Report Interpretation

Overview

This earnings review assesses whether PAA/PAGP's constructive second-quarter results, improved Permian outlook and emerging organic projects can accelerate growth. Goldman Sachs sees better momentum into 2027 but retains a more conservative Permian-volume outlook than management and stays Neutral.

Core views

PAA reported 2Q26 EBITDA of $738m, 3% above Goldman Sachs' $714m estimate and the $715m consensus. Stronger non-Permian crude volumes drove the beat. EBITDA increased 1% sequentially as full Cactus III synergies, reversal of one-time 1Q26 headwinds and continued marketing/optimization strength offset lower NGL seasonality, one-time environmental costs and the mid-May sale of Canadian NGL assets. Crude EBITDA rose to $690m from $582m in 1Q26 and was 2% above Goldman Sachs' estimate, while NGL EBITDA fell to $40m from $145m because of seasonality and only a partial-quarter contribution before the asset sale. Management maintained FY26 adjusted EBITDA guidance of $2,805m-$2,955m, versus Goldman Sachs' revised $2,893m estimate and $2,889m consensus. The company expects Cactus III synergies, cost efficiencies and a supportive commercial backdrop to support the year; guidance excludes market-based opportunities not already captured. PAA is 70% hedged for 2H26 at $62/bbl, and Goldman Sachs sees potential modest upside to pipeline-loss-allowance EBITDA if commodity prices are stronger. Implied 2H26 Crude EBITDA is in the low-$700m range, although management aims to outperform. Goldman Sachs notes that its own 2H26 commodity-price assumptions are lower than PAA's, leaving both upside and downside risk to estimates. The central change is management's increase in expected 2026 exit-to-exit Permian production growth to 100-200 kb/d from flat, aided by faster natural-gas pipeline egress. The expected EBITDA effect in 2026 is limited, but Goldman Sachs sees the volume ramp as building meaningful momentum for 2027. Management cited production growth in both Midland and Delaware, including deeper benches and outperformance in New Mexico Delaware, and views 7.0 mmb/d of Permian production as highly achievable; 8.0 mmb/d could be reachable with supportive commodity prices, lower breakevens and continued recovery improvements. Goldman Sachs considers the 8.0 mmb/d outcome well above its forecasts. Greater volumes should support Cactus III expansion and utilization of the highly utilized Corpus Christi and Houston systems, with management preferring Corpus Christi. PAA is also pursuing cost and project-led growth. It targets $50m of cost efficiencies by year-end 2026 and another $50m in 2027; it has achieved slightly less than half of the first target through organizational streamlining, trucking right-sizing and marketing-office consolidation. Net growth capex guidance remains $400m-$450m and net maintenance spending was reduced to $175m from $185m following the NGL sale. The Permian gathering build-out spans Midland and Delaware counties, is supported by producer commitments and brings total dedicated POPB JV acreage to about 5.1 million acres. Goldman Sachs expects this gathering activity to ramp through 2027. Cactus III's 75 kb/d expansion is expected online by the end of August to meet Corpus Christi export demand. PAA expects to use capacity to capture volatility initially and contract it over time; the expansion entails $40m of earnout payments, but management continues to indicate attractive returns, with capital spending in the tens of millions and below initial expectations. Further phases require customer commitments and are likely later dated. In Canada, Clearwater and Duvernay gathering additions are supported by producer commitments. Goldman Sachs views these gathering projects as constructive, but characterizes a larger Rangeland egress opportunity as longer-dated, partnership-dependent optionality rather than a near-term standalone driver, because management does not consider a standalone Rangeland expansion competitive at its scale. After receiving about $3.3bn of post-cost proceeds from the Canadian NGL asset sale, PAA directed funds to debt reduction. Goldman Sachs expects a near-term emphasis on leverage reduction, balance-sheet flexibility and organic growth rather than bolt-on M&A, although management retains M&A appetite. It expects 2027 capital spending to resemble 2026 levels, above the historical $300m-$400m range net to PAA. The firm assumes a 15-cent annual distribution increase in 2026, preferred-unit paydowns beginning in 2H26 and modest buybacks in 2027; the report expects leverage to remain below 3.5x through its forecast period. Goldman Sachs raises its 2026 EBITDA estimate to $2,893m from $2,887m, slightly above $2,889m consensus, as higher underlying growth assumptions following a stronger Permian exit rate largely offset lower long-haul volumes. It increases 2027 Cactus III EBITDA assumptions as volumes ramp more meaningfully from 1Q27, introduces 2031-32 estimates with about 1% annual EBITDA growth, and estimates $419m of 2026 net growth capex. Estimate revisions are less than 1% on average for 2026E-2032E, while forecasts are about 1% below consensus on average. The higher capex outlook leads to slightly lower free-cash-flow growth than previously forecast. The $25 PAA target, raised from $24, uses an 85% weighted fundamental valuation at 9.25x 2027 EV/EBITDA and a 15% weighted M&A theoretical component at 10.5x, producing fundamental and M&A values of $23.99 and $29 per unit, respectively. PAGP's $25 target, also raised from $24, is based on a sum-of-the-parts valuation of its PAA-unit holdings and the PAA target. Goldman Sachs reiterates Neutral on both securities because its Permian growth expectations remain more modest than management's constructive outlook.

Analysis framework

Goldman Sachs compares reported segment EBITDA with its own and consensus estimates, then updates volume, rate, capex, project-timing and capital-allocation assumptions through 2032. It values PAA primarily on 2027 EV/EBITDA, adds a smaller M&A theoretical component, and values PAGP through the value of its PAA-unit stake.

Methodology notes

• Valuation methodsEV/EBITDA valuation

  Blended 2027 EV/EBITDA valuation for PAA

  The PAA target uses an 85% weighted 9.25x 2027 EV/EBITDA fundamental valuation and a 15% weighted 10.5x M&A theoretical valuation.

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation for PAGP

  PAGP's target is based on the value of its ownership stake in PAA units combined with Goldman Sachs' PAA target price.

• Industry AnalysisSupply-demand framework

  Permian production, pipeline egress and export-demand analysis

  The report links basin production growth and producer commitments to gathering demand, Cactus III utilization and future pipeline expansion opportunities.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Plains All American Pipeline LP (PAA)

  Primary covered midstream company; improved Permian volumes and organic projects support the 2027 outlook.

  Strengths

  Constructive 2Q26 EBITDA, Cactus III synergies and expansion, gathering growth, cost-efficiency initiatives and debt reduction following the NGL sale.

  Weaknesses

  Goldman Sachs expects more modest Permian crude growth than management's outlook and forecasts slightly lower free-cash-flow growth due to higher capex.

  Comparison

  Goldman Sachs' EBITDA estimates are about 1% below consensus on average for 2026E-2032E.

  Risks

  Lower Permian production growth, weaker recontracting, expensive bolt-on M&A, higher project capex or higher opex.

• Plains GP Holdings (PAGP)

  Primary covered holding company whose target is derived from its PAA-unit holdings.

  Strengths

  Its valuation reflects the value of its 85% ownership of the PAA stake and the PAA target price.

  Weaknesses

  Value depends on the underlying PAA stake and PAA valuation.

  Comparison

  Target is $25, the same as PAA, based on a sum-of-the-parts framework.

  Risks

  Subject to the underlying PAA operating and capital-allocation risks.

Key data

• 2Q26 EBITDA$738m3% above Goldman Sachs' $714m estimate and $715m consensus; up 1% quarter-on-quarter.
• FY26 adjusted EBITDA guidance$2,805m-$2,955mMaintained; Goldman Sachs estimates $2,893m and consensus is $2,889m.
• Permian 2026 exit-to-exit production growth100-200 kb/dRaised from prior flat-growth expectations.
• Cactus III expansion+75 kb/dExpected online by the end of August; associated earnout payments are $40m.
• Cost-efficiency targets$50m by YE26 plus $50m in 2027Slightly less than half of the 2026 target has been realized.
• 2026 net growth capex$400m-$450m guidance; $419m Goldman Sachs estimateNet maintenance spend was lowered to $175m from $185m.
• NGL sale proceeds~$3.3bn after costsDirected toward debt reduction.
• PAA target valuation$25 per unit85% weighted 9.25x 2027 EV/EBITDA fundamental valuation and 15% weighted 10.5x M&A component.

Impact & implications

The report sees the upgraded Permian production outlook and project backlog as improving the 2027 growth setup, particularly through gathering, Cactus III and asset utilization. It nevertheless views the larger Canadian egress opportunity as longer-dated and dependent on partnerships, while higher organic capex moderates expected free-cash-flow growth.

Risks

• Upside risks cited are better-than-expected Permian crude production growth, stronger Permian recontracting outcomes, and capital-return-program messaging and execution.
• Downside risks cited are lower-than-expected Permian crude production growth, expensive bolt-on M&A, higher-than-expected project capex and higher opex costs.

What to watch

• PAA's ability to capture commercial and market-based opportunities through the remainder of 2026.
• The pace and durability of Permian production growth heading into 2027.
• Customer commitments and economics for additional Cactus III expansion phases.
• Producer commitments supporting Permian, Clearwater and Duvernay gathering expansions.
• The structure, scope and returns of any partnership for larger Canadian egress solutions, including pull-through benefits for Capline and Cushing.
• Management's go-forward capex run rate and balance between organic spending, leverage reduction and capital returns.