What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-27 · 382 added, 386 removed, 512 unchanged (60% of the section changed)

4 unchanged sentences

• Executive Summary

• Acquisitions and Capital Projects

• Critical Accounting Policies and Estimates

2 unchanged sentences

• Liquidity and Capital Resources

A comparative discussion of our 2019 to 2018 operating results and performance measures can be found in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 27, 2020.

Executive Summary

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GP LLC is a Delaware limited liability company that also holds the non-economic general partner interest in AAP.

AAP is a Delaware limited partnership that, as of December 31, 2019, directly owned a limited partner interest in PAA through its ownership of approximately 249.6 million PAA common units (approximately 31% of PAA Common Unit Equivalents).

AAP is a Delaware limited partnership that, as of December 31, 2020, directly owned a limited partner interest in PAA through its ownership of approximately 245.8 million PAA common units (approximately 31% PAA’s total outstanding common units and Series A preferred units combined).

AAP is the sole member of PAA GP, a Delaware limited liability company that directly holds the non-economic general partner interest in PAA.

PAA owns and operates midstream energy infrastructure and provides logistics services primarily for crude oil, NGL and natural gas.

PAA owns an extensive network of pipeline transportation, terminalling, storage, and gathering assets in key crude oil and NGL producing basins and transportation corridors and at major market hubs in the United States and Canada.

PAA’s business model integrates large-scale supply aggregation capabilities with the ownership and operation of critical midstream infrastructure systems that connect major producing regions to key demand centers and export terminals.

As one of the largest midstream service providers in North America, PAA owns an extensive network of pipeline transportation, terminalling, storage and gathering assets in key crude oil and NGL producing basins (including the Permian Basin) and transportation corridors and at major market hubs in the United States and Canada.

PAA’s assets and the services it provides are primarily focused on crude oil, NGL and natural gas.

PAA’s business activities are conducted through three operating segments:

Transportation, Facilities and Supply and Logistics.

See “—Results of Operations—Analysis of Operating Segments” for further discussion.

Recent Events and Outlook

During the first quarter of 2020, COVID-19 escalated into a global pandemic, which led to widespread shelter-in-place or similar requirements throughout North America and across the world, resulting in significantly reduced energy demand.

As a result, North American producers responded aggressively by shutting in significant levels of production early in the second quarter, which mitigated the pace of crude oil inventory builds and the risk of testing storage maximums.

Subsequently, United States refinery utilization increased, the previously steep contango market structure tempered, and crude oil prices improved to more constructive levels.

Over the course of the second half of the year, the more constructive price environment allowed oil and gas producers to return to production wells that were previously shut-in, resume completion activities and begin to increase drilling activities during the third quarter at a level that is lower than pre-pandemic, but likely at a level that is sufficient to offset natural declines.

Index to Financial Statements

While prices have rebounded to levels that are near pre-pandemic levels, drilling activity is at a fraction of pre-pandemic levels as evidenced by the Lower 48 rig count, which is approximately 40% of peak levels reached in 2020 pre-COVID-19.

Many oil and gas producers in the United States have publicly stated their intention to reduce capital investment in oil and gas drilling activities in 2021 as they strive to improve their financial metrics and increase returns to shareholders.

Accordingly, we expect oil and gas drilling activities to continue to be lower than pre-pandemic levels which in turn will slow the growth in oil production, relative to pre-pandemic expectations of production growth.

We expect that the combination of a muted growth in production, with excess pipeline capacity in most of our operating areas will have a negative impact on our business relative to pre-pandemic levels, with the impacts in 2021 being more pronounced than in 2020.

Similar to the actions taken by oil and gas producers, we have implemented a number of initiatives, as described below, to ensure that we are positioned to manage through the current challenging market environment.

Longer term, we expect global demand for hydrocarbons will recover, which should drive higher production levels in key onshore shale basins, which should support growing demand for our assets.

Also see Items 1.

“Business and Properties—Global Petroleum Market Overview and Fundamental Themes” for additional information.

Our response to the challenging near-term market conditions has been to focus on measures to strengthen our balance sheet, liquidity and long-term financial flexibility.

These actions include significantly reducing our capital program, reducing the amount of our common equity distributions, progressing asset sales, and reducing costs, while remaining focused on operating safely and responsibly.

Specifically, since April, we have reduced our 2020/2021 capital program by $950 million, or 41%, and have decreased PAA’s common unit distributions and our Class A share distributions by 50% versus the distributions paid in February 2020, which reflects a reduction of $525 million on an annualized basis.

We have also completed approximately $450 million of asset sales.

While each of these actions should contribute to a stronger balance sheet and enhanced liquidity and long-term financial flexibility, we can provide no assurance that we will be able to effect certain future actions (such as additional capital reductions, asset sales and expense reductions) and additional actions may be necessary to achieve our balance sheet, liquidity and financial security objectives.

See “Risk Factors—Risks Related to PAA’s Business” in Item 1A.

While some modifications in our operations have been necessary to deal with risks associated with the COVID-19 pandemic, we have not experienced any material constraints in our ability to continue our essential business functions and have not incurred any significant additional operating costs as a result of the pandemic.

We remain focused on the health and safety of our workforce, and have modified our operations in ways that we believe are prudent and appropriate in order to protect our employees while continuing to operate our assets in an effective, safe and responsible manner.

In addition, many governments have enacted or are contemplating measures to provide aid and economic stimulus in response to the COVID-19 pandemic.

These measures include actions by both the United States federal government and the government of Canada.

There has been no material direct impact to our financial position, results of operations or cash flows resulting from these measures.

However, our Canadian subsidiary participated in a wage subsidy program during the second, third and fourth quarters of 2020 for subsidies totaling approximately $23 million.

The impact of such subsidies is included in the line items “Field operating costs” and “Segment general and administrative expenses” of the applicable segments.

See “—Results of Operations—Analysis of Operating Segments” for further discussion.

Overview of Operating Results, Capital Investments and Other Significant Activities

Net income for the year ended December 31, 2019 of $2.062 billion was relatively flat compared to net income of $2.107 billion recognized for the year ended December 31, 2018.

The significant items impacting income for the comparative period included:

• Favorable results from our Supply and Logistics segment due to the realization of favorable crude oil differentials, primarily in the Permian Basin and Canada, and higher NGL margins;

• Favorable results from our Transportation segment, primarily from our pipelines in the Permian Basin region, driven by higher volumes from increased production and our recently completed capital expansion projects;

• A decrease in income tax expense primarily due to lower year-over-year income as impacted by fluctuations in the derivative mark-to-market valuations in our Canadian operations;

• A non-cash gain of $269 million recognized during the 2019 period related to a fair value adjustment resulting from the accounting for the contribution of our undivided joint interest in the Capline pipeline system for an

equity interest in Capline Pipeline Company LLC compared to a gain of $200 million recognized in 2018 related to the sale of a portion of our interest in BridgeTex Pipeline Company LLC;

• The unfavorable impact of the mark-to-market of certain derivative instruments, resulting from gains recognized during the 2018 period compared to losses recognized in the 2019 period;

• The unfavorable impact of a net loss on asset sales and asset impairments of $28 million in 2019 compared to a net gain of $114 million in 2018;

• Higher depreciation and amortization expense in 2019 primarily due to the additional depreciation expense associated with the completion of various capital expansion projects.

The macroeconomic and industry specific challenges discussed above have resulted in a number of impairment charges recognized during 2020 as discussed further below.

See “—Liquidity and Capital Resources” for additional discussion of the expected and potential impact of COVID-19 and related market conditions on our business.

We recognized a net loss of $2.440 billion for the year ended December 31, 2020 compared to net income of $2.062 billion recognized for the year ended December 31, 2019.

The net loss for the period was driven by goodwill impairment losses of $2.515 billion and was also impacted by non-cash impairment charges of approximately $914 million related to the write-down of certain pipeline and other long-lived assets, certain of our investments in unconsolidated entities, and assets upon classification as held for sale.

In addition, we recognized approximately $233 million of inventory valuation adjustments due to declines in commodity prices primarily during the first quarter of 2020.

Index to Financial Statements

Our results for the comparative period were also impacted by:

• Less favorable results from our Supply and Logistics segment due to less favorable crude oil differentials, lower NGL margins and the unfavorable impact of the mark-to-market of certain derivative instruments, resulting in higher losses recognized in 2020 compared to 2019, partially offset by the favorable impact of contango market conditions during 2020;

• Less favorable results from our Transportation segment driven by lower volumes from shut-ins of crude oil production, reduced drilling and completion activity and compressed regional basis differentials, a portion of which are covered by minimum volume commitments that will be made up or paid for in future periods, and lower pipeline loss allowance revenue in 2020 due to lower prices and volumes, partially offset by lower field operating costs;

• Higher depreciation and amortization expense in the 2020 period primarily due to additional depreciation expense associated with acquired assets, the completion of various investment capital projects and a reduction in the useful lives of certain assets;

• A gain of $21 million recognized in the current period related to the sale of a portion of our interest in Saddlehorn Pipeline Company, LLC in February 2020, compared to a non-cash gain of $269 million recognized in the 2019 period related to a fair value adjustment resulting from the accounting for the contribution of our undivided joint interest in the Capline pipeline system for an equity interest in Capline Pipeline Company LLC;

partially offset by

• Favorable results from our Facilities segment primarily due to lower field operating costs;

• The favorable impact on income tax expense of (i) lower income attributable to PAGP as a result of lower earnings at PAA and (ii) lower taxable earnings and lower year-over-year income as impacted by fluctuations in the derivative mark-to-market valuations in our Canadian operations.

See further discussion of our operating results in the “—Results of Operations—Analysis of Operating Segments” and “—Other Income and Expenses” sections below.

See the “Outlook—Market Overview and Outlook” section below for a discussion of the market and our current outlook.

We invested approximately $1.3 billion in expansion capital during 2019, primarily related to projects under development in the Permian Basin.

See the “—Acquisitions, Capital Projects and Divestitures” section below for additional information.

We also paid approximately $1.2 billion of cash distributions to our Class A Shareholders and noncontrolling interests during 2019.

PAA Leverage Reduction Plan Completion and Financial Policy Update

In August 2017, PAA announced that it was implementing an action plan to strengthen its balance sheet, reduce leverage, enhance its distribution coverage, minimize new issuances of common equity and position PAA for future distribution growth.

The action plan (“PAA Leverage Reduction Plan”), which was endorsed by our Board, included PAA’s intent to achieve certain objectives.

During 2017 and 2018, PAA made meaningful progress in executing the PAA Leverage Reduction Plan and in April 2019, PAA announced its achievement of the remaining objectives.

Concurrent with the completion of the PAA Leverage Reduction Plan, PAA completed a review of its approach to its capital allocation process, targeted leverage metrics and distribution management policies.

As part of the April 2019 announcement, PAA provided several updates regarding its financial policy, including the following actions:

• Lowering PAA’s targeted long-term debt to Adjusted EBITDA leverage ratio by 0.5x to a range of 3.0x to 3.5x;

• Establishing a long-term sustainable minimum annual PAA distribution coverage level of 130% underpinned by predominantly fee-based cash flows;

• PAA’s adoption of an annual cycle for setting the common unit distribution level and intention to increase common unit distributions in the future contingent on achieving and maintaining targeted leverage and coverage ratios and subject to an annual review process.

These actions reflect PAA’s dedication to optimizing sustainable unitholder value while also preserving and enhancing PAA’s financial flexibility, further reducing leverage and improving its credit profile, with an objective of achieving mid-BBB equivalent credit ratings over time.

Consistent with those objectives, PAA announced that it intends to continue to focus on activities to enhance investment returns and reinforce capital discipline through asset optimization, joint ventures, potential divestitures and similar arrangements.

Acquisitions, Capital Projects and Divestitures

Acquisitions and Capital Projects

We completed a number of acquisitions and capital projects in 2019, 2018 and 2017 that have impacted our results of operations.

The following table summarizes our expenditures for acquisition capital, expansion capital and maintenance capital for such periods (in millions):

Year Ended December 31,

2019 2018 2017

Acquisition capital (1) (2)

$ 50 $ — $ 1,323

Expansion capital (1) (3)

1,340 1,888 1,135

Maintenance capital (3)

$ 1,677 $ 2,140 $ 2,705

(1) Acquisitions of initial investments or additional interests in unconsolidated entities are included in “Acquisition capital.” Subsequent contributions to unconsolidated entities related to expansion projects of such entities are recognized in “Expansion capital.” We account for our investments in such entities under the equity method of accounting.

(2) Acquisition capital for 2017 primarily includes the Alpha Crude Connector Gathering System acquisition completed in February 2017.

See Note 7 to our Consolidated Financial Statements for additional information on acquisitions.

(3) Capital expenditures made to expand the existing operating and/or earnings capacity of our assets are classified as “Expansion capital.” Capital expenditures for the replacement and/or refurbishment of partially or fully depreciated assets in order to maintain the operating and/or earnings capacity of our existing assets are classified as “Maintenance capital.”

Expansion Capital Projects

Our 2019 projects primarily included the construction and expansion of pipeline systems and storage and terminal facilities.

The following table summarizes our 2019, 2018 and 2017 projects (in millions):

Projects 2019 2018 2017

Complementary Permian Basin Projects (1)

$ 503 $ 671 $ 217

Permian Basin Takeaway Pipeline Projects (1) (2)

Other Long-Haul Pipeline Projects (1)

Selected Facilities Projects (1) (3)

Diamond Pipeline 6 17 318

Other Projects 206 255 392

$ 1,340 $ 1,888 $ 1,135

(1) These projects will continue into 2020.

See “—Liquidity and Capital Resources—Acquisitions, Investments, Expansion Capital Expenditures and Divestitures —2020 Capital Projects.”

(2) Represents pipeline projects with takeaway capacity out of the Permian Basin, including (i) our 65% interest in the Cactus II Pipeline, (ii) our 16% interest in Wink to Webster Pipeline and (iii) our Sunrise expansion.

(3) Includes projects at our St.

James, Fort Saskatchewan and Cushing terminals.

Our expansion capital programs consist of investments in midstream infrastructure projects that build upon our core assets and operations.

For the years presented, substantially all of the expansion capital was invested in our fee-based Transportation and Facilities segments.

The majority of this expansion capital consists of highly-contracted projects that complement our broader system capabilities and support the long-term needs of the upstream and downstream sectors of the industry value chain.

We currently expect to spend approximately $1.4 billion for expansion capital in 2020.

See “—Liquidity and Capital Resources—Acquisitions, Investments, Expansion Capital Expenditures and Divestitures —2020 Capital Projects” and “Outlook—Market Overview and Outlook” for additional information.

We continually evaluate potential sales of non-core assets and/or sales of partial interests in assets to strategic joint venture partners.

The following table summarizes the proceeds received for sales of such assets, which were previously reported in our Transportation and Facilities segments, during the years ended December 31, 2019, 2018 and 2017 (in millions):

Year Ended December 31,

2019 2018 2017

Proceeds from divestitures (1)

$ 205 $ 1,334 $ 1,083

(1) Includes proceeds from our formation of Red River Pipeline Company LLC in May 2019.

See Note 12 to our Consolidated Financial Statements for additional information.

Proceeds from asset sales were used to fund our expansion capital program and reduce debt levels.

See “—Liquidity and Capital Resources” for additional discussion of our divestiture activities.

We invested $921 million in midstream infrastructure projects during 2020, which primarily related to projects under development in the Permian Basin.

See “—Liquidity and Capital Resources—Investing Activities—Investment Capital Projects” for additional information.

Additionally, during the first quarter of 2020, we acquired $310 million of assets, which primarily included a crude oil gathering system located in the Delaware Basin.

We also paid approximately $863 million of cash distributions to our Class A Shareholders and noncontrolling interests during 2020.

In June 2020, PAA completed the issuance of $750 million, 3.80% senior notes due September 2030.

We used the net proceeds from this offering of $742 million, after deducting the underwriting discount and offering expenses, to repay the principal amounts of PAA’s 5.00% senior notes due February 2021 in November 2020.

See “—Liquidity and Capital Resources—Financing Activities—Senior Notes” for additional information.

During the fourth quarter of 2020, PAA repurchased 6.6 million common units for $53 million, which includes repurchases of 350,000 common units for $3 million that did not settle until January 2021.

See “—Liquidity and Capital Resources—Financing Activities—Common Equity Repurchase Program” for additional information.

Critical Accounting Policies and Estimates

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We also discuss our critical accounting policies and estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for our (i) estimated fair value of assets and liabilities acquired and identification of associated goodwill and intangible assets, (ii) impairment assessments of goodwill and intangible assets, (iii) fair value of derivatives, (iv) accruals and contingent liabilities, (v) equity-indexed compensation plan accruals, (vi) property and equipment, depreciation and amortization expense, asset retirement obligations and impairments, (vii) allowance for doubtful accounts and (viii) inventory valuations have the greatest potential impact on our Consolidated Financial Statements.

Index to Financial Statements

We believe that the assumptions, judgments and estimates involved in the accounting for our (i) estimated fair value of assets and liabilities acquired and identification of associated goodwill and intangible assets, (ii) impairment assessments of goodwill and intangible assets, (iii) fair value of derivatives, (iv) accruals and contingent liabilities, (v) property and equipment, depreciation and amortization expense and asset retirement obligations, (vi) impairment assessments of property and equipment and investments in unconsolidated entities and (vii) inventory valuations have the greatest potential impact on our Consolidated Financial Statements.

These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates.

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Fair Value of Assets and Liabilities Acquired and Identification of Associated Goodwill and Intangible Assets.

In accordance with FASB guidance regarding business combinations, with each acquisition, we allocate the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition.

In accordance with Financial Accounting Standards Board (“FASB”) guidance regarding business combinations, with each acquisition, we allocate the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition.

If the initial accounting for the business combination is incomplete when the combination occurs, an estimate will be recorded.

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Goodwill and intangible assets with indefinite lives are not amortized but are instead periodically assessed for impairment.

See Note 8 to our Consolidated Financial Statements for further discussion of goodwill.

Intangible assets with finite lives are amortized over their estimated useful life as determined by management.

See Note 8 and Note 10 to our Consolidated Financial Statements for further discussion of goodwill and intangible assets.

Impairment testing entails estimating future net cash flows relating to the business, based on management’s estimate of future revenues, future cash flows and market conditions including pricing, demand, competition, operating costs and other factors.

Uncertainties associated with these estimates include changes in production decline rates, production interruptions, fluctuations in refinery capacity or product slates, economic obsolescence factors in the area and potential future sources of cash

In addition, changes in our weighted average cost of capital from our estimates could have a significant impact on fair value.

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Quantitative and Qualitative Disclosures About Market Risk and Note 13 to our Consolidated Financial Statements for a discussion regarding our derivatives and risk management activities.

Index to Financial Statements

Accruals and Contingent Liabilities.

We record accruals or liabilities for, among other things, environmental remediation, natural resource damage assessments, governmental fines and penalties, potential legal claims and fees for legal services associated with loss contingencies, and bonuses.

We record accruals or liabilities for, among other things, environmental remediation, potential legal claims or settlements and fees for legal services associated with loss contingencies, and bonuses.

Accruals are made when our assessment indicates that it is probable that a liability has occurred and the amount of liability can be reasonably estimated.

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Although the resolution of these uncertainties has not historically had a material impact on our results of operations or financial condition, we cannot provide assurance that actual amounts will not vary significantly from estimated amounts.

Equity-Indexed Compensation Plan Accruals.

We accrue compensation expense (referred to herein as equity-indexed compensation expense) for outstanding equity-indexed compensation awards.

Under GAAP, we are required to estimate the fair value of our outstanding equity-indexed compensation awards and recognize that fair value as compensation expense over the service period.

For equity-indexed compensation awards that contain a performance condition, the fair value of the award is recognized as equity-indexed compensation expense only if the attainment of the performance condition is considered probable.

Uncertainties involved in this estimate include future levels of four quarter trailing distributable cash flow (“DCF”) per PAA common unit (or in some instances, per PAA common unit and common equivalent unit) and whether or not a performance condition will be attained.

In addition, the PAA common unit price at the end of each period (and at the time of vesting) will impact the amount of compensation expense recorded in each period for certain awards.

We cannot provide assurance that the actual fair value of our equity-indexed compensation awards will not vary significantly from estimated amounts.

We recognized equity-indexed compensation expense of $35 million, $79 million and $41 million in 2019, 2018 and 2017, respectively, related to awards granted under our various equity-indexed compensation plans.

A hypothetical variance of 5% in our aggregate estimate for the equity-indexed compensation expense would have an impact on our total costs and expenses of less than 1%.

See Note 18 to our Consolidated Financial Statements for a discussion regarding our equity-indexed compensation plans.

Property and Equipment, Depreciation and Amortization Expense, Asset Retirement Obligations and Impairments.

Property and Equipment, Depreciation and Amortization Expense and Asset Retirement Obligations.

We compute depreciation and amortization using the straight-line method based on estimated useful lives.

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Uncertainties that impact these estimates include the costs associated with these activities and the timing of incurring such costs.

Impairment Assessments of Property and Equipment and Investments in Unconsolidated Entities.

We periodically evaluate property and equipment for impairment when events or circumstances indicate that the carrying value of these assets may not be recoverable.

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In addition, when we evaluate property and equipment and other long-lived assets for recoverability, it may also be necessary to review related depreciation estimates and methods.

Investments in unconsolidated entities accounted for under the equity method of accounting are assessed for impairment when events or circumstances suggest that a decline in value may be other than temporary.

Examples of such events or circumstances include continuing operating losses of the entity and/or long-term negative changes in the entity’s core business.

When it is determined that an indicated impairment is other than temporary, a charge is recognized for the difference between the investment’s carrying amount and its estimated fair value.

We consider the fair value estimate used to calculate the impairment of investments in unconsolidated entities a critical accounting estimate.

In determining the existence of an other-than-temporary impairment of carrying value, we make a number of subjective assumptions as to:

• whether there is an event or circumstance that may be indicative of a decline in value of the investment;

• whether the decline in value is other than temporary;

• the fair value of the investment.

Index to Financial Statements

A change in our outlook or use could result in impairments that may be material to our results of operations or financial condition.

See the “—Outlook— Market Overview and Outlook” section below and Note 6 to our Consolidated Financial Statements for additional information.

Allowance for Doubtful Accounts.

We perform credit evaluations of our customers and grant credit based on past payment history, financial conditions and anticipated industry conditions.

Customer payments are regularly monitored and a provision for doubtful accounts is established based on specific situations and overall industry conditions.

Our history of bad debt losses has been minimal (less than $2 million in the aggregate over the years ended December 31, 2019, 2018 and 2017) and generally limited to specific customer circumstances;

however, credit risks can change suddenly and without notice.

See Note 2 to our Consolidated Financial Statements for additional discussion.

See “—Executive Summary— Recent Events and Outlook” and Note 6 and Note 9 to our Consolidated Financial Statements for additional information.

Inventory Valuations.

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The following table sets forth an overview of our consolidated financial results calculated in accordance with GAAP (in millions, except per share amounts):

Year Ended December 31, 2019-2018 2018-2017

Year Ended December 31, Variance

2020 2019 $ %

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Gains/(losses) on asset sales and asset impairments, net (719) (28) (691) **

Gain on investment in unconsolidated entities

271 200 — 71 36 % 200 N/A

Goodwill impairment losses (2,515) — (2,515) N/A

Gain on/(impairment of) investments in unconsolidated entities, net

(182) 271 (453) (167) %

Interest expense, net (436) (425) (11) (3) %

Other income/(expense), net 24 (7) (31) 31 443 % 24 77 %

Income tax expense (176) (302) (937) 126 42 % 635 68 %

Other income, net 39 24 15 63 %

Income tax (expense)/benefit 167 (176) 343 195 %

Net income/(loss) (2,440) 2,062 (4,502) (218) %

Net income attributable to noncontrolling interests (1,731) (1,773) (690) 42 2 % (1,083) (157) %

Net (income)/loss attributable to noncontrolling interests 1,872 (1,731) 3,603 208 %

Net income/(loss) attributable to PAGP $ (568) $ 331 $ (899) (272) %

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** Indicates that variance as a percentage is not meaningful.

Index to Financial Statements

(1) Segment Adjusted EBITDA is the measure of segment performance that is utilized by our Chief Operating Decision Maker (“CODM”) to assess performance and allocate resources among our operating segments.

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To supplement our financial information presented in accordance with GAAP, management uses additional measures known as “non-GAAP financial measures” in its evaluation of past performance and prospects for the future.

The primary additional measure used by management is earnings before interest, taxes, depreciation and amortization (including our proportionate share of depreciation and amortization of, and gains and losses on significant asset sales by, unconsolidated entities), gains and losses on asset sales and asset impairments and gains on investments in unconsolidated entities, adjusted for certain selected items impacting comparability (“Adjusted EBITDA”).

The primary additional measure used by management is earnings before interest, taxes, depreciation and amortization (including our proportionate share of depreciation and amortization of unconsolidated entities), gains and losses on asset sales and asset impairments, goodwill impairment losses and gains on and impairments of investments in unconsolidated entities, adjusted for certain selected items impacting comparability (“Adjusted EBITDA”).

Our definition and calculation of certain non-GAAP financial measures may not be comparable to similarly-titled measures of other companies.

Adjusted EBITDA is reconciled to Net Income/(Loss), the most directly comparable measure as reported in accordance with GAAP, and should be viewed in addition to, and not in lieu of, our Consolidated Financial Statements and accompanying notes.

Management believes that the presentation of such additional financial measure provides useful information to investors regarding our performance and results of operations because this measure, when used to supplement related GAAP financial measures, (i) provide additional information about our core operating performance, (ii) provide investors with the same financial analytical framework upon which management bases financial, operational, compensation and planning/budgeting decisions and (iii) present measurements that investors, rating agencies and debt holders have indicated are useful in assessing us and our results of operations.

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Although we present selected items impacting comparability that management considers in evaluating our performance, you should also be aware that the items presented do not represent all items that affect comparability between the periods presented.

Variations in our operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions, acquisitions, expansion projects and numerous other factors as discussed, as applicable, in “Analysis of Operating Segments.”

Our definition and calculation of certain non-GAAP financial measures may not be comparable to similarly-titled measures of other companies.

Adjusted EBITDA is reconciled to Net Income, the most directly comparable measure as reported in accordance with GAAP, and should be viewed in addition to, and not in lieu of, our Consolidated Financial Statements and accompanying notes.

The following table sets forth the reconciliation of our non-GAAP financial performance measure from Net Income (in millions):

Year Ended December 31, 2019-2018 2018-2017

Variations in our operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions, acquisitions, divestitures, investment capital projects and numerous other factors as discussed, as applicable, in “—Analysis of Operating Segments.”

Index to Financial Statements

The following table sets forth the reconciliation of our non-GAAP financial performance measure Adjusted EBITDA from Net Income/(Loss) (in millions):

Year Ended December 31, Variance

2020 2019 $ %

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Interest expense, net 436 425 11 3 %

Income tax expense 176 302 937 (126) (42) % (635) (68) %

Income tax expense/(benefit) (167) 176 (343) (195) %

Depreciation and amortization 656 604 52 9 %

(Gains)/losses on asset sales and asset impairments, net 719 28 691 **

Gain on investment in unconsolidated entities (271) (200) — (71) (36) % (200) N/A

Goodwill impairment losses 2,515 — 2,515 N/A

(Gain on)/impairment of investments in unconsolidated entities, net 182 (271) 453 167 %

Depreciation and amortization of unconsolidated entities (1)

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Selected Items Impacting Comparability:

(Gains)/losses from derivative activities net of inventory valuation adjustments (2)

Losses from derivative activities net of inventory valuation adjustments (2)

480 160 320 **

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Equity-indexed compensation expense (5)

17 55 23 (38) ** 32 **

Net (gain)/loss on foreign currency revaluation (6)

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Line 901 incident (7)

10 — 32 10 ** (32) **

Significant acquisition-related expenses (8)

— — 6 — ** (6) **

Selected Items Impacting Comparability - Segment Adjusted EBITDA 617 163 454 **

(Gains)/losses from derivative activities (2)

(2) 14 (13) (16) ** 27 **

Net (gain)/loss on foreign currency revaluation (6)

Gains from derivative activities (2)

(20) (2) (18) **

Net loss on early repayment of senior

Net gain on foreign currency revaluation (6)

(13) (15) 2 **

Net gain on early repayment of senior notes (9)

Selected Items Impacting Comparability - Adjusted EBITDA (10)

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(1) Over the past several years, we have increased our participation in strategic pipeline joint ventures accounted for under the equity method of accounting.

We exclude our proportionate share of the depreciation and amortization expense of, and gains and losses on significant asset sales by, such unconsolidated entities when reviewing Adjusted EBITDA, similar to our consolidated assets.

We exclude our proportionate share of the depreciation and amortization expense of such unconsolidated entities when reviewing Adjusted EBITDA, similar to our consolidated assets.

(2) We use derivative instruments for risk management purposes, and our related processes include specific identification of hedging instruments to an underlying hedged transaction.

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See Note 13 to our Consolidated Financial Statements for a comprehensive discussion regarding our derivatives and risk management activities.

Index to Financial Statements

(3) We carry crude oil and NGL inventory that is comprised of minimum working inventory requirements in third-party assets and other working inventory that is needed for our commercial operations.

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Therefore, we classify this inventory as long-term on our balance sheet and do not hedge the inventory with derivative instruments (similar to linefill in our own assets).

We treat the impact of changes in the average cost of the long-term inventory (that result from fluctuations in market prices) and writedowns of such inventory that result from price declines as a selected item impacting comparability.

We treat the impact of changes in the average cost of the long-term inventory (that result from fluctuations in market prices) and write-downs of such inventory that result from price declines as a selected item impacting comparability.

See Note 5 to our Consolidated Financial Statements for additional inventory disclosures.

(4) We have certain agreements that require counterparties to deliver, transport or throughput a minimum volume over an agreed upon period.

(4) We, and certain of our equity method investments, have certain agreements that require counterparties to deliver, transport or throughput a minimum volume over an agreed upon period.

Substantially all of such agreements were entered into with counterparties to economically support the return on our capital expenditure necessary to construct the related asset.

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The portion of compensation expense associated with awards that are certain to be settled in cash is not considered a selected item impacting comparability.

See Note 18 to our Consolidated Financial Statements for a comprehensive discussion regarding our equity-indexed compensation plans.

See Note 18 to our Consolidated Financial Statements for a discussion regarding our equity-indexed compensation plans.

(6) During the periods presented, there were fluctuations in the value of the Canadian dollar (“CAD”) to the U.S.

dollar (“USD”), resulting in non-cash gains and losses that were not related to our core operating results for the period and were thus classified as a selected item impacting comparability.

dollar (“USD”), resulting in the realization of foreign exchange gains and losses on the settlement of foreign currency transactions as well as the revaluation of monetary assets and liabilities denominated in a foreign currency.

These gains and losses are not integral to our core operating performance and were thus classified as a selected item impacting comparability.

See Note 13 to our Consolidated Financial Statements for discussion regarding our currency exchange rate risk hedging activities.

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See Note 19 to our Consolidated Financial Statements for additional information regarding the Line 901 incident.

(8) Includes acquisition-related expenses associated with the ACC Acquisition in February 2017.

(8) Includes acquisition-related expenses associated with the acquisition of Felix Midstream LLC (“Felix Midstream”) in February 2020.

See Note 7 to our Consolidated Financial Statements for additional information.

(9) The 2017 period includes net losses incurred in connection with the early redemption of our (i) $600 million, 6.50% senior notes due May 2018 and (ii) $350 million, 8.75% senior notes due May 2019.

(9) Includes net gains recognized in connection with the repurchase of our outstanding senior notes on the open market.

See Note 11 to our Consolidated Financial Statements for additional information.

(10) Other income/(expense), net per our Consolidated Statements of Operations, adjusted for selected items impacting comparability (“Adjusted other income/(expense), net”) is included in Adjusted EBITDA and excluded from Segment Adjusted EBITDA.

Index to Financial Statements

Analysis of Operating Segments

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Our CODM (our Chief Executive Officer) evaluates segment performance based on a variety of measures including Segment Adjusted EBITDA, segment volumes, Segment Adjusted EBITDA per barrel and maintenance capital investment.

underlying activities in another period (or the reversal of such adjustments from a prior period), gains and losses on derivatives that are related to investing activities (such as the purchase of linefill) and inventory valuation adjustments, as applicable, (ii) long-term inventory costing adjustments, (iii) charges for obligations that are expected to be settled with the issuance of equity instruments, (iv) amounts related to deficiencies associated with minimum volume commitments, net of applicable amounts subsequently recognized into revenue and (v) other items that our CODM believes are integral to understanding our core segment operating performance.

See Note 21 to our Consolidated Financial Statements for a reconciliation of Segment Adjusted EBITDA to Net income attributable to PAGP.

We define Segment Adjusted EBITDA as revenues and equity earnings in unconsolidated entities less (a) purchases and related costs, (b) field operating costs and (c) segment general and administrative expenses, plus our proportionate share of the depreciation and amortization expense of unconsolidated entities, and further adjusted for certain selected items including (i) the mark-to-market of derivative instruments that are related to underlying activities in another period (or the reversal of such adjustments from a prior period), gains and losses on derivatives that are related to investing activities (such as the purchase of linefill) and inventory valuation adjustments, as applicable, (ii) long-term inventory costing adjustments, (iii) charges for obligations that are expected to be settled with the issuance of equity instruments, (iv) amounts related to deficiencies associated with minimum volume commitments, net of applicable amounts subsequently recognized into revenue and (v) other items that our CODM believes are integral to understanding our core segment operating performance.

See Note 21 to our Consolidated Financial Statements for a reconciliation of Segment Adjusted EBITDA to Net income/(loss) attributable to PAGP.

Our segment analysis involves an element of judgment relating to the allocations between segments.

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Revenues and expenses from our Canadian based subsidiaries, which use CAD as their functional currency, are translated at the prevailing average exchange rates for the month.

Index to Financial Statements

Transportation Segment

Our Transportation segment operations generally consist of fee-based activities associated with transporting crude oil and NGL on pipelines, gathering systems, trucks and barges.

Our Transportation segment operations generally consist of fee-based activities associated with transporting crude oil and NGL on pipelines, gathering systems and trucks.

The Transportation segment generates revenue through a combination of tariffs, pipeline capacity agreements and other transportation fees.

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(in millions, except per barrel data)

Year Ended December 31, 2019-2018 2018-2017

Year Ended December 31, Variance

2020 2019 $ %

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Depreciation and amortization of unconsolidated entities 71 61 10 16 %

(Gains)/losses from derivative activities — (1) — 1 ** (1) **

Losses from derivative activities, net of inventory valuation adjustments 1 — 1 **

Deficiencies under minimum volume commitments, net 71 (18) 89 **

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(in thousands of barrels per day) (4)

Year Ended December 31, 2019-2018 2018-2017

2019 2018 2017 Volumes % Volumes %

Year Ended December 31, Variance

2020 2019 Volumes %

Tariff activities volumes

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** Indicates that variance as a percentage is not meaningful.

Index to Financial Statements

(1) Revenues and costs and expenses include intersegment amounts.

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(5) Region includes volumes (attributable to our interest) from pipelines owned by unconsolidated entities.

The following is a discussion of items impacting Transportation segment operating results for the year ended December 31, 2019 compared to the year ended December 31, 2018.

For a discussion of the 2018-2017 comparative period, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Transportation Segment” included in our 2018 Annual Report on Form 10-K.

The following is a discussion of items impacting Transportation segment operating results for the periods indicated.

Revenues, Purchases and Related Costs, Equity Earnings in Unconsolidated Entities and Volumes.

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(in millions) Revenues Purchases and Related Costs Equity Earnings

Crude oil pipelines

Permian Basin region $ (104) $ (17) $ 31

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Central region (33) (2) (21)

Gulf Coast region 1 — (19)

Rocky Mountain region (5) — (24)

Western 11 — —

Canada region (26) — —

Other regions, trucking and pipeline loss allowance revenue 33 2 2

Other regions, NGL pipelines, trucking and pipeline loss allowance revenue (120) 34 2

Total variance $ (300) $ 15 $ (38)

Below is a discussion of the significant drivers impacting net revenues and equity earnings in unconsolidated entities for the comparative period presented:

• COVID-19 Impact.

The destruction of demand for refined products, and therefore crude oil, caused by COVID-19 created a supply and demand imbalance in the crude oil markets for a portion of 2020 in all of our operating regions.

This imbalance pushed crude oil prices to historically low levels, including negative values for at least one day in April 2020.

In turn, these factors caused U.S.

and Canadian producers to respond by quickly curtailing their crude oil production as well as their drilling and completion activities.

These actions led to a decline of onshore, lower 48 U.S.

oil production by approximately 1.4 million barrels of crude oil per day between February and May of 2020, according to the information provided by the EIA, and adversely impacted transportation volumes on our pipelines.

• Permian Basin region.

Total revenues, net of purchases and related costs, increased by approximately $192 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to higher volumes from increased production and our recently completed capital expansion projects.

These increases included (i) higher volumes on our gathering systems of approximately 321,000 barrels per day, (ii) higher volumes of approximately 391,000 barrels per day on our intra-basin pipelines and (iii) a volume increase of approximately 246,000 barrels per day on our long-haul pipelines, including our Sunrise II pipeline, which was placed into service in the fourth quarter of 2018, and the Cactus II pipeline, which was placed into service in the third quarter of 2019, as discussed below.

Equity earnings decreased in 2019 compared to 2018 primarily due to the sale of a 30% interest in BridgeTex Pipeline Company, LLC at the end of the third quarter of 2018, partially offset by equity earnings from our 65% interest in Cactus II pipeline, which was placed into service in the third quarter of 2019.

Revenues, net of purchases and related costs, (“net revenues”) decreased by $121 million for the year ended December 31, 2020 compared to the year ended December 31, 2019.

This decrease was primarily due to lower long-haul pipeline movements to Cushing, Oklahoma and Corpus Christi, Texas due to compressed regional basis differentials, as well as lower volumes on our intra-basin pipelines that feed our long-haul pipelines, partially offset by increased volumes on our gathering pipelines, almost half of which was attributable to the Felix Midstream system we acquired in February 2020.

Some shippers on the long-haul pipelines to Cushing and Corpus Christi have under-delivered relative to their minimum volume commitments;

however, the earnings related to these volume shortfalls will not be recognized until future periods when either the shortfall is made up or when the shipper’s make-up rights expire or it is determined that their ability to utilize the make-up right is remote.

Such deficiencies are reflected as an “Adjustment” in the table above as discussed further below under “— Adjustments:

Deficiencies under minimum volume commitments, net.

The increase in equity earnings over the comparative period was primarily from our 65% interest in the Cactus II pipeline, which was placed in service in August 2019, partially offset by lower equity earnings from our 20% interest in the BridgeTex pipeline primarily due to lower volumes.

Index to Financial Statements

• South Texas / Eagle Ford region.

Equity earnings from our 50% interest in Eagle Ford Pipeline LLC for 2019 compared to 2018 was favorably impacted by higher volumes and the recognition of revenue associated with deficiencies under minimum volume commitments.

The decrease in revenues for the year ended December 31, 2020 compared to the year ended December 31, 2019 was due to lower volumes, primarily related to lower production.

Equity earnings from our 50% interest in the Eagle Ford pipeline decreased for the year ended December 31, 2020 compared to the year ended December 31, 2019 due to a combination of lower joint tariff volumes from the Permian Basin via our Cactus I pipeline, and to a lesser extent, lower regional receipts.

Similar to some shippers in the Permian Basin region, certain shippers on the Eagle Ford pipeline have under-delivered relative to their minimum volume commitments and the earnings related to these volume shortfalls will not be recognized until future periods.

Such deficiencies are reflected as an “Adjustment” in the table above as discussed further below under “— Adjustments:

Deficiencies under minimum volume commitments, net.

• Central region.

The increase in revenues for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to higher volumes on certain of our pipelines in the Central region, including our Red River pipeline, and the recognition of previously deferred revenue in 2019 associated with deficiencies under minimum volume commitments.

• Gulf Coast region.

The decrease in volumes for the year ended December 31, 2019 compared to the year ended December 31, 2018 was associated with (i) the Capline pipeline being taken out of service in the fourth quarter of 2018 and (ii) a decrease in throughput on a lower tariff rate pipeline, which did not result in a significant impact on revenue.

In the first quarter of 2019, the owners of the Capline pipeline system contributed their undivided joint interests in the system for equity interests in a legal entity.

As a result, revenues and expenses from the Capline pipeline system that were previously consolidated are reflected as equity earnings.

The unfavorable equity earnings variance for the year ended December 31, 2019 compared to the year ended December 31, 2018 was due to our share of operating costs from our 54.13% interest in Capline Pipeline Company LLC reflected in equity earnings in the 2019 period, whereas such costs were reflected in field operating costs in the 2018 period.

In the third quarter of 2019, the owners of Capline Pipeline Company LLC sanctioned the reversal of the Capline pipeline system and a connection to Diamond Pipeline.

The decrease in net revenues for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a decrease in crude oil production in the region.

This is also a region with a meaningful amount of excess pipeline capacity, which exacerbates the impact to our assets in this region.

The decrease in equity earnings for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to the impact of refinery downtime on certain of the demand pull pipelines out of Cushing, Oklahoma, in which we own a 50% interest.

• Rocky Mountain region.

The decrease in revenues for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to the sale of one of our pipelines in the second quarter of 2018.

The favorable equity earnings variances for the year ended December 31, 2019 compared to the year ended December 31, 2018 were primarily driven by favorable results from our 40% interest in Saddlehorn Pipeline Company, LLC due to higher volumes from committed shippers, partially offset by a decrease from our 35.7% interest in White Cliffs Pipeline, LLC due to lower volumes as one crude oil line was taken out of service in May 2019 for conversion to NGL service.

• Western region.

The increase in revenues and volumes for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to higher volumes moved from our Bakersfield rail terminal into our area pipelines.

Equity earnings decreased for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to a combination of (i) lower crude oil volumes, partially offset by higher NGL volumes, (ii) lower tariff rates due to the expiration of certain long-term contracts and (iii) the sale of 25% of our interest in Saddlehorn in February 2020.

• Canada region.

The increase in revenues for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to higher tariffs on certain of our Canadian crude oil pipelines and related system assets, partially offset by unfavorable foreign exchange impacts.

• Other regions, trucking and pipeline loss allowance.

The increase in other revenues for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to greater pipeline loss allowance revenue in 2019 driven by higher volumes and, to a lesser extent, higher prices.

The decrease in revenues for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to decreased crude oil production in the areas serviced by our pipelines.

• Other regions, NGL pipelines, trucking and pipeline loss allowance revenue.

The decrease in other net revenues for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to lower pipeline loss allowance revenue due to a combination of both lower prices and volumes in 2020.

To a lesser extent, lower net revenues from our trucking activities due to less favorable market conditions in 2020 contributed to the decrease.

Additionally, volumes in our Gulf Coast region were impacted by a decrease in throughput on a lower tariff pipeline, which did not result in a significant impact on revenue.

Deficiencies under minimum volume commitments, net.

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We subsequently recognize the revenue, and record a corresponding reversal of the adjustment, at the earlier of when the deficiency volume is delivered or shipped, when the make-up right expires or when it is determined that the counterparty’s ability to utilize the make-up right is remote.

For the year ended December 31, 2019, the recognition of previously deferred revenue exceeded amounts billed to counterparties associated with deficiencies under minimum volume commitments.

For the year ended December 31, 2020, amounts billed to counterparties exceeded revenue recognized during the period that was previously deferred.

For the year ended December 31, 2019, the recognition of previously deferred revenue exceeded amounts billed to counterparties associated with deficiencies under minimum volume commitments.

Field Operating Costs.

The increase in field operating costs for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to the continued expansion of our Transportation segment operations including costs associated with personnel, power-related costs and property taxes.

The expansion activities included projects placed in service in the fourth quarter of 2018, including our Sunrise II pipeline expansion within the Permian Basin region.

Field operating costs were also impacted by an increase of estimated costs associated with the Line 901 incident (which impact our field operating costs but are excluded from Segment Adjusted EBITDA and thus are reflected as an “Adjustment” in the table above).

See Note 19 to our Consolidated Financial Statements for additional information regarding the Line 901 incident.

The increase in field operating costs was partially offset by the favorable impact of reflecting operating costs associated with the Capline pipeline system in equity earnings for the 2019 period that were included in field operating costs for the 2018 period, as discussed above.

The decrease in field operating costs for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to (i) a decrease in variable costs due to lower volumes, (ii) a decrease of maintenance activities, primarily due to timing changes, (iii) lower equity-based compensation costs on liability-classified awards (which are not included as an “Adjustment” in the table above) due to a decrease in our common unit price, (iv) reductions in compensation costs, primarily due to the benefit of wage subsidies received by our Canadian subsidiary and (v) additional estimated costs recognized in 2019 associated with the Line 901 incident (which impact field operating costs but are excluded from Segment Adjusted EBITDA and thus are reflected as an “Adjustment” in the table above).

Such favorable impacts were partially offset by higher property taxes attributable to assets placed in service in 2020 and increased property valuations.

Index to Financial Statements

Segment General and Administrative Expenses.

The decrease in segment general and administrative expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to a decrease in equity-indexed compensation expense due to fewer awards outstanding in 2019.

A portion of equity-indexed compensation expense was associated with awards that will or may be settled in PAA common units (which impact our general and administrative expenses but are excluded from Segment Adjusted EBITDA and thus are reflected as an “Adjustment” in the table above).

The decrease in segment general and administrative expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to (i) lower equity-based compensation costs on liability-classified awards (which are not included as an “Adjustment” in the table above), due to a decrease in our common unit price, (ii) decreased travel and entertainment costs and (iii) the benefit of wage subsidies received by our Canadian subsidiary.

Such items were partially offset by an overall increase in compensation costs related to severance costs associated with our efforts to streamline our organization.

Maintenance Capital.

Maintenance capital consists of capital expenditures for the replacement and/or refurbishment of partially or fully depreciated assets in order to maintain the operating and/or earnings capacity of our existing assets.

The increase in maintenance capital for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily due to pump replacement projects and enhancements to our gathering systems in the Permian Basin region, partially offset by lower costs due to the completion of several large integrity management projects.

The decrease in maintenance capital for the year ended December 31, 2020 compared to the year ended December 31, 2019 was due to timing changes, the completion of multi-year reliability improvement programs and application of updated regulatory guidance, among other factors.

Facilities Segment

Our Facilities segment operations generally consist of fee-based activities associated with providing storage, terminalling and throughput services primarily for crude oil, NGL and natural gas, as well as NGL fractionation and isomerization services and natural gas and condensate processing services.

The Facilities segment generates revenue through a combination of month-to-month and multi-year agreements and processing arrangements.

The Facilities segment generates revenue through a combination of month-to-month and multi-year agreements.

The following tables set forth our operating results from our Facilities segment:

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(in millions, except per barrel data)

Year Ended December 31, 2019-2018 2018-2017

Year Ended December 31, Variance

2020 2019 $ %

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(84) (83) (1) (1) %

Equity earnings in unconsolidated entities 5 — 5 N/A

Adjustments (3) :

Depreciation and amortization of unconsolidated entities

1 — — 1 ** — **

(Gains)/losses from derivative activities

Gains from derivative activities

(5) (13) 8 **

Deficiencies under minimum volume commitments, net

— (2) — 2 ** (2) **

Equity-indexed compensation expense

4 11 4 (7) ** 7 **

Segment Adjusted EBITDA

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$ 0.49 $ 0.47 $ 0.02 4 %

Year Ended December 31, 2019-2018 2018-2017

2019 2018 2017 Volumes % Volumes %

Year Ended December 31, Variance

2020 2019 Volumes %

Liquids storage (average monthly capacity in millions of barrels) (5)

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(1) Revenues and costs and expenses include intersegment amounts.

Index to Financial Statements

(2) Segment general and administrative expenses reflect direct costs attributable to each segment and an allocation of other expenses to the segments.

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(5) Includes volumes (attributable to our interest) from facilities owned by unconsolidated entities.

(6) Facilities segment total volumes is calculated as the sum of:

(6) Facilities segment total volumes are calculated as the sum of:

(i) liquids storage capacity;

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and (iii) NGL fractionation volumes multiplied by the number of days in the year and divided by the number of months in the year.

The following is a discussion of items impacting Facilities segment operating results for the year ended December 31, 2019 compared to the year ended December 31, 2018.

For a discussion of the 2018-2017 comparative period, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Facilities Segment” included in our 2018 Annual Report on Form 10-K.

The following is a discussion of items impacting Facilities segment operating results.

Revenues, Purchases and Related Costs and Volumes.

Variances in revenues, purchases and related costs, and average monthly volumes were primarily driven by:

• Crude Oil Storage.

Revenues increased by $11 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 due to increased activity at certain of our terminals and the addition of 1 million barrels of storage capacity at our Midland terminal placed into service during 2019.

• Natural Gas Storage.

Revenues, net of purchases and related costs, increased by $9 million for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to expiring contracts replaced by contracts with higher rates and increased hub activity.

• NGL Operations.

Revenues decreased by $7 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to a net unfavorable foreign exchange impact of $10 million and the sale of a natural gas processing facility in the second quarter of 2018, partially offset by higher fees at certain of our facilities.

Variances in revenues, purchases and related costs, and average monthly volumes were primarily driven by the following:

• Rail Terminals.

Revenues were relatively flat for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Revenues were favorably impacted by increased activity at certain of our terminals, as well as agreements that were entered into related to usage of our railcars.

These favorable impacts were substantially offset by the recognition of previously deferred revenue associated with deficiencies under minimum volume commitments in the 2018 period.

Revenues from our rail terminals decreased by $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to decreased activity at certain of our rail terminals resulting from less favorable market conditions, as well as lower volumes due to voluntary shut-ins and curtailments of crude oil production by producers.

• NGL Operations.

Revenues from our NGL operations decreased by $21 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to the sale of certain NGL terminals in the fourth quarter of 2019 and the second quarter of 2020, net unfavorable foreign exchange impacts of approximately $4 million and lower revenues from our NGL processing facilities.

Such unfavorable impacts were partially offset by the favorable impact of the receipt of a deficiency payment in 2020 of approximately $20 million upon the expiration of a multi-year contract.

• Natural Gas and Condensate Processing.

Net revenues from our U.S.

natural gas and condensate processing operations decreased by $11 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to the unfavorable impact of a $5 million payment to resolve a contractual dispute as well as a decrease in condensate processing volumes and rates.

• Crude Oil Storage.

Revenues from our crude oil storage operations increased by $33 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to the addition of an aggregate of approximately 3 million barrels of storage capacity at our Cushing, Oklahoma, St.

James, Louisiana and Midland, Texas terminals and increased activity at certain of our Mid-Continent terminals.

Additionally, the unfavorable impact on revenues from the sale of our Los Angeles Basin terminals in October 2020 was largely offset by increased spot activity at certain of these terminals during the first three quarters of 2020.

The increase in equity earnings over the comparative period was from our 50% interest in Eagle Ford Terminals, which owns a crude oil storage facility in Corpus Christi, Texas that was placed in service in September of 2019.

Field Operating Costs.

Field operating costs were relatively flat for the year ended December 31, 2019 compared to the year ended December 31, 2018, as increases in property taxes, maintenance and integrity management costs, as well as higher costs at our rail terminals due to increased activity, were offset by a decrease in power-related costs associated with mark-to-market gains (which impact our field operating costs but are excluded from Segment Adjusted EBITDA and thus are reflected as an “Adjustment” in the table above).

The decrease in field operating costs for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to (i) lower maintenance activities due to timing changes, (ii) reduced activity at our rail terminals and the divestiture of certain NGL terminals, (iii) reductions in compensation costs including the benefit of wage subsidies received by our Canadian subsidiary and (iv) lower property taxes.

Such favorable impacts were partially offset by lower mark-to-market gains in the current period on fuel hedges (which impacts field operating costs but are excluded from Segment Adjusted EBITDA and thus are reflected as an “Adjustment” in the table above).

Maintenance Capital.

For the year ended December 31, 2019 compared to the year ended December 31, 2018, maintenance capital spending decreased primarily due to the impact of lower turnaround costs at certain of our NGL facilities, partially offset by increased spending at our gas storage facilities.

The decrease in maintenance capital spending for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to timing changes, the impact of asset sales, the completion of multi-year reliability improvement programs and application of updated regulatory guidance, among other factors.

Index to Financial Statements

Supply and Logistics Segment

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(in millions, except per barrel data)

Year Ended December 31, 2019-2018 2018-2017

Year Ended December 31, Variance

2020 2019 $ %

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Adjustments (3) :

(Gains)/losses from derivative activities net of inventory valuation adjustments 173 (518) (50) 691 ** (468) **

Losses from derivative activities net of inventory valuation adjustments 484 173 311 **

Long-term inventory costing adjustments 44 (20) 64 **

Deficiencies under minimum volume commitments, net 1 — 1 **

Equity-indexed compensation expense 4 4 — **

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(in thousands of barrels per day)

Year Ended December 31, 2019-2018 2018-2017

2019 2018 2017 Volume % Volume %

Year Ended December 31, Variance

2020 2019 Volume %

Crude oil lease gathering purchases 1,174 1,162 12 1 %

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(4) Average daily volumes are calculated as the total volumes for the period divided by the number of days in the period.

Index to Financial Statements

The following table presents the range of the NYMEX West Texas Intermediate (“WTI”) benchmark price of crude oil (in dollars per barrel):

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2019 $ 46 $ 66

2017 $ 43 $ 60

Our crude oil and NGL supply, logistics and distribution operations are not directly affected by the absolute level of prices.

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Our NGL operations are sensitive to weather-related demand, particularly during the approximate five-month peak heating season of November through March, and temperature differences from period-to-period may have a significant effect on NGL demand and thus our financial performance.

During 2018 and 2019, crude oil production growth and limited pipeline take-away capacity caused pipelines in many basins to operate at high levels of utilization.

Specifically, regional production increases created concerns regarding pipeline take-away capacity, particularly in the Permian Basin and Western Canada, which in turn caused crude oil location differentials in these areas to widen relative to historical norms.

This environment created opportunities for our Supply and Logistics segment to generate additional margin.

Looking forward, we do not expect these opportunities for higher margins to continue for the foreseeable future.

Segment Adjusted EBITDA and Volumes.

The following summarizes the significant items impacting our Supply and Logistics Segment Adjusted EBITDA for the year ended December 31, 2019 compared to the year ended December 31, 2018.

For a discussion of the 2018-2017 comparative period, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Supply and Logistics Segment” included in our 2018 Annual Report on Form 10-K.

The following summarizes the significant items impacting our Supply and Logistics Segment Adjusted EBITDA:

• Crude Oil Operations.

Revenues, net of purchases and related costs, (“net revenues”) from our crude oil supply and logistics operations increased for the year ended December 31, 2019 compared to the year ended December 31, 2018 largely due to the realization of more favorable differentials, primarily in the Permian Basin and Canada.

Net revenues from our crude oil operations decreased for year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a combination of (i) less favorable crude oil differentials, particularly the differential between the value of crude oil in the Permian Basin compared to the Gulf Coast market and (ii) the impact of lower volumes in higher margin areas, partially offset by volume increases in lower margin areas.

Such unfavorable impacts were partially offset by the favorable impact of contango market conditions during the last three quarters of 2020.

• NGL Operations.

Net revenues from our NGL operations increased for the year ended December 31, 2019 compared to the same period in 2018 primarily due to the streamlining of our NGL activities by focusing on our equity supply from our gathering and processing facilities, favorable regional differentials and the favorable impact of certain non-recurring items recorded in the second quarter of 2019.

Net revenues from our NGL operations decreased for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to (i) warmer weather during the fourth quarter of 2020, (ii) weaker fractionation spreads between the price of natural gas and the extracted NGL, (iii) lower border flows through our straddle plants and (iv) the absence of the favorable impact from certain non-recurring items recorded in the second quarter of 2019.

• Impact from Certain Derivative Activities, Net of Inventory Valuation Adjustments.

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These non-cash gains and losses impact our net revenues but are excluded from Segment Adjusted EBITDA and thus are reflected as an “Adjustment” in the table above.

Index to Financial Statements

• Field Operating Costs.

The decrease in field operating costs for the year ended December 31, 2019 compared to the year ended December 31, 2018 was primarily driven by a decrease in lease expense for our crude oil transportation trucks and trailers related to the adoption of the new lease accounting standard and a decrease in trucking costs due to lower company-hauled volumes, partially offset by higher third-party hauled volumes in certain regions.

The decrease in field operating costs for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily driven by a decrease in long-haul third-party trucking costs and a decrease in company personnel and truck costs as more of our supply was connected to pipelines and taken off trucks.

• Segment General and Administrative Expenses.

Maintenance Capital.

For the year ended December 31, 2019 compared to the year ended December 31, 2018, maintenance capital spending increased primarily due to lease costs for our crude oil transportation trucks and trailers that are capitalized following the adoption of the new lease accounting standard.

The decrease in segment general and administrative expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily driven by (i) lower compensation costs including the benefit of wage subsidies received by our Canadian subsidiary, (ii) decreased travel and entertainment costs, (iii) a decrease in equity-based compensation costs on liability-classified awards (which are not included as an “Adjustment” in the table above) due to a decrease in our common unit price and (iv) general cost reductions associated with exiting low margin, high administrative cost businesses.

Other Income and Expenses

The following summarizes the significant items impacting Other Income and Expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018.

For a discussion of the 2018-2017 comparative period, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Other Income and Expenses” included in our 2018 Annual Report on Form 10-K.

Depreciation and Amortization

Depreciation and amortization expense increased for the year ended December 31, 2019 compared to the same period in 2018 largely driven by (i) additional depreciation expense associated with the completion of various capital expansion projects and (ii) an adjustment to the useful lives of certain assets.

Depreciation and amortization expense increased for the year ended December 31, 2020 compared to the year ended December 31, 2019 largely driven by additional depreciation expense associated with acquired assets, the completion of various investment capital projects and a reduction in the useful lives of certain assets.

Gains/Losses on Asset Sales and Asset Impairments, Net

The net loss on asset sales and asset impairments for the year ended December 31, 2020 included (i) non-cash impairment losses on held and used assets of approximately $541 million related to the write-down of (a) certain pipeline and other long-lived assets due to the current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both the decrease in demand caused by the COVID-19 pandemic and excess supply, as well as changing market conditions and expected lower crude oil production in certain regions, and (b) idled or underutilized assets for which is it has been determined that it is unlikely that opportunities will exist in the future to recover our investment in these assets and (ii) net losses of approximately $178 million related to the sale of assets, including non-cash impairments recognized upon classification to assets held for sale.

The net loss on asset sales and asset impairments for the year ended December 31, 2019 was largely driven by a loss on the sale of a storage terminal in North Dakota.

The net gain for the year ended December 31, 2018 was largely driven by a gain on the sale of certain pipelines in the Rocky Mountain region, partially offset by a loss on the sale of a non-core asset under construction.

Gain on Investment in Unconsolidated Entities

During the year ended December 31, 2019, we recognized a non-cash gain of $269 million related to a fair value adjustment resulting from the accounting for the contribution of our undivided joint interest in the Capline pipeline system for an equity interest in Capline Pipeline Company LLC.

During the year ended December 31, 2018, we recognized a gain of $200 million related to our sale of a 30% interest in BridgeTex Pipeline Company, LLC.

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

Goodwill Impairment Losses

During the first quarter of 2020, we recognized a goodwill impairment charge of $2.5 billion, representing the entire balance of goodwill.

See Note 8 to our Consolidated Financial Statements for additional information.

Gain on/(Impairment of) Investments in Unconsolidated Entities, Net

During the year ended December 31, 2020, we recognized losses of $202 million related to the write-down of certain of our investments in unconsolidated entities.

Additionally, we recognized a gain of $21 million related to our sale of a 10% interest in Saddlehorn Pipeline Company, LLC.

See Note 9 to our Consolidated Financial Statements for additional information regarding our unconsolidated entities.

Index to Financial Statements

Interest Expense

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$ 425 2.2 % 4.4 %

Impact of retirement of PAA senior notes (71)

Interest expense for the year ended December 31, 2018

$ 431 1.9 % 4.3 %

Impact of lower capitalized interest 10

Impact of borrowings under credit facilities and PAA commercial paper program 3

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(1) Excludes commitment and other fees.

Interest expense decreased for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to a lower weighted average debt balance during the 2019 period from lower commercial paper and credit facility borrowings, partially offset by the issuance of $1 billion, 3.55% senior notes in September 2019.

Interest expense increased for the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to (i) a higher weighted average debt balance during 2020 driven by higher commercial paper and credit facility borrowings and (ii) lower capitalized interest in the 2020 period resulting from fewer capital projects under construction, partially offset by (iii) the impact from lower weighted average rates.

See Note 11 to our Consolidated Financial Statements for additional information regarding our debt activities during the periods presented.

Other Income/(Expense), Net

Other Income, Net

The following table summarizes the components impacting Other income/(expense), net (in millions):

Year Ended December 31,

Gain/(loss) related to mark-to-market adjustment of our Preferred Distribution Rate Reset Option (1)

Net gain/(loss) on foreign currency revaluation 15 5

Gain related to mark-to-market adjustment of our Preferred Distribution Rate Reset Option (1)

Net gain on foreign currency revaluation (2)

(1) See Note 13 to our Consolidated Financial Statements for additional information.

Income Tax Expense

Income tax expense decreased for the year ended December 31, 2019 compared to the year ended December 31, 2018 primarily due to (i) lower deferred income tax expense associated with lower year-over-year income as impacted by fluctuations in the derivative mark-to-market valuations in our Canadian operations and (ii) the recognition of a deferred tax benefit of $60 million as a result of the reduction of the provincial tax rate in Alberta, Canada enacted during the second quarter of 2019.

Such favorable impacts were partially offset by higher current income tax expense resulting from higher taxable earnings from our Canadian operations and higher deferred income tax expense resulting from a change in PAGP’s effective tax rate in the first quarter of 2019.

Market Overview and Outlook

“Business and Properties—Global Petroleum Market Overview” for a discussion of recent crude oil market conditions, and see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Analysis of Operating Segments—Supply and Logistics Segment” for information on how these conditions may impact our business for the foreseeable future.

Outlook for Certain Idled and Underutilized Assets

During 2015, we shut down Line 901 and a portion of Line 903 in California following the release of crude oil from Line 901 (see Note 19 to our Consolidated Financial Statements for additional information).

During the period since these pipelines were idled, we have been assessing potential alternatives in order to return them to operation.

Some of the alternatives under consideration could result in incurring costs associated with retiring certain assets or an impairment of some or all of the carrying value of the idled property and equipment, which was approximately $119 million as of December 31, 2019.

(2) The activity during 2020 was primarily related to the impact from the change in the USD to CAD exchange rate on the portion of our intercompany net investment that is not long-term in nature.

Index to Financial Statements

Income Tax (Expense)/Benefit

The decrease in current income tax expense for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to lower taxable earnings from our Canadian operations.

The increase in the deferred income tax benefit for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to (i) the impact of lower earnings at PAA on income attributable to PAGP and (ii) lower year-over-year income as impacted by fluctuations in the derivative mark-to-market valuations in our Canadian operations, partially offset by the recognition of a deferred tax benefit of approximately $60 million during the second quarter of 2019 as a result of the reduction of the provincial tax rate in Alberta, Canada.

Liquidity and Capital Resources

On a consolidated basis, our primary sources of liquidity are (i) cash flow from operating activities as further discussed below in the section entitled “—Cash Flow from Operating Activities,” (ii) borrowings under PAA’s credit facilities or the PAA commercial paper program and (iii) funds received from sales of equity and debt securities.

In addition, we may supplement these sources of liquidity with proceeds from our divestiture program, as further discussed below in the section entitled “—Acquisitions, Investments, Expansion Capital Expenditures and Divestitures.” Our primary cash requirements include, but are not limited to, (i) ordinary course of business uses, such as the payment of amounts related to the purchase of crude oil, NGL and other products, other expenses and interest payments on outstanding debt, (ii) expansion and maintenance activities, (iii) acquisitions of assets or businesses, (iv) repayment of principal on long-term debt and (v) distributions to our Class A shareholders and noncontrolling interests.

We generally expect to fund our short-term cash requirements through cash flow generated from operating activities and/or borrowings under the PAA commercial paper program or PAA’s credit facilities.

In addition, we generally expect to fund our long-term needs, such as those resulting from expansion activities or acquisitions and refinancing long-term debt, through a variety of sources (either separately or in combination), which may include the sources mentioned above as funding for short-term needs and/or the issuance of additional equity or debt securities and the sale of assets.

Our primary sources of liquidity are (i) cash flow from operating activities (ii) borrowings under PAA’s credit facilities or commercial paper program and (iii) funds received from sales of equity and debt securities.

In addition, we may supplement these sources of liquidity with proceeds from our divestiture program.

Our primary cash requirements include, but are not limited to, (i) ordinary course of business uses, such as the payment of amounts related to the purchase of crude oil, NGL and other products, other expenses and interest payments on outstanding debt, (ii) investment and maintenance capital activities, (iii) acquisitions of assets or businesses, (iv) repayment of principal on long-term debt and (v) distributions to our Class A shareholders and noncontrolling interests.

In addition, we may use cash for repurchases of common equity.

We generally expect to fund our short-term cash requirements through cash flow generated from operating activities and/or borrowings under PAA’s commercial paper program or credit facilities.

In addition, we generally expect to fund our long-term needs, such as those resulting from investment capital activities or acquisitions and refinancing long-term debt, through a variety of sources (either separately or in combination), which may include the sources mentioned above as funding for short-term needs and/or the issuance of additional equity or debt securities and the sale of assets.

As of December 31, 2020, although we had a working capital deficit of $587 million, we had approximately $2.2 billion of liquidity available to meet our ongoing operating, investing and financing needs, subject to continued covenant compliance, as noted below (in millions):

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(2) Available capacity under the PAA senior unsecured revolving credit facility and the PAA senior secured hedged inventory facility was reduced by outstanding letters of credit of $93 million and $36 million, respectively.

We believe that we have, and will continue to have, the ability to access the PAA commercial paper program and credit facilities, which we use to meet our short-term cash needs.

We believe that our financial position remains strong and we have sufficient liquidity;

Index to Financial Statements

Usage of PAA’s credit facilities, which provide the financial backstop for PAA’s commercial paper program, is subject to ongoing compliance with covenants, as discussed further below.

PAA’s borrowing capacity and borrowing costs are also impacted by its credit rating.

“Risk Factors—Risks Related to PAA’s Business—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.”

Current macroeconomic and geopolitical conditions including the collapse of oil prices driven by both the decrease in demand caused by the COVID-19 pandemic and excess supply has caused liquidity issues impacting many energy companies;

however, we believe that we have, and will continue to have, the ability to access PAA’s commercial paper program and credit facilities, which we use to meet our short-term cash needs.

We believe that our financial position remains strong and we have sufficient liquid assets, cash flow from operating activities and borrowing capacity under PAA’s credit agreements to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures;

however, extended disruptions in the financial markets and/or energy price volatility that adversely affect our business may have a materially adverse effect on our financial condition, results of operations or cash flows.

In addition, usage of the PAA credit facilities, which provide the financial backstop for the PAA commercial paper program, is subject to ongoing compliance with covenants.

As of December 31, 2019, PAA was in compliance with all such covenants.

Also, see Item 1A.

“Risk Factors” for further discussion regarding such risks that may impact our liquidity and capital resources.

“Risk Factors” for further discussion regarding risks that may impact our liquidity and capital resources.

Credit Agreements, Commercial Paper Program and Indentures

PAA has three primary credit arrangements, which we use to meet our short-term cash needs.

These include PAA’s $1.6 billion senior unsecured revolving credit facility maturing in 2024, $1.4 billion senior secured hedged inventory facility maturing in 2022 (excluding aggregate commitments of $45 million, which mature in 2021) and $3.0 billion unsecured commercial paper program that is backstopped by PAA’s revolving credit facility and its hedged inventory facility.

Additionally, PAA has two $100 million term loans.

The credit agreements for PAA’s revolving credit facilities (which impact PAA’s ability to access its commercial paper program because they provide the financial backstop that supports PAA’s short-term credit ratings) and PAA’s term loans and the indentures governing its senior notes contain cross-default provisions.

A default under PAA’s credit agreements or indentures would permit the lenders to accelerate the maturity of the outstanding debt.

As long as PAA is in compliance with the provisions in its credit agreements, its ability to make distributions of available cash is not restricted.

PAA was in compliance with the covenants contained in its credit agreements and indentures as of December 31, 2020.

Cash Flow from Operating Activities

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Cash flow from operating activities can be materially impacted by the storage of crude oil in periods of a contango market, when the price of crude oil for future deliveries is higher than current prices.

In the month we pay for the stored crude oil, we borrow under the credit facilities or the PAA commercial paper program (or use cash on hand) to pay for the crude oil, which negatively impacts operating cash flow.

In the month we pay for the stored crude oil, we borrow under the PAA credit facilities or commercial paper program (or use cash on hand) to pay for the crude oil, which negatively impacts operating cash flow.

Conversely, cash flow from operating activities increases during the period in which we collect the cash from the sale of the stored crude oil.

Similarly, the level of NGL and other product inventory stored and held for resale at period end affects our cash flow from operating activities.

In periods when the market is not in contango, we typically sell our crude oil during the same month in which we purchase it and we do not rely on borrowings under the credit facilities or the PAA commercial paper program to pay for the crude oil.

In periods when the market is not in contango, we typically sell our crude oil during the same month in which we purchase it and we do not rely on borrowings under the PAA credit facilities or commercial paper program to pay for the crude oil.

During such market conditions, our accounts payable and accounts receivable generally move in tandem as we make payments and receive payments for the purchase and sale of crude oil in the same month, which is the month following such activity.

In periods during which we build inventory, regardless of market structure, we may rely on the credit facilities or the PAA commercial paper program to pay for the inventory.

In periods during which we build inventory, regardless of market structure, we may rely on the PAA credit facilities or commercial paper program to pay for the inventory.

In addition, we use derivative instruments to manage the risks associated with the purchase and sale of our commodities.

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Additionally, as discussed further below, changes during these periods in our inventory levels and associated margin balances required as part of our hedging activities impacted our cash flow from operating activities.

Index to Financial Statements

During 2020, we increased the volume of both our crude oil inventory to be stored during the contango market and our NGL inventory in anticipation of the 2020-2021 heating season as well as the margin balances required as part of our hedging activities, all of which was funded by short-term debt.

The cash outflows associated with these activities were partially offset by lower prices for inventory purchased and stored at the end of the current period compared to the end of 2019.

Cash provided by operating activities was favorably impacted by cash received for transactions for which the revenue has been deferred pending the completion of future performance obligations.

See Note 3 to our Consolidated Financial Statements for additional information.

During 2019, our cash provided by operating activities was positively impacted by the proceeds from the sale of NGL and crude oil inventory that we held and also by the lower weighted average price of NGL inventory compared to prior year amounts.

During 2018, our cash provided by operating activities was favorably impacted by approximately $250 million of cash received for transactions for which the revenue has been deferred pending the completion of future performance obligations.

See Note 3 to our Consolidated Financial Statements for additional information.

The favorable impact was partially offset by an increase in the volume of crude oil inventory that we held, which was funded from earnings from our operations and proceeds from asset sales.

During 2017, net cash provided by operating activities was positively impacted by decreases in (i) the volume of crude oil inventory that we held and (ii) the margin balances required as part of our hedging activities, both of which had been funded by short-term debt.

This was consistent with our plan to reduce our hedged inventory volumes, and the cash inflows associated

with these items resulted in a favorable impact on our cash provided by operating activities.

However, the favorable effects from such activities were partially offset by higher weighted average prices and volumes for NGL inventory that was purchased and stored at the end of the 2017 period in anticipation of the 2017-2018 heating season.

Acquisitions, Investments, Expansion Capital Expenditures and Divestitures

In addition to our operating needs discussed above, on a consolidated basis, we also use cash for our acquisition activities and expansion capital projects and maintenance capital activities.

Historically, we have financed these expenditures primarily with cash generated by operating activities and the financing activities discussed in “—Equity and Debt Financing Activities” below.

Investing Activities

In addition to our operating needs discussed above, we also use cash for our investment capital projects, maintenance capital activities and acquisition activities.

Historically, we have financed these expenditures primarily with cash generated by operating activities discussed in “—Cash Flow from Operating Activities” above and the financing activities discussed in “—Financing Activities” below.

In recent years, we have also used proceeds from our divestiture program, as discussed further below.

We have made and will continue to make capital expenditures for acquisitions, expansion capital projects and maintenance activities.

We have made and will continue to make capital expenditures for investment capital projects, maintenance activities and acquisitions.

However, in the near term, we do not plan to issue common equity to fund such activities.

Also see “—Acquisitions, Capital Projects and Divestitures” for further discussion of such capital expenditures.

Acquisitions.

The price of acquisitions includes cash paid, assumed liabilities and net working capital items.

Because of the non-cash items included in the total price of the acquisition and the timing of certain cash payments, the net cash paid may differ significantly from the total price of the acquisitions completed during the year.

During the years ended December 31, 2019 and 2017, we paid cash of $50 million and $1.280 billion (net of cash acquired of $4 million), respectively, for acquisitions.

We did not acquire any assets in 2018.

Over the last several years, we have increased our JV related activities with long-term partners throughout the industry value chain.

The vast majority of our joint ventures are accounted for as investments in unconsolidated subsidiaries.

We generally fund our portion of development, construction or capital expansion projects of our equity method investees through capital contributions.

See Note 9 to our Consolidated Financial Statements for additional information regarding our investments in unconsolidated entities.

During the years ended December 31, 2019, 2018 and 2017, we made cash contributions of $504 million, $459 million and $398 million, respectively, to certain of our equity method investees.

We anticipate that we will make additional contributions in 2020 associated with ongoing projects for construction and/or expansion projects related to our interests in Wink to Webster, Red Oak, Cactus II, Capline, Diamond and Saddlehorn joint venture pipelines.

Divestitures .

We have initiated a program to evaluate potential sales of non-core assets and/or sales of partial interests in assets to strategic joint venture partners.

During the years ended December 31, 2019, 2018 and 2017, we received proceeds of $205 million, $1.3 billion and $1.1 billion, respectively from sales of assets.

See Note 7 to our Consolidated Financial Statements for additional information.

Proceeds received during 2019 include $128 million received for a 33% interest in the newly formed joint venture Red River Pipeline Company LLC.

See Note 12 to our Consolidated Financial Statements for additional information.

We intend to continue these efforts in 2020.

Ongoing Acquisition and Divestiture Activities.

In January 2020, we acquired a crude oil gathering system and related assets in the Delaware Basin for approximately $305 million.

In addition, in the first quarter of 2020, we completed and/or entered into definitive agreements for asset sales of approximately $273 million.

See Note 7 to our Consolidated Financial Statements for additional information.

2020 Capital Projects.

The majority of our 2020 expansion capital program will be invested in our fee-based Transportation and Facilities segments.

Capital Expenditures

The following table summarizes our expenditures for acquisition capital, investment capital and maintenance capital (in millions):

Year Ended December 31,

2020 2019 2018

Investment capital (1) (2) (3)

$ 921 $ 1,340 $ 1,888

Maintenance capital (1)

Acquisition capital (4)

$ 1,447 $ 1,677 $ 2,140

(1) Capital expenditures made to expand the existing operating and/or earnings capacity of our assets are classified as “Investment capital.” Capital expenditures for the replacement and/or refurbishment of partially or fully depreciated assets in order to maintain the operating and/or earnings capacity of our existing assets are classified as “Maintenance capital.”

(2) “Investment capital” was previously termed “expansion capital.” We consider the term “investment capital” to be more descriptive.

(3) Includes contributions to unconsolidated entities, accounted for under the equity method of accounting, related to investment capital projects by such entities.

(4) Acquisition capital for 2020 primarily includes a crude oil gathering system located in the Delaware Basin.

Index to Financial Statements

Investment Capital Projects

Our investment capital programs consist of investments in midstream infrastructure projects that build upon our core assets and operations.

For the years presented, substantially all of the investment capital was invested in our fee-based Transportation and Facilities segments.

The majority of this investment capital consists of highly-contracted projects that complement our broader system capabilities and support the long-term needs of the upstream and downstream sectors of the industry value chain.

The following table summarizes our investment in capital projects (in millions):

Year Ended December 31,

Projects 2020 2019 2018

Permian Basin Takeaway Pipeline Projects (1) (2)

$ 292 $ 440 $ 880

Complementary Permian Basin Projects (1)

Long-Haul Pipeline Projects (Non-Permian) (1)

Selected Facilities/Downstream Projects (3)

Other Projects 119 206 255

Total $ 921 $ 1,340 $ 1,888

(1) These projects will continue into 2021.

See “—2021 Investment Capital Projects below.”

(2) Represents pipeline projects with takeaway capacity out of the Permian Basin, including (i) our 16% interest in Wink to Webster Pipeline and (ii) our 65% interest in the Cactus II Pipeline.

(3) Includes projects at our St.

James and Cushing terminals.

2021 Investment Capital Projects.

In April 2020, in response to the current dynamic and uncertain market conditions, we announced our plan to significantly reduce and continue to challenge our capital program.

The majority of our 2021 investment capital program will be invested in our fee-based Transportation and Facilities segments.

We expect that our investments will have minimal contributions to our 2021 results, but will provide growth for 2022 and beyond.

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Projects 2021

Long-Haul Pipeline Projects $ 450

Permian Basin Takeaway Pipeline Projects $ 140

Long-Haul Pipeline Projects (Non-Permian) 115

Complementary Permian Basin Projects 85

Selected Facilities Projects 80

Selected Facilities/Downstream Projects 50

Other Projects 35

Total Projected 2020 Expansion Capital Expenditures $ 1,400

Credit Agreements, Commercial Paper Program and Indentures

At December 31, 2019, PAA had three primary credit arrangements.

These include a $1.6 billion senior unsecured revolving credit facility maturing in 2024, a $1.4 billion senior secured hedged inventory facility maturing in 2022 (excluding aggregate commitments of $45 million, which mature in 2021) and a $3.0 billion unsecured commercial paper program that is backstopped by its revolving credit facility and its hedged inventory facility.

Additionally, PAA has two $100 million GO Zone term loans as discussed further below.

The credit agreements for PAA’s revolving credit facilities (which impact its ability to access its commercial paper program because they provide the financial backstop that supports our short-term credit ratings) and its term loans and the indentures governing its senior notes contain cross-default provisions.

A default under PAA’s credit agreements or indentures would permit the lenders to accelerate the maturity of the outstanding debt.

As long as PAA is in compliance with the provisions in its credit agreements, PAA’s ability to make distributions of available cash is not restricted.

PAA was in compliance with the covenants contained in its credit agreements and indentures as of December 31, 2019.

In August 2018, PAA entered into an agreement for two $100 million GO Zone term loans from the remarketing of its GO Bonds.

The GO Zone term loans accrue interest in accordance with the interest payable on the related GO Bonds as provided in the GO Bonds Indenture pursuant to which such GO Bonds are issued and governed.

The purchasers of the two GO Zone term loans have the right to put, at par, the GO Zone term loans in July 2023.

The GO Bonds mature by their terms in May 2032 and August 2035, respectively.

See Note 11 to our Consolidated Financial Statements for additional information.

During the year ended December 31, 2019, we had net borrowings under the credit facilities and PAA commercial paper program of $418 million.

Total Projected 2021 Investment Capital $ 425

We continue to evaluate potential sales of non-core assets and/or sales of partial interests in assets to strategic joint venture partners.

The following table summarizes the proceeds received for sales of such assets, which were previously reported in our Transportation and Facilities segments:

Year Ended December 31,

2020 2019 2018

Proceeds from divestitures (1)

$ 451 $ 205 $ 1,334

(1) Includes proceeds from (i) a multi-year supply agreement related to the sale of certain NGL terminals in April 2020 and (ii) our formation of Red River Pipeline Company LLC in May 2019.

See Note 7 and Note 12 to our Consolidated Financial Statements for additional information.

Index to Financial Statements

Proceeds from asset sales were used to fund our investment capital projects and reduce debt levels.

See Note 7 to our Consolidated Financial Statements for additional detail regarding our divestiture transactions.

Ongoing Activities Related to Strategic Transactions

We are continuously engaged in the evaluation of potential transactions that support our current business strategy.

While in the past such transactions have included acquisitions and large capital projects, consistent with our current strategic focus on capital discipline, leverage reduction, portfolio optimization and free cash flow generation, we are currently primarily focused on evaluating whether we should (i) sell assets that we regard as non-core or that we believe might be a better fit with the business and/or assets of a third-party buyer or (ii) sell partial interests in assets to strategic joint venture partners, in each case to optimize our asset portfolio and strengthen our balance sheet and leverage metrics.

With respect to a potential divestiture, we may also conduct an auction process or may negotiate a transaction with one or a limited number of potential buyers.

Such transactions could involve assets that, if sold or put into a joint venture or joint ownership arrangement, could have a material effect on our financial condition and results of operations.

We typically do not announce a transaction until after we have executed a definitive agreement.

However, in certain cases in order to protect our business interests or for other reasons, we may defer public announcement of a transaction until closing or a later date.

Past experience has demonstrated that discussions and negotiations regarding a potential transaction can advance or terminate in a short period of time.

Moreover, the closing of any transaction for which we have entered into a definitive agreement may be subject to customary and other closing conditions, which may not ultimately be satisfied or waived.

Accordingly, we can give no assurance that our current or future efforts with respect to any such transactions will be successful, and we can provide no assurance that our financial expectations with respect to such transactions will ultimately be realized.

“Risk Factors—Risks Related to PAA’s Business—Divestitures, joint ventures, joint ownership arrangements and acquisitions involve risks that may adversely affect PAA’s business.”

Financing Activities

Our financing activities primarily relate to funding investment capital projects, acquisitions and refinancing of debt maturities, as well as short-term working capital (including borrowings for NYMEX and ICE margin deposits) and hedged inventory borrowings related to our NGL business and contango market activities.

Borrowings and Repayments Under Credit Arrangements

During the year ended December 31, 2020, we had net borrowings under the PAA credit facilities and commercial paper program of $296 million.

The net borrowings resulted primarily from borrowings during the period related to funding needs for inventory purchases and general partnership purposes.

During the year ended December 31, 2019, we had net borrowings under the PAA credit facilities and commercial paper program of $418 million.

The net borrowings resulted primarily from borrowings during the period related to funding needs for general partnership purposes.

During the year ended December 31, 2018, we had net repayments on the credit facilities and PAA commercial paper program of $901 million.

During the year ended December 31, 2018, we had net repayments on the PAA credit facilities and commercial paper program of $901 million.

The net repayments resulted primarily from cash flow from operating activities and proceeds from asset sales, which offset borrowings during the period related to funding needs for capital investments, inventory purchases and other general partnership purposes.

During the year ended December 31, 2017, we had net repayments on the credit facilities and PAA commercial paper program of $654 million.

The net repayments resulted primarily from cash flow from operating activities and cash received from PAA’s equity activities and asset divestitures, which offset borrowings during the period related to funding needs for (i) acquisition and capital investments, (ii) repayment of PAA’s $400 million, 6.13% senior notes in January 2017, (iii) repayment of PAA’s $600 million, 6.50% senior notes and $350 million, 8.75% senior notes in December 2017 and (iv) other general partnership purposes.

Equity and Debt Financing Activities

On a consolidated basis, our financing activities primarily relate to funding expansion capital projects, acquisitions and refinancing of debt maturities, as well as short-term working capital (including borrowings for NYMEX and ICE margin deposits) and hedged inventory borrowings related to our NGL business and contango market activities.

Our financing activities have primarily consisted of PAA equity offerings, PAA senior notes offerings and borrowings and repayments under the credit facilities or the PAA commercial paper program and other debt agreements, as well as payment of distributions to our Class A shareholders and noncontrolling interests.

PAGP Registration Statements.

We have filed with the SEC a shelf registration statement that, subject to effectiveness at the time of use, allows us to issue up to an aggregate of $939 million of equity securities (“PAGP Traditional Shelf”).

Our issuances of equity securities associated with our continuous offering program have been issued pursuant to the PAGP Traditional Shelf.

We did not conduct any offerings under the PAGP Traditional Shelf during the years ended December 31, 2019 or 2018.

At December 31, 2019, we had approximately $939 million of unsold securities available under the PAGP Traditional Shelf.

We also have access to a universal shelf registration statement (“PAGP WKSI Shelf”), which provides us with the ability to offer and sell an unlimited amount of equity securities, subject to market conditions and capital needs.

Our 2017 underwritten equity offering was conducted under the PAGP WKSI Shelf.

Sales of Class A Shares .

We did not sell any Class A shares during the years ended December 31, 2019 or 2018.

During the year ended December 31, 2017, we sold approximately 50.1 million Class A shares for proceeds of approximately $1.5 billion, which, pursuant to the Omnibus Agreement, were used to purchase from AAP a number of AAP units equal to the number of Class A shares sold.

Also pursuant to the Omnibus Agreement, immediately following such purchase and sale, AAP used the net proceeds it received from such sale of AAP units to us to purchase from PAA an equivalent number of common

units of PAA.

See Note 12 to our Consolidated Financial Statements for additional information related to these sales of Class A shares and Note 17 for information regarding the Omnibus Agreement.

PAA Registration Statements .

PAA periodically accesses the capital markets for both equity and debt financing.

PAA has filed with the SEC a universal shelf registration statement that, subject to effectiveness at the time of use, allows PAA to issue up to an aggregate of $1.1 billion of debt or equity securities (“PAA Traditional Shelf”).

All issuances of PAA equity securities associated with PAA’s continuous offering program have been issued pursuant to the PAA Traditional Shelf.

PAA did not conduct any offerings under the PAA Traditional Shelf during the years ended December 31, 2019 or 2018.

At December 31, 2019, PAA had approximately $1.1 billion of unsold securities available under the PAA Traditional Shelf.

PAA also has access to a universal shelf registration statement (“PAA WKSI Shelf”), which provides it with the ability to offer and sell an unlimited amount of debt and equity securities, subject to market conditions and capital needs.

The issuance of PAA’s $1.0 billion, 3.55% senior notes in September 2019 and PAA’s Series B preferred units in October 2017, as discussed further below, were conducted under the PAA WKSI Shelf.

PAA Preferred Units .

On October 10, 2017, PAA issued 800,000 Series B preferred units at a price to the public of $1,000 per unit.

PAA used the net proceeds of $788 million, after deducting the underwriters’ discounts and offering expenses, from the issuance of the Series B preferred units to repay amounts outstanding under its credit facilities and commercial paper program and for general partnership purposes, including expenditures for our capital program.

See “Distributions to Noncontrolling Interests” below and Note 12 to our Consolidated Financial Statements for additional information regarding PAA’s Series B preferred units.

While PAA’s Series A and Series B preferred units are considered equity securities and are classified within partners’ capital on our Consolidated Balance Sheet, the two out of the three rating agencies that rate PAA as investment grade only ascribe 50% equity credit with the remaining 50% considered debt for purposes of determining PAA’s credit ratings.

The remaining rating agency ascribes 100% equity credit while PAA is rated below investment grade, but will change its approach to 50% equity credit and 50% debt if the rating agency changes PAA’s rating to investment grade.

PAA Common Units .

PAA did not sell any common units during the years ended December 31, 2019 or 2018.

During the year ended December 31, 2017, PAA sold approximately 4.0 million common units under its Continuous Offering Program for proceeds of approximately $129 million, which were used for general partnership purposes.

During the year ended December 31, 2017, pursuant to the Omnibus Agreement, PAA sold (i) approximately 1.8 million common units to AAP in connection with our issuance of Class A shares under our Continuous Offering Program and (ii) 48.3 million common units to AAP in connection with our March 2017 underwritten offering.

In August 2018, PAA entered into an agreement for two $100 million term loans from the remarketing of its two $100 million bonds.

The purchasers of the two term loans have the right to put, at par, the term loans in July 2023.

The bonds mature by their terms in May 2032 and August 2035, respectively.

See Note 11 to our Consolidated Financial Statements for additional information.

Index to Financial Statements

Issuances of PAA Senior Notes.

PAA did not issue any senior unsecured notes during the years ended December 31, 2018 or 2017.

During 2019, PAA issued senior unsecured notes as summarized in the table below (in millions):

During 2020 and 2019, PAA issued senior unsecured notes as summarized in the table below (in millions):

Year Description Maturity Face Value Gross

2020 3.80% Senior Notes issued at 99.794% of face value September 2030 $ 750 $ 748 $ 742 (3)

2019 3.55% Senior Notes issued at 99.801% of face value December 2029 $ 1,000 $ 998 $ 989 (4)

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(2) Face value of notes less the applicable premium or discount, initial purchaser discounts, commissions and offering expenses.

The net proceeds from the offering were used to partially repay the principal amounts of PAA’s 2.60% senior notes due December 2019 and 5.75% senior notes due January 2020 and for general partnership purposes.

(3) PAA used the net proceeds from the offering to repay the principal amounts of its 5.00% senior notes due February 2021.

(4) PAA used the net proceeds from the offering to partially repay the principal amounts of its 2.60% senior notes due December 2019 and 5.75% senior notes due January 2020 and for general partnership purposes.

Repayments of PAA Senior Notes.

PAA did not repay any senior unsecured notes during 2018.

During 2019 and 2017, PAA repaid the following senior unsecured notes (in millions):

During 2020 and 2019, PAA repaid the following senior unsecured notes in full (in millions):

Year Description Repayment Date

2020 $600 million 5.00% Senior Notes due February 2021 November 2020 (1)

2019 $500 million 2.60% Senior Notes due December 2019 November 2019 (2)

2019 $500 million 5.75% Senior Notes due January 2020 December 2019 (2)

2017 $400 million 6.13% Senior Notes due January 2017 January 2017 (2)

2017 $600 million 6.50% Senior Notes due May 2018 December 2017 (2) (3)

2017 $350 million 8.75% Senior Notes due May 2019 December 2017 (2) (3)

(1) These senior notes were repaid with proceeds from PAA’s 3.55% senior notes issued in September 2019 and cash on hand.

(2) These senior notes were repaid with cash on hand and proceeds from borrowings under the PAA credit facilities and commercial paper program.

(3) In conjunction with the early redemptions of these PAA senior notes, we recognized a loss of approximately $40 million, recorded to “Other income/(expense), net” in our Consolidated Statement of Operations.

(1) PAA repaid these senior notes with proceeds from its 3.80% senior notes issued in June 2020 and cash on hand.

(2) PAA repaid these senior notes with proceeds from its 3.55% senior notes issued in September 2019 and cash on hand.

Additionally, during the year ended December 31, 2020, PAA repurchased $17 million of its outstanding senior notes on the open market and recognized a gain of $3 million on these transactions.

Registration Statements

PAGP Registration Statements.

At December 31, 2020, we had approximately $939 million of unsold securities available under the PAGP Traditional Shelf.

We did not conduct any offerings under the PAGP Traditional Shelf or PAGP WKSI Shelf during the years ended December 31, 2020, 2019 or 2018.

PAA Registration Statements .

PAA periodically accesses the capital markets for both equity and debt financing.

PAA did not conduct any offerings under the PAA Traditional Shelf during the years ended December 31, 2020, 2019 or 2018.

At December 31, 2020, PAA had approximately $1.1 billion of unsold securities available under the PAA Traditional Shelf.

PAA also has access to a universal shelf registration statement (“PAA WKSI Shelf”), which provides it with the ability to offer and sell an unlimited

Index to Financial Statements

amount of debt and equity securities, subject to market conditions and capital needs.

The offering of PAA’s $750 million, 3.80% senior notes in June 2020 was conducted under the PAA WKSI Shelf.

Common Equity Repurchase Program

In November 2020, the board of directors of our general partner approved a $500 million common equity repurchase program (the “Program”) to be utilized as an additional method of returning capital to investors.

The Program authorizes the repurchase from time to time of up to $500 million of PAA’s common units and/or our Class A shares via open market purchases or negotiated transactions conducted in accordance with applicable regulatory requirements.

Ultimately, the amount, timing and pace of potential repurchase activity will be determined by a number of factors, including market conditions, PAA’s financial performance and flexibility, PAA’s actual and expected Free Cash Flow after distributions, the absolute and relative equity prices of PAA’s common units and our Class A shares, and the extent to which PAA is positioned to achieve and maintain its targeted leverage ratio.

No time limit has been set for completion of the Program, and the Program may be suspended or discontinued at any time.

The Program does not obligate PAA or us to acquire a particular number of common units or Class A shares.

Any PAA common units or Class A shares that are repurchased will be canceled.

PAA repurchased 6.2 million common units under the Program through open market purchases that settled during the year ended December 31, 2020.

The total purchase price of these repurchases was $50 million, including commissions and fees.

The remaining available capacity under the Program as of December 31, 2020 was $450 million.

Additionally, PAA repurchased 350,000 common units under the Program for $3 million through open market purchases at the end of December 2020 that settled in January 2021.

Distributions to Our Class A Shareholders

We distribute 100% of our available cash within 55 days following the end of each quarter to Class A shareholders of record.

We distribute 100% of our available cash to our Class A shareholders of record within 55 days following the end of each quarter.

Available cash is generally defined as all of our cash and cash equivalents on hand at the end of each quarter less reserves established in the discretion of our general partner for future requirements.

Our levels of financial reserves are established by our general partner and include reserves for the proper conduct of our business (including future capital expenditures and anticipated credit needs), compliance with law or contractual obligations and funding of future distributions to our shareholders.

On February 14, 2020, we paid a quarterly distribution of $0.36 per Class A share ($1.44 per Class A share on an annualized basis) to shareholders of record as of January 31, 2020.

“Market for Registrant’s Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities—Cash Distribution Policy” for additional discussion regarding available cash and distributions.

In response to the challenging near-term market conditions, we took steps to further strengthen our balance sheet, liquidity and long-term financial flexibility.

In this regard, beginning with the May 2020 distribution, PAA’s distribution per common unit and our distribution per Class A share were reduced by 50% versus the distributions paid in February 2020, which reflects a reduction of $525 million on an annualized basis.

See “—Executive Summary—Recent Events and Outlook” for further discussion.

On February 12, 2021, we paid a quarterly distribution of $0.18 per Class A share ($0.72 per Class A share on an annualized basis).

See Note 12 to our Consolidated Financial Statements for details of distributions paid during the three years ended December 31, 2020.

Also, see Item 5.

“Market for Registrant’s Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities—Cash Distribution Policy” for additional discussion regarding distributions.

Distributions to Noncontrolling Interests

Distributions to noncontrolling interests represent amounts paid on interests in consolidated entities that are not owned by us.

As of December 31, 2019, noncontrolling interests in our subsidiaries consisted of (i) limited partner interests in PAA including a 69% interest in PAA’s common units and PAA’s Series A preferred units combined and 100% of PAA’s Series B preferred units and (ii) an approximate 27% limited partner interest in AAP.

As of December 31, 2020, noncontrolling interests in our subsidiaries consisted of (i) limited partner interests in PAA including a 69% interest in PAA’s common units and PAA’s Series A preferred units combined and 100% of PAA’s Series B preferred units, (ii) an approximate 21% limited partner interest in AAP and (iii) a 33% interest in Red River Pipeline Company LLC.

Distributions to PAA’s Series A preferred unitholders.

Holders of PAA’s Series A preferred units are entitled to receive quarterly distributions, subject to customary anti-dilution adjustments, of $0.525 per unit ($2.10 per unit annualized), which commenced with the quarter ending March 31, 2016.

With respect to each quarter ending on or prior to December 31, 2017, PAA elected to pay distributions on its Series A preferred units in additional Series A preferred units.

Beginning with the distribution with respect to the quarter ended March 31, 2018, distributions on PAA’s Series A preferred units are paid in cash.

Holders of PAA’s Series A preferred units are entitled to receive quarterly distributions, subject to customary anti-dilution adjustments, of $0.525 per unit ($2.10 per unit annualized).

Subject to certain limitations, following January 28, 2021, the holders of PAA’s Series A preferred units may make a one-time election to reset the distribution rate.

See Note 12 to our Consolidated Financial Statements for additional information.

Index to Financial Statements

Distributions to PAA’s Series B preferred unitholders.

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Distributions to PAA’s common unitholders.

On February 14, 2020, PAA paid a quarterly distribution of $0.36 per common unit ($1.44 per unit on an annualized basis).

The total distribution of $262 million was paid to unitholders of record as of January 31, 2020, with respect to the quarter ending December 31, 2019.

We believe that we have sufficient liquid assets, cash flow from operating activities and borrowing capacity under the credit agreements to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures.

We are, however, subject to business and operational risks that could adversely affect our cash flow.

A prolonged material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity.

On February 12, 2021, PAA paid a quarterly distribution of $0.18 per common unit ($0.72 per common unit on an annualized basis).

See Note 12 to our Consolidated Financial Statements for details of distributions paid during the three years ended December 31, 2020.

Contingencies

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Contractual Obligations.

In the ordinary course of doing business, we purchase crude oil and NGL from third parties under contracts, the majority of which range in term from thirty-day evergreen to five years, with a limited number of contracts with remaining terms extending up to ten years.

We establish a margin for these purchases by entering into various types of physical and financial sale and exchange transactions through which we seek to maintain a position that is substantially balanced between purchases on the one hand and sales and future delivery obligations on the other.

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The following table includes our best estimate of the amount and timing of these payments as well as other amounts due under the specified contractual obligations as of December 31, 2020 (in millions):

2020 2021 2022 2023 2024 2025 and Thereafter Total

2021 2022 2023 2024 2025 Thereafter Total

Long-term debt and related interest payments (1)

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Total $ 12,621 $ 12,004 $ 11,707 $ 10,462 $ 9,110 $ 36,420 $ 92,324

(1) Includes debt service payments, interest payments due on PAA’s senior notes and the commitment fee on assumed available capacity under the PAA credit facilities, as well as long-term borrowings under the credit agreements and the PAA commercial paper program, if any.

Although there may be short-term borrowings under the PAA credit agreements and the PAA commercial paper program, we historically repay and borrow at varying amounts.

As such, we have included only the maximum commitment fee (as if no short-term borrowings were outstanding on the PAA credit agreements or the PAA commercial paper program) in the amounts above.

(1) Includes debt service payments, interest payments due on PAA’s senior notes and the commitment fee on assumed available capacity under the PAA credit facilities, as well as long-term borrowings under PAA’s credit agreements and commercial paper program, if any.

Although there may be short-term borrowings under PAA’s credit agreements and commercial paper program, we historically repay and borrow at varying amounts.

As such, we have included only the maximum commitment fee (as if no short-term borrowings were outstanding on PAA’s credit agreements or commercial paper program) in the amounts above.

For additional information regarding our debt obligations, see Note 11 to our Consolidated Financial Statements.

(2) Includes both operating and finance leases as defined by FASB guidance.

Leases are primarily for (i) railcars, (ii) office space, (iii) land, (iv) vehicles, (v) storage tanks and (vi) tractor trailers.

Leases are primarily for (i) railcars, (ii) land, (iii) office space, (iv) storage tanks, (v) tractor trailers and (vi) vehicles.

See Note 14 to our Consolidated Financial Statements for additional information.

(3) Includes (i) other long-term liabilities, (ii) storage, processing and transportation agreements (including certain agreements for which the amount and timing of expected payments is subject to the completion of underlying construction projects), (iii) certain rights-of-way easements and (iv) noncancelable commitments related to our capital expansion projects, including projected contributions for our share of the capital spending of our equity method investments.

The storage, processing and transportation agreements include approximately $1.8 billion associated with agreements to store, process and transport crude oil at posted tariff rates on pipelines or at facilities that are owned by equity method investees.

Index to Financial Statements

(3) Includes (i) other long-term liabilities, (ii) storage, processing and transportation agreements (including certain agreements for which the amount and timing of expected payments is subject to the completion of underlying construction projects), (iii) certain rights-of-way easements and (iv) noncancelable commitments related to our investment capital projects, including projected contributions for our share of the capital spending of our equity method investments.

The storage, processing and transportation agreements include approximately $2.0 billion associated with agreements to store crude oil at facilities and transport crude oil on pipelines owned by equity method investees at posted tariff rates or prices that we believe approximate market.

A portion of our commitment to transport is supported by crude oil buy/sell or other agreements with third parties with commensurate quantities.

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Assets Total Cash

Advantage Pipeline Holdings LLC Crude Oil Pipeline 50% $ 153 $ 11 $ —

BridgeTex Pipeline Company, LLC Crude Oil Pipeline 20% $ 856 $ 35 $ —

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65% $ 1,167 $ 44 $ —

Caddo Pipeline LLC Crude Oil Pipeline (2)

50% $ 127 $ 5 $ —

Capline Pipeline Company LLC Crude Oil Pipeline 54% $ 1,217 $ 16 $ —

Cheyenne Pipeline LLC Crude Oil Pipeline (2)

50% $ 63 $ 4 $ —

Cushing Connect Pipeline & Terminal LLC Crude Oil Pipeline (1)

and Terminal (2)

50% $ 49 $ 7 $ —

Diamond Pipeline LLC Crude Oil Pipeline (1)

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50% $ 220 $ 4 $ —

Midway Pipeline LLC Crude Oil Pipeline (2)

50% $ 41 $ 5 $ —

Red Oak Pipeline LLC Crude Oil Pipeline 50% $ 205 $ — $ —

50% $ 57 $ — $ —

Saddlehorn Pipeline Company, LLC Crude Oil Pipeline 30% $ 662 $ 40 $ —

Settoon Towing, LLC Barge Transportation Services 50% $ 55 $ 8 $ 3

STACK Pipeline LLC Crude Oil Pipeline (1)

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Wink to Webster Pipeline LLC Crude Oil Pipeline 16% $ 2,068 $ 68 $ —

16% $ 845 $ 76 $ —

(1) Asset is currently under construction or development by the entity and has not yet been placed in service.

Other investments $ 531 $ 49 $ 3

(1) We serve as operator of the asset.

Index to Financial Statements

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis