintain them.

As a result, its maintenance or repair costs may increase in the future.

PAA’s pipelines, terminals, storage and processing and fractionation assets are generally long-lived assets, and many of them have been in service for many years.

The age and condition of its assets could result in increased maintenance or repair expenditures in the future.

Any significant increase in these expenditures could adversely affect PAA’s results of operations, financial position or cash flows, as well as its ability to make cash distributions to its unitholders.

Index to Financial Statements

PAA does not own all of the land on which its pipelines and facilities are located, which could result in disruptions to its operations.

PAA does not own all of the land on which its pipelines and facilities have been constructed, and therefore is potentially subject to more onerous terms and/or increased costs to retain necessary land use if PAA does not have valid rights-of-way or if such rights-of-way lapse or terminate.

In some instances, PAA obtains the rights to construct and operate its pipelines on land owned by third parties and governmental agencies for a specific period of time.

Following a decision issued in May 2017 by the Tenth Circuit Court of Appeals, tribal ownership of even a very small fractional interest in tribal land owned or at one time owned by an individual Indian landowner, bars condemnation of any interest in the allotment.

Consequently, the inability to condemn such allotted lands under circumstances where existing pipeline rights-of-way may soon lapse or terminate serves as an additional potential impediment for pipeline operations.

In September 2018, the Fourth Circuit Court of Appeals reversed a decision of the United States Forest Service (“USFS”) issuing a permit for the construction of a pipeline and granting a right of way across the Appalachian Trail, ruling that the USFS lacked statutory authority.

This decision may make it more difficult to obtain permits and rights of way on certain federal lands and may be used as precedent to challenge existing and future permits and rights of way.

Additionally, parts of PAA’s operations cross land that has historically been apportioned to various Native American/First Nations tribes, who may exercise significant jurisdiction and sovereignty over their lands.

For more information, see our regulatory disclosure entitled “Indigenous Protections.” PAA cannot guarantee that it will always be able to renew existing rights-of-way or obtain new rights-of-way on favorable terms or without experiencing significant delays and costs.

Any loss of rights with respect to real property, through PAA’s inability to renew right-of-way contracts or otherwise, could have a material adverse effect on its business, results of operations, and financial position.

For various operating and commercial reasons, PAA may not be able to perform all of its obligations under its contracts, which could lead to increased costs and negatively impact its financial results.

Various operational and commercial factors could result in an inability on PAA’s part to satisfy its contractual commitments and obligations.

For example, in connection with PAA’s provision of firm storage services and hub services to its natural gas storage customers, PAA enters into contracts that obligate PAA to honor its customers’ requests to inject gas into its storage facilities, withdraw gas from its facilities and wheel gas through its facilities, in each case subject to volume, timing and other limitations set forth in such contracts.

The following factors could adversely impact PAA’s ability to perform its obligations under these contracts:

• a failure on the part of PAA’s storage facilities to perform as it expects them to, whether due to malfunction of equipment or facilities or realization of other operational risks;

• the operating pressure of PAA’s storage facilities (affected in varying degree, depending on the type of storage cavern, by total volume of working and base gas, and temperature);

• a variety of commercial decisions PAA makes from time to time in connection with the management and operation of its storage facilities.

Examples include, without limitation, decisions with respect to matters such as (i) the aggregate amount of commitments PAA is willing to make with respect to wheeling, injection, and withdrawal services, which could exceed PAA’s capabilities at any given time for various reasons, (ii) the timing of scheduled and unplanned maintenance or repairs, which can impact equipment availability and capacity, (iii) the schedule for and rate at which PAA conducts opportunistic leaching activities at its facilities in connection with the expansion of existing salt caverns, which can impact the amount of storage capacity PAA has available to satisfy its customers’ requests, (iv) the timing and aggregate volume of any base gas park and/or loan transactions PAA consummates, which can directly affect the operating pressure of PAA’s storage facilities and (v) the amount of compression capacity and other gas handling equipment that PAA installs at its facilities to support gas wheeling, injection and withdrawal activities;

• adverse operating conditions due to hurricanes, extreme weather events or conditions, and operational problems or issues with third-party pipelines, storage or production facilities.

Although PAA manages and monitors all of these various factors in connection with the ongoing operation of its natural gas storage facilities with the goal of performing all of its contractual commitments and obligations and optimizing its revenue, one or more of the above factors may adversely impact PAA’s ability to satisfy its injection, withdrawal or wheeling obligations under its storage contracts.

In such event, PAA may be liable to its customers for losses or damages they suffer and/or PAA may need to incur costs or expenses in order to permit it to satisfy its obligations.

Index to Financial Statements

If PAA fails to obtain materials or commodities in the quantity and the quality it needs, and at commercially acceptable prices, whether due to supply disruptions, tariffs, quotas or other factors, PAA’s results of operations, financial condition and cash flows could be materially and adversely affected.

PAA’s business requires access to steel and other materials to construct and maintain new and existing pipelines and facilities.

If PAA experiences a shortage in the supply of these materials or is unable to source sufficient quantities of high quality materials at acceptable prices and in a timely manner, it could materially and adversely affect PAA’s ability to construct new infrastructure and maintain its existing assets.

PAA’s business also depends on having access to significant amounts of electricity and other commodities.

If PAA is unable to obtain commodities sufficient to operate and maintain its assets, it could materially and adversely affect its business.

The COVID-19 pandemic has caused widespread supply chain disruptions, which may make it more challenging to obtain sufficient quantities of high quality materials at acceptable prices and in a timely manner.

If PAA is unable to source such materials, it could materially and adversely affect its ability to construct new infrastructure and maintain its existing assets.

In addition, some of the materials used in PAA’s business are imported.

Existing and future import duties and quotas could materially increase PAA’s costs of procuring imported or domestic steel and/or create shortages or difficulties in procuring sufficient quantities of steel meeting PAA’s required technical specifications.

A material increase in PAA’s costs of construction and maintenance or any significant delays in its ability to complete its infrastructure projects could have a material adverse effect on PAA’s financial position, results of operations and cash flows.

Risks Related to Laws and Regulations Impacting PAA’s Business

PAA’s operations are subject to laws and regulations relating to protection of the environment and wildlife, operational safety, climate change and related matters that may expose it to significant costs and liabilities.

The current laws and regulations affecting PAA’s business are subject to change and in the future PAA may be subject to additional laws, executive orders and regulations, which could adversely impact PAA’s business.

PAA’s operations involving the storage, treatment, processing, and transportation of liquid hydrocarbons, including crude oil, NGL and refined products, as well as PAA’s operations involving the storage of natural gas, are subject to stringent federal, state, and local laws and regulations governing the discharge of materials into the environment.

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PAA’s business and operations may also become subject to additional laws or regulations.

Any new laws or regulations, or changes to or interpretations of existing laws or regulations, adverse to PAA could have a material adverse effect on its operations, revenues, expenses and profitability.

PAA has a history of incremental additions to the miles of pipelines it owns, both through acquisitions and expansion capital projects.

PAA has also increased its terminal and storage capacity and operate several facilities on or near navigable waters and domestic water supplies.

For example, President Biden campaigned on several initiatives to address environmental concerns.

Following the election of President Biden and a Democratic majority in both houses of Congress, it is possible that PAA’s operations, and those of its customers, may be subject to greater environmental regulations, particularly with regard to hydraulic fracturing, permitting, and GHG emissions.

Any new laws, executive orders or regulations, or changes to or interpretations of existing laws or regulations, adverse to PAA could have a material adverse effect on its operations, revenues, expenses and profitability.

Index to Financial Statements

PAA has a history of incremental additions to the miles of pipelines it owns, both through acquisitions and investment capital projects.

PAA has also increased its terminal and storage capacity and operates several facilities on or near navigable waters and domestic water supplies.

Although PAA has implemented programs intended to maintain the integrity of its assets (discussed below), as it acquires additional assets it is at risk for an increase in the number of releases of liquid hydrocarbons into the environment.

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Pipeline safety regulations are revised frequently.

For example, in October 2019, PHMSA published three final rules that create or expand reporting, inspection, maintenance, and other pipeline safety obligations.

PAA is in the process of assessing the impact of these rules on its future costs of operations and revenue from operations.

PHMSA is working on two additional rules related to gas pipeline safety that are expected to modify pipeline repair criteria and extend regulatory safety requirements to certain gathering lines in rural areas.

These additional rulemakings are expected to be effective by mid-2020.

The adoption of new regulations requiring more comprehensive or stringent safety standards could require PAA to install new or modified safety controls, pursue new capital projects, or conduct maintenance programs on an accelerated basis, all of which could require PAA to incur increased operational costs that could be significant.

For example, Congress, through the 2021 Fiscal Year Omnibus Appropriations Bill, directed PHMSA to move forward with several regulatory actions.

For more information, please see our regulatory disclosure entitled “Pipeline Safety/Integrity Management.” The adoption of new regulations requiring more comprehensive or stringent safety standards could require PAA to install new or modified safety controls, pursue new capital projects, or conduct maintenance programs on an accelerated basis, all of which could require PAA to incur increased operational costs that could be significant.

Although PAA continues to focus on pipeline and facility integrity management as a primary operational emphasis, doing so requires substantial time and resources and cannot eliminate all risk of releases.

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For PAA’s U.S.

interstate common carrier liquids pipelines subject to FERC regulation under the ICA, shippers may protest its pipeline tariff filings or file complaints against its existing rates or complaints alleging that we are engaging in discriminating behavior.

interstate common carrier liquids pipelines subject to FERC regulation under the ICA and its interstate natural gas storage facilities subject to FERC regulation under the NGA, shippers may protest its pipeline tariff filings or file complaints against its existing rates or complaints alleging that it is engaging in discriminating behavior.

The FERC can also investigate on its own initiative.

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Natural gas storage facilities are subject to regulation by the FERC, the DOT, and certain state agencies.

In March 2018, FERC issued a revised policy statement (subsequently modified in a final rule issued in July 2018) in which it held that it will no longer permit an income tax allowance to be included in cost-of-service rates for interstate pipelines structured as master limited partnerships.

The FERC also indicated that it will incorporate the effects of the revised policy statement in its next review of the oil pipeline index level, which will take effect in July 2021.

PAA does not have cost-of-service rates that would be impacted by this policy change;

PAA’s FERC regulated tariffs are either grandfathered or based on negotiated rates.

However, depending on how the FERC incorporates its most recent tax policy statement into its next index review, the policy could potentially have a negative impact on the FERC adder to the PPI-FG Index, which in turn could have a negative effect on PAA’s ability to increase its index-based rates.

The policy could impact future (i.e., July 2021 and later) tariff escalations on PAA’s FERC regulated pipelines, as well as some of PAA’s state-regulated pipelines that have negotiated rates with escalations tied to the FERC Index.

Under certain circumstances, the FERC could limit PAA’s ability to set its natural gas storage rates at market-based rates and could order PAA to reduce its rates for natural gas storage service or require the payment of refunds to its storage customers.

In addition, PAA routinely monitors the public filings and proceedings of other parties with the FERC and other regulatory agencies in an effort to identify issues that could potentially impact its business.

Under certain circumstances PAA may choose to intervene in such third-party proceedings in order to express its support for, or its opposition to, various issues raised by the parties to such proceedings.

Under certain circumstances PAA may choose to intervene in such third-party proceedings in order to express its support for, or its opposition to, various issues

Index to Financial Statements

raised by the parties to such proceedings.

For example, if PAA believes that a petition filed with, or order issued by, the FERC is improper, overbroad other otherwise flawed, PAA may attempt to intervene in such proceedings for the purpose of protesting such petition or order and requesting appropriate action such as a clarification, rehearing or other remedy.

Despite such efforts, PAA can provide no assurance that the FERC and other agencies that regulate its business will not issue future orders or declarations that increase its costs or otherwise adversely affect its operations.

The FERC issued a Notice of Inquiry on April 19, 2018 (Certificate Policy Statement NOI), thereby initiating a review of its policies on certification of natural gas pipelines and storage facilities, including an examination of its long-standing Policy Statement on Certification of New Interstate Natural Gas Pipeline Facilities, issued in 1999, that is used to determine whether to grant certificates for new pipeline and storage projects and expansions.

Comments on the Certificate Policy Statement NOI were due on July 25, 2018, and PAA is unable to predict what, if any, changes may be proposed as a result of the NOI that will affect PAA’s natural gas storage business or when such proposals, if any, might become effective.

PAA’s Canadian pipelines are subject to regulation by the CER and by provincial authorities.

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Violations of these licensing, tariff and tax reporting requirements could result in the imposition of significant administrative, civil and criminal penalties.

Furthermore, Presidential Permits that allow cross-border movements of crude oil may be revoked or terminated at any time.

PAA’s purchases and sales of crude oil, natural gas and NGL, and hedging activities, expose it to potential regulatory risks.

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PAA’s purchases and sales may also be subject to certain reporting and other requirements.

Additionally, to the extent that PAA enters into transportation contracts with common carrier pipelines that are subject to FERC regulation, it is subject to FERC requirements related to the use of such capacity.

Additionally, to the extent that PAA enters into transportation contracts with pipelines that are subject to FERC regulation, it is subject to FERC requirements related to the use of such capacity.

Any failure on PAA’s part to comply with the regulations and policies of the FERC, the FTC or the CFTC could result in the imposition of civil and criminal penalties.

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As these new position limit rules are not yet final, the impact of those provisions on PAA is uncertain at this time.

Index to Financial Statements

The CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing, and the associated rules require PAA, in connection with covered derivative activities, to comply with clearing and trade-execution requirements or take steps to qualify for an exemption from such requirements.

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Any of these consequences could have a material adverse effect on PAA, its financial condition and its results of operations.

Legislation and regulatory initiatives relating to hydraulic fracturing or other drilling activities could reduce domestic production of crude oil and natural gas.

Legislation, executive orders and regulatory initiatives relating to hydraulic fracturing or other hydrocarbon development activities could reduce domestic production of crude oil and natural gas.

Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons from unconventional geological formations.

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Hydraulic fracturing has been subject to increased scrutiny and there have been a variety of legislative and regulatory proposals to prohibit, restrict, or more closely regulate various forms of hydraulic fracturing;

Any legislation or regulatory initiatives that curtail hydraulic fracturing or otherwise limit producers’ ability to drill or complete wells could reduce the production of crude oil and natural gas in the United States or Canada, and could thereby reduce demand for PAA’s transportation, terminalling and storage services as well as its supply and logistics services.

for example, the Governor of California signed an executive order in which he announced plans to ask the state legislature to promulgate legislation banning the issuance of new hydraulic fracturing permits by 2024.

In January 2021, President Biden signed an executive order directing the Secretary of the Interior to pause new oil and gas leases on public lands and in offshore waters of the United States.

These actions, as well as any other legislation, executive orders or regulatory initiatives that curtail hydraulic fracturing or otherwise limit producers’ ability to drill or complete wells could reduce the production of crude oil and natural gas in the United States or Canada, and could thereby reduce demand for PAA’s transportation, terminalling and storage services as well as its supply and logistics services.

Index to Financial Statements

Climate change laws and regulations restricting emissions of greenhouse gases could result in increased operating costs and reduced demand for crude oil and natural gas, while potential physical effects of climate change could disrupt crude oil production and cause PAA to incur significant costs in preparing for or responding to those effects.

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While Congress has from time to time considered legislation to reduce emissions of GHGs, no significant legislation to reduce GHG emissions has been adopted at the federal level.

However, President Biden has previously stated that one of his administration’s climate change goals is to achieve a 100% clean energy economy and net-zero emissions by 2050 at the national level;

however, PAA cannot predict the degree to which this plan may be successfully implemented, what initiatives may be promulgated to facilitate it, or the degree to which it may impact its operations.

In the absence of federal climate legislation, a number of state and regional GHG restrictions have emerged.

Analogous regulations are or may be implemented in Canada.

Any future laws and regulations that limit emissions of GHGs could adversely affect demand for oil and natural gas that operators, some of whom are PAA’s customers, produce and could thereby reduce demand for PAA’s midstream services.

Moreover, activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, which has resulted in certain sources of capital restricting or eliminating their investment in oil and natural gas activities.

Additionally, activist shareholders have introduced proposals that may seek to force companies to adopt aggressive emission reduction targets or restrict more carbon-intensive activities.

Any future laws and regulations that limit emissions of GHGs could adversely affect supply of or demand for oil and natural gas that operators, some of whom are PAA’s customers, produce and could thereby reduce demand for PAA’s midstream services.

For more information, see our regulatory disclosure entitled “Climate Change Initiatives.”

Moreover, activists concerned about the potential effects of climate change have directed their attention at sources of funding for hydrocarbon energy companies, which has resulted in certain sources of capital restricting or eliminating their investment in oil and natural gas activities.

Additionally, activist shareholders have introduced proposals that may seek to force companies to adopt aggressive emission reduction targets or restrict more hydrocarbon-intensive activities.

Separately, activists may also pursue other means of curtailing oil and gas operations, such as through litigation;

several suits have been filed in recent years claiming that oil and gas companies are responsible for climate harm due to their production and/or marketing of hydrocarbons or that oil and gas companies have known about the adverse effects of climate change but failed to adequately disclose those impacts to their investors or consumers.

While PAA cannot predict the outcomes of such activities, they could make it more difficult for operators to engage in exploration and production activities, ultimately reducing demand for PAA’s services.

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if any such effects were to occur, they have the potential to cause physical damage to PAA’s assets and thus could have an adverse effect on its financial condition and operations.

PAA may in the future encounter increased costs related to, and lack of availability of, insurance.

Over the last several years, as the scale and scope of PAA’s business activities has expanded, the breadth and depth of available insurance markets has contracted.

Accordingly, PAA can give no assurance that it will be able to maintain adequate insurance in the future at rates or on other terms PAA considers commercially reasonable.

In addition, the proceeds of any such insurance may not be paid in a timely manner and may be insufficient if such an event were to occur.

The terms of PAA’s indebtedness may limit its ability to borrow additional funds or capitalize on business opportunities.

In addition, PAA’s future debt level may limit its future financial and operating flexibility.

As of December 31, 2019, the face value of PAA’s consolidated debt outstanding was approximately $9.75 billion, consisting of approximately $9.2 billion face value of long-term debt (including senior notes, term loan borrowings and finance lease obligations) and approximately $0.5 billion of short-term borrowings.

As of December 31, 2019, PAA had approximately $2.5 billion of liquidity available, including cash and cash equivalents and available borrowing capacity under its senior unsecured revolving credit facility and its senior secured hedged inventory facility, subject to continued covenant compliance.