Plains All American Pipeline is simplifying its structure to lower costs and cutting its payouts to investors by more than 20 percent, reducing its quarterly payout from 70 cents to 55 cents per unit.
The Houston oil pipeline company is following suit in the oil bust by structuring what it calls a $7.2 billion “simplification transaction” in which the company is cutting ties with its general partner, Plains GP Holdings, and will free up more than $300 million in its annual cash flow in order to avoid being restricted by payments to investors.
Plains, which operates as a master-limited partnership like many other pipeline companies, was trading as high as $60 a unit on the NYSE in 2014 before the oil downturn, which curtailed the stock to as low as $15 in February. Since then, Plains’ stock has rounded to nearly $30 per unit.
The company’s financial stability has been hit as a result of the oil downturn as well as the fallout of a pipeline rupture last year in Santa Barbara, California that led to temporary operation shutdowns.
Energy analysts report this deal to be a successful move toward better positioning the company for growth with less capital costs. The internal transaction is expected to be completed by the end of 2016.