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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 10-Q
________________________________________________________________________________________________________________________________
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2022
 
or
 
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 1-36132
________________________________________________________________

PLAINS GP HOLDINGS, L.P.
(Exact name of registrant as specified in its charter)
Delaware   90-1005472
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

333 Clay Street, Suite 1600
Houston, Texas 77002
(Address of principal executive offices) (Zip code)
(713) 646-4100
(Registrant’s telephone number, including area code)
________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Shares PAGP Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
  Emerging growth company
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No
As of April 29, 2022, there were 194,228,477 Class A Shares outstanding.



PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
  Page
 
 
3
4
5
5
6
7
 
8
 
 
 
 
 

2

PART I. FINANCIAL INFORMATION

Item 1.    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31,
2022
December 31,
2021
  (unaudited)
ASSETS
 
CURRENT ASSETS
   
Cash and cash equivalents
$ 117  $ 452 
Trade accounts receivable and other receivables, net
7,136  4,705 
Inventory
527  783 
Other current assets
320  200 
Total current assets
8,100  6,140 
PROPERTY AND EQUIPMENT
19,434  19,292 
Accumulated depreciation
(4,565) (4,383)
Property and equipment, net
14,869  14,909 
OTHER ASSETS
   
Investments in unconsolidated entities
3,807  3,805 
Intangible assets, net 1,901  1,960 
Deferred tax asset
1,341  1,362 
Linefill 919  907 
Long-term operating lease right-of-use assets, net
387  393 
Long-term inventory
374  253 
Other long-term assets, net
293  249 
Total assets
$ 31,991  $ 29,978 
LIABILITIES AND PARTNERS’ CAPITAL
   
CURRENT LIABILITIES
   
Trade accounts payable
$ 6,871  $ 4,811 
Short-term debt
900  822 
Other current liabilities
801  601 
Total current liabilities
8,572  6,234 
LONG-TERM LIABILITIES
   
Senior notes, net
7,931  8,329 
Other long-term debt, net
55  69 
Long-term operating lease liabilities
331  339 
Other long-term liabilities and deferred credits
901  830 
Total long-term liabilities
9,218  9,567 
COMMITMENTS AND CONTINGENCIES (NOTE 10)
PARTNERS’ CAPITAL
   
Class A shareholders (194,228,477 and 194,192,777 shares outstanding, respectively)
1,540  1,533 
Noncontrolling interests
12,661  12,644 
Total partners’ capital
14,201  14,177 
Total liabilities and partners’ capital
$ 31,991  $ 29,978 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Three Months Ended
March 31,
  2022 2021
  (unaudited)
REVENUES
   
Product sales revenues $ 13,381  $ 8,083 
Services revenues 313  300 
Total revenues
13,694  8,383 
COSTS AND EXPENSES
   
Purchases and related costs
12,785  7,392 
Field operating costs
346  219 
General and administrative expenses
83  68 
Depreciation and amortization
231  178 
(Gains)/losses on asset sales and asset impairments, net (42)
Total costs and expenses
13,403  7,859 
OPERATING INCOME 291  524 
OTHER INCOME/(EXPENSE)
   
Equity earnings in unconsolidated entities
97  88 
Interest expense (net of capitalized interest of $1 and $5, respectively)
(107) (107)
Other expense, net (37) (60)
INCOME BEFORE TAX 244  445 
Current income tax expense
(19) (1)
Deferred income tax expense (16) (52)
NET INCOME 209  392 
Net income attributable to noncontrolling interests (187) (322)
NET INCOME ATTRIBUTABLE TO PAGP $ 22  $ 70 
BASIC AND DILUTED WEIGHTED AVERAGE CLASS A SHARES OUTSTANDING 194  194 
BASIC AND DILUTED NET INCOME PER CLASS A SHARE $ 0.11  $ 0.36 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
 
Three Months Ended
March 31,
  2022 2021
  (unaudited)
Net income $ 209  $ 392 
Other comprehensive income 74  108 
Comprehensive income 283  500 
Comprehensive income attributable to noncontrolling interests (240) (401)
Comprehensive income attributable to PAGP $ 43  $ 99 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
(in millions)

 
Derivative
Instruments
Translation
Adjustments
Other Total
  (unaudited)
Balance at December 31, 2021 $ (208) $ (642) $ (3) $ (853)
Reclassification adjustments —  — 
Unrealized gain on hedges 32  —  —  32 
Currency translation adjustments —  40  —  40 
Other —  —  (1) (1)
Total period activity 35  40  (1) 74 
Balance at March 31, 2022 $ (173) $ (602) $ (4) $ (779)

Derivative
Instruments
Translation
Adjustments
Other Total
  (unaudited)
Balance at December 31, 2020 $ (258) $ (657) $ (3) $ (918)
Reclassification adjustments —  — 
Unrealized gain on hedges 68  —  —  68 
Currency translation adjustments —  37  —  37 
Total period activity 71  37  —  108 
Balance at March 31, 2021 $ (187) $ (620) $ (3) $ (810)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

  Three Months Ended
March 31,
  2022 2021
  (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 209  $ 392 
Reconciliation of net income to net cash provided by operating activities:    
Depreciation and amortization 231  178 
(Gains)/losses on asset sales and asset impairments, net (42)
Deferred income tax expense 16  52 
Change in fair value of Preferred Distribution Rate Reset Option (Note 8) 44  67 
Equity earnings in unconsolidated entities (97) (88)
Distributions on earnings from unconsolidated entities 96  110 
Other
Changes in assets and liabilities, net of acquisitions (122) 70 
Net cash provided by operating activities 339  789 
CASH FLOWS FROM INVESTING ACTIVITIES    
Investments in unconsolidated entities (3) (35)
Additions to property, equipment and other (101) (97)
Proceeds from sales of assets 53  21 
Cash paid for purchases of linefill (39) — 
Other investing activities
Net cash used in investing activities (81) (108)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net borrowings/(repayments) under PAA commercial paper program (Note 6) 382  (410)
Net repayments under PAA senior secured hedged inventory facility (Note 6) —  (166)
Repayments of PAA senior notes (750) — 
Repurchase of common units by a subsidiary (Note 7) (25) (3)
Distributions paid to Class A shareholders (Note 7) (35) (35)
Distributions paid to noncontrolling interests (Note 7) (188) (138)
Other financing activities 20  66 
Net cash used in financing activities (596) (686)
Effect of translation adjustment — 
Net decrease in cash and cash equivalents and restricted cash (335) (5)
Cash and cash equivalents and restricted cash, beginning of period 456  63 
Cash and cash equivalents and restricted cash, end of period $ 121  $ 58 
Cash paid for:    
Interest, net of amounts capitalized $ 74  $ 65 
Income taxes, net of amounts refunded $ 23  $ 24 

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(in millions)

Class A
Shareholders
Noncontrolling
Interests
Total
Partners’ Capital
  (unaudited)
Balance at December 31, 2021 $ 1,533  $ 12,644  $ 14,177 
Net income 22  187  209 
Distributions (Note 7) (35) (200) (235)
Deferred tax asset (5) —  (5)
Other comprehensive income 21  53  74 
Repurchase of common units by a subsidiary (Note 7) —  (25) (25)
Other
Balance at March 31, 2022 $ 1,540  $ 12,661  $ 14,201 


Class A Shareholders Noncontrolling Interests Total Partners’ Capital
(unaudited)
Balance at December 31, 2020 $ 1,464  $ 9,726  $ 11,190 
Net income 70  322  392 
Distributions (35) (150) (185)
Deferred tax asset (7) —  (7)
Other comprehensive income 29  79  108 
Repurchase of common units by a subsidiary (Note 7) —  (3) (3)
Contributions from noncontrolling interests — 
Other
Balance at March 31, 2021 $ 1,523  $ 9,976  $ 11,499 

 The accompanying notes are an integral part of these condensed consolidated financial statements.



7

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1—Organization and Basis of Consolidation and Presentation
 
Organization
 
Plains GP Holdings, L.P. (“PAGP”) is a Delaware limited partnership formed in 2013 that has elected to be taxed as a corporation for United States federal income tax purposes. PAGP does not directly own any operating assets; as of March 31, 2022, its principal sources of cash flow are derived from an indirect investment in Plains All American Pipeline, L.P. (“PAA”), a publicly traded Delaware limited partnership. As used in this Form 10-Q and unless the context indicates otherwise (taking into account the fact that PAGP has no operating activities apart from those conducted by PAA and its subsidiaries), the terms “Partnership,” “we,” “us,” “our,” “ours” and similar terms refer to PAGP and its subsidiaries.
 
As of March 31, 2022, PAGP owned (i) a 100% managing member interest in Plains All American GP LLC (“GP LLC”), an entity that has also elected to be taxed as a corporation for United States federal income tax purposes and (ii) an approximate 81% limited partner interest in Plains AAP, L.P. (“AAP”) through our direct ownership of approximately 193.2 million Class A units of AAP (“AAP units”) and indirect ownership of approximately 1.0 million AAP units through GP LLC. 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 March 31, 2022, directly owned a limited partner interest in PAA through its ownership of approximately 241.5 million PAA common units (approximately 31% of PAA’s total outstanding common units and Series A preferred units combined). AAP is the sole member of PAA GP LLC (“PAA GP”), a Delaware limited liability company that directly holds the non-economic general partner interest in PAA.

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 natural gas liquids (“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 and conducted through two operating segments: Crude Oil and NGL. See Note 11 for further discussion of our operating segments.

PAA GP Holdings LLC, a Delaware limited liability company, is our general partner. Our general partner manages our operations and activities and is responsible for exercising on our behalf any rights we have as the sole and managing member of GP LLC, including responsibility for conducting the business and managing the operations of AAP and PAA. GP LLC employs our domestic officers and personnel involved in the operation and management of AAP and PAA. PAA’s Canadian officers and personnel are employed by our subsidiary, Plains Midstream Canada ULC.

References to the “Plains Entities” include us, our general partner, GP LLC, AAP, PAA GP and PAA and its subsidiaries.
 

8

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Definitions
 
Additional defined terms are used in this Form 10-Q and shall have the meanings indicated below:

AOCI = Accumulated other comprehensive income/(loss)
ASC = Accounting Standards Codification
ASU = Accounting Standards Update
Bcf = Billion cubic feet
Btu = British thermal unit
CAD = Canadian dollar
CODM = Chief Operating Decision Maker
EBITDA = Earnings before interest, taxes, depreciation and amortization
EPA = United States Environmental Protection Agency
FASB = Financial Accounting Standards Board
GAAP = Generally accepted accounting principles in the United States
ICE = Intercontinental Exchange
ISDA = International Swaps and Derivatives Association
LIBOR = London Interbank Offered Rate
LTIP = Long-term incentive plan
Mcf = Thousand cubic feet
MMbls = Million barrels
NGL = Natural gas liquids, including ethane, propane and butane
NYMEX = New York Mercantile Exchange
SEC = United States Securities and Exchange Commission
TWh = Terawatt hour
USD = United States dollar
WTI = West Texas Intermediate

Basis of Consolidation and Presentation
 
The accompanying unaudited condensed consolidated interim financial statements and related notes thereto should be read in conjunction with our 2021 Annual Report on Form 10-K. The accompanying condensed consolidated financial statements include the accounts of PAGP and all of its wholly owned subsidiaries and those entities that it controls. Investments in entities over which we have significant influence but not control are accounted for by the equity method. We apply proportionate consolidation for pipelines and other assets in which we own undivided joint interests. The financial statements have been prepared in accordance with the instructions for interim reporting as set forth by the SEC. The condensed consolidated balance sheet data as of December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three months ended March 31, 2022 should not be taken as indicative of results to be expected for the entire year. All adjustments (consisting only of normal recurring adjustments) that in the opinion of management were necessary for a fair statement of the results for the interim periods have been reflected. All significant intercompany transactions have been eliminated in consolidation, and certain reclassifications have been made to information from previous years to conform to the current presentation, including the reclassifications discussed further below.

Subsequent events have been evaluated through the financial statements issuance date and have been included in the following footnotes where applicable. 

9

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Management judgment is required to evaluate whether PAGP controls an entity. Key areas of that evaluation include (i) determining whether an entity is a variable interest entity (“VIE”); (ii) determining whether PAGP is the primary beneficiary of a VIE, including evaluating which activities of the VIE most significantly impact its economic performance and the degree of power that PAGP and its related parties have over those activities through variable interests; and (iii) identifying events that require reconsideration of whether an entity is a VIE and continuously evaluating whether PAGP is a VIE’s primary beneficiary.

We have determined that our subsidiaries, PAA and AAP, are VIEs and should be consolidated by PAGP because:

The limited partners of PAA and AAP lack (i) substantive “kick-out rights” (i.e., the right to remove the general partner) based on a simple majority or lower vote and (ii) substantive participation rights and thus lack the ability to block actions of the general partner that most significantly impact the economic performance of PAA and AAP, respectively.

AAP is the primary beneficiary of PAA because it has the power to direct the activities that most significantly impact PAA’s performance and the right to receive benefits, and obligation to absorb losses, that could be significant to PAA.

PAGP is the primary beneficiary of AAP because it has the power to direct the activities that most significantly impact AAP’s performance and the right to receive benefits, and obligation to absorb losses, that could be significant to AAP.

With the exception of a deferred tax asset of $1.341 billion and $1.362 billion as of March 31, 2022 and December 31, 2021, respectively, substantially all assets and liabilities presented on PAGP’s Condensed Consolidated Balance Sheets are those of PAA. Only the assets of each respective VIE can be used to settle the obligations of that individual VIE, and the creditors of each/either of those VIEs do not have recourse against the general credit of PAGP. PAGP did not provide any financial support to PAA or AAP during the three months ended March 31, 2022 or the year ended December 31, 2021. See Note 17 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for information regarding the Omnibus Agreement entered into by the Plains Entities on November 15, 2016.

Reclassification of Prior Period Information

During the fourth quarter of 2021, we effected changes in the primary financial information provided to our CODM (our Chief Executive Officer) for assessing performance and allocating resources to present two operating segments, Crude Oil and NGL. Prior to the fourth quarter of 2021, this information was organized into three operating segments: Transportation, Facilities and Supply and Logistics. See Note 11 for further discussion of our operating segments. In connection with this change, we changed the presentation of Revenues on our Condensed Consolidated Statements of Operations. “Product sales revenues” include amounts that were previously presented as “Supply and Logistics segment revenues,” while “Services revenues” includes amounts previously presented as “Transportation segment revenues” and “Facilities segment revenues.”

Note 2—Summary of Significant Accounting Policies
 
Restricted Cash

Restricted cash includes cash held by us that is unavailable for general use and is comprised of amounts advanced to us by certain equity method investees related to the construction of fixed assets where we serve as construction manager. The following table presents a reconciliation of cash and cash equivalents and restricted cash reported on our Condensed Consolidated Balance Sheets that sum to the total of the amounts shown on our Condensed Consolidated Statements of Cash Flows (in millions):

March 31,
2022
December 31,
2021
Cash and cash equivalents $ 117  $ 452 
Restricted cash (1)
Total cash and cash equivalents and restricted cash $ 121  $ 456 
10

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1)Included in “Other current assets” on our Condensed Consolidated Balance Sheets.

Recent Accounting Pronouncements

Except as discussed below and in our 2021 Annual Report on Form 10-K, there have been no new accounting pronouncements that have become effective or have been issued during the three months ended March 31, 2022 that are of significance or potential significance to us.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity, by eliminating two of the three models that require separate accounting for embedded conversion features and the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. This guidance is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. We adopted this guidance effective January 1, 2022, and our adoption did not have a material impact on our financial position, results of operations or cash flows.
 
Note 3—Revenues and Accounts Receivable

Revenue Recognition

We disaggregate our revenues by segment and type of activity. These categories depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. See Note 3 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for additional information regarding our types of revenues and policies for revenue recognition.

Revenues from Contracts with Customers. The following tables present our revenues from contracts with customers disaggregated by segment and type of activity (in millions):

Three Months Ended
March 31,
2022 2021
Crude Oil segment revenues from contracts with customers
Sales $ 12,857  $ 7,726 
Transportation 155  90 
Terminalling, Storage and Other 90  130 
Total Crude Oil segment revenues from contracts with customers $ 13,102  $ 7,946 

Three Months Ended
March 31,
2022 2021
NGL segment revenues from contracts with customers
Sales $ 845  $ 772 
Transportation
Terminalling, Storage and Other 25  22 
Total NGL segment revenues from contracts with customers $ 879  $ 801 


Reconciliation to Total Revenues of Reportable Segments. The following disclosures only include information regarding revenues associated with consolidated entities; revenues from entities accounted for by the equity method are not included. The following tables present the reconciliation of our revenues from contracts with customers to total revenues of reportable segments and total revenues as disclosed in our Condensed Consolidated Statements of Operations (in millions):
11

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2022 Crude Oil NGL Total
Revenues from contracts with customers $ 13,102  $ 879  $ 13,981 
Other items in revenues (23) (144) (167)
Total revenues of reportable segments $ 13,079  $ 735  $ 13,814 
Intersegment revenue elimination (120)
Total revenues $ 13,694 
Three Months Ended March 31, 2021 Crude Oil NGL Total
Revenues from contracts with customers $ 7,946  $ 801  $ 8,747 
Other items in revenues (93) (162) (255)
Total revenues of reportable segments $ 7,853  $ 639  $ 8,492 
Intersegment revenue elimination (109)
Total revenues $ 8,383 

Minimum Volume Commitments. We have certain agreements that require counterparties to transport or throughput a minimum volume over an agreed upon period. The following table presents counterparty deficiencies associated with contracts with customers and buy/sell arrangements that include minimum volume commitments for which we had remaining performance obligations and the customers still had the ability to meet their obligations (in millions):

Counterparty Deficiencies Financial Statement Classification March 31,
2022
December 31,
2021
Billed and collected Liability $ 56  $ 63 
Unbilled (1)
N/A 16  16 
Total $ 72  $ 79 
(1)Amounts were related to deficiencies for which the counterparties had not met their contractual minimum commitments and are not reflected in our Condensed Consolidated Financial Statements as we had not yet billed or collected such amounts.

Contract Balances. Our contract balances consist of amounts received associated with services or sales for which we have not yet completed the related performance obligation. The following table presents the change in the liability balance associated with contracts with customers (in millions):

  Contract Liabilities
Balance at December 31, 2021 $ 141 
Amounts recognized as revenue (20)
Additions 16 
Balance at March 31, 2022 $ 137 


12

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Remaining Performance Obligations. The information below includes the amount of consideration allocated to partially and wholly unsatisfied remaining performance obligations under contracts that exist as of the end of the periods and the timing of revenue recognition of those remaining performance obligations. Certain contracts meet the requirements for the presentation as remaining performance obligations. These arrangements include a fixed minimum level of service, typically a set volume of service, and do not contain any variability other than expected timing within a limited range. The following table presents the amount of consideration associated with remaining performance obligations for the population of contracts with external customers meeting the presentation requirements as of March 31, 2022 (in millions):

Remainder of 2022 2023 2024 2025 2026 2027 and Thereafter
Pipeline revenues supported by minimum volume commitments and capacity agreements (1)
$ 132  $ 174  $ 158  $ 134  $ 87  $ 379 
Terminalling, storage and other agreement revenues 201  223  173  81  61  517 
Total $ 333  $ 397  $ 331  $ 215  $ 148  $ 896 
(1)Calculated as volumes committed under contracts multiplied by the current applicable tariff rate.


The presentation above does not include (i) expected revenues from legacy shippers not underpinned by minimum volume commitments, including pipelines where there are no or limited alternative pipeline transportation options, (ii) intersegment revenues and (iii) the amount of consideration associated with certain income generating contracts, which include a fixed minimum level of service, that are either not within the scope of ASC 606 or do not meet the requirements for presentation as remaining performance obligations. The following are examples of contracts that are not included in the table above because they are not within the scope of ASC 606 or do not meet the requirements for presentation:

Minimum volume commitments on certain of our joint venture pipeline systems;
Acreage dedications;
Buy/sell arrangements with future committed volumes;
Short-term contracts and those with variable consideration, due to the election of practical expedients;
Contracts within the scope of ASC 842, Leases; and
Contracts within the scope of ASC 815, Derivatives and Hedging.

Trade Accounts Receivable and Other Receivables, Net

Our accounts receivable are primarily from purchasers and shippers of crude oil and, to a lesser extent, purchasers of NGL. These purchasers include, but are not limited to, refiners, producers, marketing and trading companies and financial institutions. The majority of our accounts receivable relate to our crude oil merchant activities that can generally be described as high volume and low margin activities, in many cases involving exchanges of crude oil volumes.

To mitigate credit risk related to our accounts receivable, we utilize a rigorous credit review process. We closely monitor market conditions and perform credit reviews of each customer to make a determination with respect to the amount, if any, of open credit to be extended to any given customer and the form and amount of financial performance assurances we require. Such financial assurances are commonly provided to us in the form of advance cash payments, standby letters of credit, credit insurance or parental guarantees. Additionally, in an effort to mitigate credit risk, a significant portion of our transactions with counterparties are settled on a net-cash basis. For a majority of these net-cash arrangements, we also enter into netting agreements (contractual agreements that allow us to offset receivables and payables with those counterparties against each other on our balance sheet).
 
13

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable from the sale of crude oil are generally settled with counterparties on the industry settlement date, which is typically in the month following the month in which the title transfers. Otherwise, we generally invoice customers within 30 days of when the products or services were provided and generally require payment within 30 days of the invoice date. We review all outstanding accounts receivable balances on a monthly basis and record our receivables net of expected credit losses. We do not write-off accounts receivable balances until we have exhausted substantially all collection efforts. At March 31, 2022 and December 31, 2021, substantially all of our trade accounts receivable were less than 30 days past their invoice date. Our expected credit losses are immaterial. Although we consider our credit procedures to be adequate to mitigate any significant credit losses, the actual amount of current and future credit losses could vary significantly from estimated amounts.

The following is a reconciliation of trade accounts receivable from revenues from contracts with customers to total Trade accounts receivable and other receivables, net as presented on our Condensed Consolidated Balance Sheets (in millions):

March 31,
2022
December 31, 2021
Trade accounts receivable arising from revenues from contracts with customers
$ 5,496  $ 4,031 
Other trade accounts receivables and other receivables (1)
9,620  5,126 
Impact due to contractual rights of offset with counterparties (7,980) (4,452)
Trade accounts receivable and other receivables, net $ 7,136  $ 4,705 
(1)The balance is comprised primarily of accounts receivable associated with buy/sell arrangements that are not within the scope of ASC 606.

Note 4—Net Income Per Class A Share
 
Basic net income per Class A share is determined by dividing net income attributable to PAGP by the weighted average number of Class A shares outstanding during the period. Our Class B and Class C shares do not share in the earnings of the Partnership; accordingly, basic and diluted net income per Class B and Class C share has not been presented.
 
Diluted net income per Class A share is determined by dividing net income attributable to PAGP by the diluted weighted average number of Class A shares outstanding during the period. For purposes of calculating diluted net income per Class A share, both the net income attributable to PAGP and the diluted weighted average number of Class A shares outstanding consider the impact of possible future exchanges of (i) AAP units and the associated Class B shares into our Class A shares and (ii) Class B units of AAP (referred to herein as “AAP Management Units”) into our Class A shares. In addition, the calculation of the diluted weighted average number of Class A shares outstanding considers the effect of potentially dilutive awards under the Plains GP Holdings, L.P. Long-Term Incentive Plan (the “PAGP LTIP”).
 
All AAP Management Units that have satisfied the applicable performance conditions are considered potentially dilutive. Exchanges of potentially dilutive AAP units and AAP Management Units are assumed to have occurred at the beginning of the period and the incremental income attributable to PAGP resulting from the assumed exchanges is representative of the incremental income that would have been attributable to PAGP if the assumed exchanges occurred on that date. See Note 12 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for information regarding exchanges of AAP units and AAP Management Units. PAGP LTIP awards that are deemed to be dilutive are reduced by a hypothetical share repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in guidance issued by the FASB. See Note 18 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for information regarding PAGP LTIP awards.

On a weighted-average basis, for the three months ended March 31, 2022 and 2021, the possible exchange of 47 million and 51 million AAP units, respectively, would not have had a dilutive effect on basic net income per Class A share. For each of the three months ended March 31, 2022 and 2021, the possible exchange of less than 1 million AAP Management Units would not have had a dilutive effect on basic net income per Class A share on a weighted-average basis. For the three months ended March 31, 2022 and 2021, our PAGP LTIP awards were dilutive; however, the LTIP awards did not change the presentation of diluted weighted average Class A shares outstanding or diluted net income per Class A share.

14

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the computation of basic and diluted net income per Class A share (in millions, except per share data):

  Three Months Ended
March 31,
  2022 2021
Basic and Diluted Net Income per Class A Share
Net income attributable to PAGP $ 22  $ 70 
Basic and diluted weighted average Class A shares outstanding 194  194 
Basic and diluted net income per Class A share $ 0.11  $ 0.36 

Note 5—Inventory, Linefill and Long-term Inventory
 
Inventory, linefill and long-term inventory consisted of the following (barrels in thousands and carrying value in millions):

  March 31, 2022 December 31, 2021
  Volumes Unit of
Measure
Carrying
Value
Price/
Unit (1)
Volumes Unit of
Measure
Carrying
Value
Price/
Unit (1)
Inventory                
Crude oil 4,711  barrels $ 420  $ 89.15  8,041  barrels $ 544  $ 67.65 
NGL 2,329  barrels 102  $ 43.80  6,982  barrels 234  $ 33.51 
Other N/A   N/A N/A   N/A
Inventory subtotal     527        783   
Linefill                
Crude oil 15,160  barrels 872  $ 57.52  15,199  barrels 862  $ 56.71 
NGL 1,667  barrels 47  $ 28.19  1,633  barrels 45  $ 27.56 
Linefill subtotal     919        907   
Long-term inventory                
Crude oil 3,289  barrels 325  $ 98.81  2,973  barrels 209  $ 70.30 
NGL 1,071  barrels 49  $ 45.75  1,135  barrels 44  $ 38.77 
Long-term inventory subtotal     374        253   
Total     $ 1,820        $ 1,943   
(1)Price per unit of measure is comprised of a weighted average associated with various grades, qualities and locations. Accordingly, these prices may not coincide with any published benchmarks for such products.
15

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6—Debt
     
Debt consisted of the following (in millions):

March 31,
2022
December 31,
2021
SHORT-TERM DEBT    
PAA commercial paper notes, bearing a weighted-average interest rate of 0.8% (1)
$ 382  $ — 
PAA senior notes:
3.65% senior notes due June 2022 (2)
—  750 
2.85% senior notes due January 2023
400  — 
Other 118  72 
Total short-term debt 900  822 
LONG-TERM DEBT
PAA senior notes, net of unamortized discounts and debt issuance costs of $52 and $54, respectively
7,931  8,329 
Other 55  69 
Total long-term debt 7,986  8,398 
Total debt (3)
$ 8,886  $ 9,220 
(1)We classified these PAA commercial paper notes as short-term as of March 31, 2022, as these notes were primarily designated as working capital borrowings, were required to be repaid within one year and were primarily for hedged NGL and crude oil inventory and NYMEX and ICE margin deposits.
(2)These senior notes were redeemed on March 1, 2022.
(3)PAA’s fixed-rate senior notes had a face value of approximately $8.4 billion and $9.1 billion as of March 31, 2022 and December 31, 2021, respectively. We estimated the aggregate fair value of these notes as of March 31, 2022 and December 31, 2021 to be approximately $8.4 billion and $9.9 billion, respectively. PAA’s fixed-rate senior notes are traded among institutions, and these trades are routinely published by a reporting service. Our determination of fair value is based on reported trading activity near the end of the reporting period. We estimate that the carrying value of outstanding borrowings under PAA’s commercial paper program approximates fair value as interest rates reflect current market rates. The fair value estimates for PAA’s senior notes and commercial paper notes are based upon observable market data and are classified in Level 2 of the fair value hierarchy.

Borrowings and Repayments
 
Total borrowings under the PAA credit facilities and commercial paper program for the three months ended March 31, 2022 and 2021 were approximately $5.6 billion and $14.2 billion, respectively. Total repayments under the PAA credit facilities and commercial paper program were approximately $5.2 billion and $14.8 billion for the three months ended March 31, 2022 and 2021, respectively. The variance in total gross borrowings and repayments is impacted by various business and financial factors including, but not limited to, the timing, average term and method of general partnership borrowing activities.

During the three months ended March 31, 2022, PAA redeemed its 3.65%, $750 million senior notes due June 2022.

Letters of Credit
 
In connection with our merchant activities, we provide certain suppliers with irrevocable standby letters of credit to secure our obligation for the purchase and transportation of crude oil and NGL. Additionally, we issue letters of credit to support insurance programs, derivative transactions, including hedging-related margin obligations, and construction activities. At March 31, 2022 and December 31, 2021, we had outstanding letters of credit of $34 million and $98 million, respectively.

16

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7—Partners’ Capital and Distributions
 
Shares Outstanding
 
The following tables present the activity for our Class A shares, Class B shares and Class C shares:

  Class A Shares Class B Shares Class C Shares
Outstanding at December 31, 2021 194,192,777  46,645,514  534,596,831 
Conversion of AAP Management Units (1)
—  205,024  — 
Exchange Right exercises (1)
35,700  (35,700) — 
Redemption Right exercises (1)
—  (11,957) 11,957 
Repurchase of common units by a subsidiary under the Common Equity Repurchase Program —  —  (2,375,299)
Other —  —  51,937 
Outstanding at March 31, 2022 194,228,477  46,802,881  532,285,426 
 
  Class A Shares Class B Shares Class C Shares
Outstanding at December 31, 2020 194,051,436  50,640,192  547,717,762 
Conversion of AAP Management Units (1)
—  414,608  — 
Exchange Right exercises (1)
46,879  (46,879) — 
Redemption Right exercises (1)
—  (229,931) 229,931 
Repurchase of common units by a subsidiary under the Common Equity Repurchase Program —  —  (350,000)
Other —  —  25,431 
Outstanding at March 31, 2021 194,098,315  50,777,990  547,623,124 
(1)See Note 12 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for information regarding conversions of AAP Management Units, Exchange Rights and Redemption Rights.

Distributions
 
The following table details distributions to our Class A shareholders paid during or pertaining to the first three months of 2022 (in millions, except per share data):

Distribution Payment Date Distributions to
Class A Shareholders
Distributions per
Class A Share
May 13, 2022 (1)
$ 42  $ 0.2175 
February 14, 2022 $ 35  $ 0.1800 
(1)Payable to shareholders of record at the close of business on April 29, 2022 for the period from January 1, 2022 through March 31, 2022.

Consolidated Subsidiaries
 
Noncontrolling Interests in Subsidiaries
 
As of March 31, 2022, 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 19% limited partner interest in AAP, (iii) a 35% interest in Plains Oryx Permian Basin LLC (the “Permian JV”) and (iv) a 33% interest in Red River Pipeline Company LLC (“Red River LLC”).

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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Common Equity Repurchase Program

PAA repurchased 2.4 million and 0.4 million common units under the Common Equity Repurchase Program (the “Program”) through open market purchases that settled during the three months ended March 31, 2022 and 2021, respectively, for a total purchase price of $25 million and $3 million, respectively, including commissions and fees. The repurchased PAA common units were canceled immediately upon acquisition, as were the Class C shares held by PAA associated with the repurchased common units. At March 31, 2022, the remaining available capacity under the Program was $247 million. See Note 12 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for additional information regarding the Program.

Subsidiary Distributions
 
PAA Series A Preferred Unit Distributions. The following table details distributions to PAA’s Series A preferred unitholders paid during or pertaining to the first three months of 2022 (in millions, except per unit data):

Series A Preferred Unitholders
Distribution Payment Date Cash Distribution Distribution per Unit
May 13, 2022 (1)
$ 37  $ 0.525 
February 14, 2022 $ 37  $ 0.525 
(1)Payable to unitholders of record at the close of business on April 29, 2022 for the period from January 1, 2022 through March 31, 2022. At March 31, 2022, such amount was accrued as distributions payable in “Other current liabilities” on our Condensed Consolidated Balance Sheet.

PAA Series B Preferred Unit Distributions. Distributions on PAA’s Series B preferred units are payable semi-annually in arrears on the 15th day of May and November. The following table details distributions paid to PAA’s Series B preferred unitholders (in millions, except per unit data):

Series B Preferred Unitholders
Distribution Payment Date Cash Distribution Distribution per Unit
May 16, 2022 (1)
$ 24.5  $ 30.625 
(1)Payable to unitholders of record at the close of business on May 2, 2022 for the period from November 15, 2021 through May 14, 2022.

At March 31, 2022, approximately $18 million of accrued distributions payable to PAA’s Series B preferred unitholders was included in “Other current liabilities” on our Condensed Consolidated Balance Sheet.

PAA Common Unit Distributions. The following table details distributions to PAA’s common unitholders paid during or pertaining to the first three months of 2022 (in millions, except per unit data):

  Distributions Cash Distribution per Common Unit
Common Unitholders Total Cash Distribution
Distribution Payment Date Public AAP
May 13, 2022 (1)
$ 100  $ 53  $ 153  $ 0.2175 
February 14, 2022 $ 84  $ 43  $ 127  $ 0.1800 
(1)Payable to unitholders of record at the close of business on April 29, 2022 for the period from January 1, 2022 through March 31, 2022.

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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AAP Distributions. The following table details the distributions to AAP’s partners paid during or pertaining to the first three months of 2022 from distributions received from PAA (in millions):

 
Distributions to AAPs Partners
Distribution Payment Date Noncontrolling Interests PAGP Total Cash Distribution
May 13, 2022 (1)
$ 11  $ 42  $ 53 
February 14, 2022 $ $ 35  $ 43 
(1)Payable to unitholders of record at the close of business on April 29, 2022 for the period from January 1, 2022 through March 31, 2022.

Other Distributions. During the three months ended March 31, 2022, we paid distributions of $54 million and $5 million to noncontrolling interests in the Permian JV and Red River LLC, respectively.

Note 8—Derivatives and Risk Management Activities
 
We identify the risks that underlie our core business activities and use risk management strategies to mitigate those risks when we determine that there is value in doing so. We use various derivative instruments to optimize our profits while managing our exposure to (i) commodity price risk, (ii) interest rate risk and (iii) currency exchange rate risk. Our commodity price risk management policies and procedures are designed to help ensure that our hedging activities address our risks by monitoring our derivative positions, as well as physical volumes, grades, locations, delivery schedules and storage capacity. Our interest rate and currency exchange rate risk management policies and procedures are designed to monitor our derivative positions and ensure that those positions are consistent with our objectives and approved strategies. Our policy is to use derivative instruments for risk management purposes and not for the purpose of speculating on changes in commodity prices, interest rates or currency exchange rates. When we apply hedge accounting, our policy is to formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed. At the inception of the hedging relationship, we assess whether the derivatives employed are highly effective in offsetting changes in cash flows of anticipated hedged transactions. Throughout the hedging relationship, retrospective and prospective hedge effectiveness is assessed on a qualitative basis.

We record all open derivatives on the balance sheet as either assets or liabilities measured at fair value. Changes in the fair value of derivatives are recognized currently in earnings unless specific hedge accounting criteria are met. For derivatives designated as cash flow hedges, changes in fair value are deferred in AOCI and recognized in earnings in the periods during which the underlying hedged transactions are recognized in earnings. Derivatives that are not designated in a hedging relationship for accounting purposes are recognized in earnings each period. Cash settlements associated with our derivative activities are classified within the same category as the related hedged item in our Condensed Consolidated Statements of Cash Flows.

Our financial derivatives, used for hedging risk, are governed through ISDA master agreements and clearing brokerage agreements. These agreements include stipulations regarding the right of set off in the event that we or our counterparty default on performance obligations. If a default were to occur, both parties have the right to net amounts payable and receivable into a single net settlement between parties.

At March 31, 2022 and December 31, 2021, none of our outstanding derivatives contained credit-risk related contingent features that would result in a material adverse impact to us upon any change in our credit ratings. Although we may be required to post margin on our exchange-traded derivatives transacted through a clearing brokerage account, as described below, we do not require our non-cleared derivative counterparties to post collateral with us.
 
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Commodity Price Risk Hedging
 
Our core business activities involve certain commodity price-related risks that we manage in various ways, including through the use of derivative instruments. Our policy is to (i) only purchase inventory for which we have a sales market, (ii) structure our sales contracts so that price fluctuations do not materially affect our operating income and (iii) not acquire and hold material physical inventory or derivatives for the purpose of speculating on commodity price changes. The material commodity-related risks inherent in our business activities can be divided into the following general categories:
 
Commodity Purchases and Sales — In the normal course of our operations, we purchase and sell commodities. We use derivatives to manage the associated risks and to optimize profits. As of March 31, 2022, net derivative positions related to these activities included:
 
A net long position of 6.6 million barrels associated with our crude oil purchases, which was unwound ratably during April 2022 to match monthly average pricing.
A net short time spread position of 5.3 million barrels, which hedges a portion of our anticipated crude oil lease gathering purchases through May 2023.
A net crude oil basis spread position of 1.2 million barrels at multiple locations through November 2023. These derivatives allow us to lock in grade and location basis differentials.
A net short position of 11.0 million barrels through December 2023 related to anticipated net sales of crude oil and NGL inventory.
 
Natural Gas Processing/NGL Fractionation — We purchase natural gas for processing and operational needs. Additionally, we purchase NGL mix for fractionation and sell the resulting individual specification products (including ethane, propane, butane and condensate). In conjunction with these activities, we hedge the price risk associated with the purchase of the natural gas and the subsequent sale of the individual specification products. The following table summarizes our open derivative positions utilized to hedge the price risk associated with anticipated purchases and sales related to our natural gas processing and NGL fractionation activities as of March 31, 2022:

Notional Volume
(Short)/Long Remaining Tenor
Natural gas purchases
82.6 Bcf
December 2024
Propane sales
(15.5) MMbls
December 2024
Butane sales
(3.8) MMbls
December 2024
Condensate sales
(1.5) MMbls
December 2024
Fuel gas requirements (1)
8.8 Bcf
December 2023
Power supply requirements (1)
0.5 TWh
December 2023
(1)Positions to hedge a portion of our power supply and fuel gas requirements at our Canadian natural gas processing and fractionation plants.

Physical commodity contracts that meet the definition of a derivative but are ineligible, or not designated, for the normal purchases and normal sales scope exception are recorded on the balance sheet at fair value, with changes in fair value recognized in earnings. We have determined that substantially all of our physical commodity contracts qualify for the normal purchases and normal sales scope exception.

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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our commodity derivatives are not designated in a hedging relationship for accounting purposes; as such, changes in the fair value are reported in earnings. The following table summarizes the impact of our commodity derivatives recognized in earnings (in millions):

  Three Months Ended
March 31,
  2022 2021
Product sales revenues $ (213) $ (314)
Field operating costs 13  39 
   Net loss from commodity derivative activity $ (200) $ (275)

Our accounting policy is to offset derivative assets and liabilities executed with the same counterparty when a master netting arrangement exists. Accordingly, we also offset derivative assets and liabilities with amounts associated with cash margin. Our exchange-traded derivatives are transacted through clearing brokerage accounts and are subject to margin requirements as established by the respective exchange. On a daily basis, our account equity (consisting of the sum of our cash balance and the fair value of our open derivatives) is compared to our initial margin requirement resulting in the payment or return of variation margin. The following table provides the components of our net broker receivable (in millions):
March 31,
2022
December 31,
2021
Initial margin $ 102  $ 133 
Variation margin posted
296  173 
Letters of credit
(25) (47)
Net broker receivable $ 373  $ 259 

The following table reflects the Condensed Consolidated Balance Sheet line items that include the fair values of our commodity derivative assets and liabilities and the effect of the collateral netting. Such amounts are presented on a gross basis, before the effects of counterparty netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our Condensed Consolidated Balance Sheet when the legal right of offset exists. Amounts in the table below are presented in millions.

March 31, 2022 December 31, 2021
Effect of Collateral Netting Net Carrying Value Presented on the Balance Sheet Effect of Collateral Netting Net Carrying Value Presented on the Balance Sheet
Commodity Derivatives Commodity Derivatives
Assets Liabilities Assets Liabilities
Derivative Assets
Other current assets $ 230  $ (331) $ 373  $ 272  $ 90  $ (210) $ 259  $ 139 
Other long-term assets, net 12  —  —  12  —  — 
Derivative Liabilities
Other current liabilities 11  (51) —  (40) (24) —  (20)
Other long-term liabilities and deferred credits (28) —  (20) (9) —  (6)
Total $ 261  $ (410) $ 373  $ 224  $ 100  $ (243) $ 259  $ 116 
 
Interest Rate Risk Hedging
 
We use interest rate derivatives to hedge the benchmark interest rate associated with interest payments occurring as a result of debt issuances. The derivative instruments we use to manage this risk consist of forward starting interest rate swaps and treasury locks. These derivatives are designated as cash flow hedges. As such, changes in fair value are deferred in AOCI and are reclassified to interest expense as we incur the interest expense associated with the underlying debt.
 
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the terms of our outstanding interest rate derivatives as of March 31, 2022 (notional amounts in millions):

Hedged Transaction Number and Types of
Derivatives Employed
Notional
Amount
Expected
Termination Date
Average Rate
Locked
Accounting
Treatment
Anticipated interest payments
8 forward starting swaps
(30-year)
$ 200  6/15/2023 1.38  % Cash flow hedge
Anticipated interest payments
8 forward starting swaps
(30-year)
$ 200  6/14/2024 0.73  % Cash flow hedge
 
As of March 31, 2022, there was a net loss of $173 million deferred in AOCI. The deferred net loss recorded in AOCI is expected to be reclassified to future earnings contemporaneously with interest expense accruals associated with underlying debt instruments. We estimate that substantially all of the remaining deferred loss will be reclassified to earnings through 2054 as the underlying hedged transactions impact earnings. A portion of these amounts is based on market prices as of March 31, 2022; thus, actual amounts to be reclassified will differ and could vary materially as a result of changes in market conditions.

The following table summarizes the net unrealized gain recognized in AOCI for derivatives (in millions):

Three Months Ended
March 31,
  2022 2021
Interest rate derivatives, net $ 32  $ 68 

At March 31, 2022, the net fair value of our interest rate hedges, which were included in “Other long-term assets, net” on our Condensed Consolidated Balance Sheet, totaled $97 million. At December 31, 2021, the net fair value of these hedges totaled $65 million and was included in “Other long-term assets, net.”

Preferred Distribution Rate Reset Option

A derivative feature embedded in a contract that does not meet the definition of a derivative in its entirety must be bifurcated and accounted for separately if the economic characteristics and risks of the embedded derivative are not clearly and closely related to those of the host contract. The Preferred Distribution Rate Reset Option of the PAA Series A preferred units is an embedded derivative that must be bifurcated from the related host contract, the PAA partnership agreement, and recorded at fair value on our Condensed Consolidated Balance Sheets. This embedded derivative is not designated in a hedging relationship for accounting purposes and corresponding changes in fair value are recognized in “Other expense, net” in our Condensed Consolidated Statement of Operations. For the three months ended March 31, 2022 and 2021, we recognized losses of $44 million and $67 million, respectively. The fair value of the Preferred Distribution Rate Reset Option, which was included in “Other long-term liabilities and deferred credits” on our Condensed Consolidated Balance Sheets, totaled $44 million and less than $1 million at March 31, 2022 and December 31, 2021, respectively. See Note 12 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for additional information regarding the PAA Series A preferred units and the Preferred Distribution Rate Reset Option.
 
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recurring Fair Value Measurements
 
Derivative Financial Assets and Liabilities
 
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis (in millions):

  Fair Value as of March 31, 2022 Fair Value as of December 31, 2021
Recurring Fair Value Measures (1)
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Commodity derivatives $ (76) $ (73) $ —  $ (149) $ (17) $ (124) $ (2) $ (143)
Interest rate derivatives —  97  —  97  —  65  —  65 
Preferred Distribution Rate Reset Option and Other —  —  (44) (44) —  —  —  — 
Total net derivative asset/(liability) $ (76) $ 24  $ (44) $ (96) $ (17) $ (59) $ (2) $ (78)
(1)Derivative assets and liabilities are presented above on a net basis but do not include related cash margin deposits.

Level 1
 
Level 1 of the fair value hierarchy includes exchange-traded commodity derivatives and over-the-counter commodity contracts such as futures and swaps. The fair value of exchange-traded commodity derivatives and over-the-counter commodity contracts is based on unadjusted quoted prices in active markets.
 
Level 2
 
Level 2 of the fair value hierarchy includes exchange-cleared commodity derivatives and over-the-counter commodity, interest rate and foreign currency derivatives that are traded in observable markets with less volume and transaction frequency than active markets. In addition, it includes certain physical commodity contracts. The fair values of these derivatives are corroborated with market observable inputs.
 
Level 3
 
Level 3 of the fair value hierarchy includes certain physical commodity and other contracts, over-the-counter options and the Preferred Distribution Rate Reset Option contained in PAA’s partnership agreement which is classified as an embedded derivative.
 
The fair values of our Level 3 physical commodity and other contracts and over-the-counter options are based on valuation models utilizing significant timing estimates, which involve management judgment, and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. We report unrealized gains and losses associated with these contracts in our Condensed Consolidated Statements of Operations as Product sales revenues.

The fair value of the embedded derivative feature contained in PAA’s partnership agreement is based on a valuation model that estimates the fair value of the PAA Series A preferred units with and without the Preferred Distribution Rate Reset Option. This model contains inputs, including PAA’s common unit price, ten-year U.S. Treasury rates, default probabilities and timing estimates, some of which involve management judgment. A significant change in these inputs could result in a material change in fair value to this embedded derivative feature.

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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Rollforward of Level 3 Net Asset/(Liability)
 
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our derivatives classified as Level 3 (in millions):

Three Months Ended
March 31,
  2022 2021
Beginning Balance $ (2) $ (29)
Net losses for the period included in earnings (44) (67)
Settlements
Ending Balance $ (44) $ (92)
Change in unrealized losses included in earnings relating to Level 3 derivatives still held at the end of the period $ (44) $ (67)

Note 9—Related Party Transactions
 
See Note 17 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for a complete discussion of related parties, including the determination of our related parties and nature of involvement with such related parties.

During the three months ended March 31, 2022 and 2021, we recognized sales and transportation revenues, purchased petroleum products and utilized transportation and storage services from our related parties. These transactions were conducted at posted tariff rates or prices that we believe approximate market.

The impact to our Condensed Consolidated Statements of Operations from these transactions is included below (in millions):
Three Months Ended
March 31,
  2022 2021
Revenues from related parties $ 12  $
Purchases and related costs from related parties $ 97  $ 90 

Our receivable and payable amounts with these related parties as reflected on our Condensed Consolidated Balance Sheets were as follows (in millions):

March 31,
2022
December 31,
2021
Trade accounts receivable and other receivables, net from related parties (1)
$ 56  $ 41 
Trade accounts payable to related parties (1) (2)
$ 75  $ 72 
(1)Includes amounts related to crude oil purchases and sales, transportation and storage services and amounts owed to us or advanced to us related to investment capital projects of equity method investees where we serve as construction manager.
(2)We have agreements to store crude oil at facilities and transport crude oil or utilize capacity on pipelines that are owned by equity method investees. 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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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10—Commitments and Contingencies
 
Loss Contingencies — General
 
To the extent we are able to assess the likelihood of a negative outcome for a contingency, our assessments of such likelihood range from remote to probable. If we determine that a negative outcome is probable and the amount of loss is reasonably estimable, we accrue an undiscounted liability equal to the estimated amount. If a range of probable loss amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then we accrue an undiscounted liability equal to the minimum amount in the range. In addition, we estimate legal fees that we expect to incur associated with loss contingencies and accrue those costs when they are material and probable of being incurred.
 
We do not record a contingent liability when the likelihood of loss is probable but the amount cannot be reasonably estimated or when the likelihood of loss is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is reasonably possible and the impact would be material to our consolidated financial statements, we disclose the nature of the contingency and, where feasible, an estimate of the possible loss or range of loss.

Legal Proceedings — General
 
In the ordinary course of business, we are involved in various legal proceedings, including those arising from regulatory and environmental matters. In connection with determining the probability of loss associated with such legal proceedings and whether any potential losses associated therewith are estimable, we take into account what we believe to be all relevant known facts and circumstances, and what we believe to be reasonable assumptions regarding the application of those facts and circumstances to existing agreements, laws and regulations. Although we are insured against various risks to the extent we believe it is prudent, there is no assurance that the nature and amount of such insurance will be adequate, in every case, to fully protect us from losses arising from current or future legal proceedings. Accordingly, we can provide no assurance that the outcome of the various legal proceedings that we are currently involved in, or will become involved with in the future, will not, individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Environmental — General
 
We currently own or lease, and in the past have owned and leased, properties where hazardous liquids, including hydrocarbons, are or have been handled. These properties and the hazardous liquids or associated wastes disposed thereon may be subject to the U.S. federal Comprehensive Environmental Response, Compensation and Liability Act, as amended, and the U.S. federal Resource Conservation and Recovery Act, as amended, as well as state and Canadian federal and provincial laws and regulations. Under such laws and regulations, we could be required to remove or remediate hazardous liquids or associated wastes (including wastes disposed of or released by prior owners or operators) and to clean up contaminated property (including contaminated groundwater). Assets we have acquired or will acquire in the future may have environmental remediation liabilities for which we are not indemnified.

Although we have made significant investments in our maintenance and integrity programs, we have experienced (and likely will experience future) releases of hydrocarbon products into the environment from our pipeline, rail, storage and other facility operations. These releases can result from accidents or from unpredictable man-made or natural forces and may reach surface water bodies, groundwater aquifers or other sensitive environments. We also may discover environmental impacts from past releases that were previously unidentified. Damages and liabilities associated with any such releases from our existing or future assets could be significant and could have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
 
We record environmental liabilities when environmental assessments and/or remedial efforts are probable and the amounts can be reasonably estimated. Generally, our recording of these accruals coincides with our completion of a feasibility study or our commitment to a formal plan of action. We do not discount our environmental remediation liabilities to present value. We also record environmental liabilities assumed in business combinations based on the estimated fair value of the environmental obligations caused by past operations of the acquired company. We record receivables for amounts we believe are recoverable from insurance or from third parties under indemnification agreements in the period that we determine the costs are probable of recovery.
 
25

PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Environmental expenditures that pertain to current operations or to future revenues are expensed or capitalized consistent with our capitalization policy for property and equipment. Expenditures that result from the remediation of an existing condition caused by past operations and that do not contribute to current or future profitability are expensed.
 
At March 31, 2022, our estimated undiscounted reserve for environmental liabilities (excluding liabilities related to the Line 901 incident, as discussed further below) totaled $59 million, of which $9 million was classified as short-term and $50 million was classified as long-term. At December 31, 2021, our estimated undiscounted reserve for environmental liabilities (excluding liabilities related to the Line 901 incident) totaled $57 million, of which $11 million was classified as short-term and $46 million was classified as long-term. Such short-term liabilities are reflected in “Other current liabilities” and long-term liabilities are reflected in “Other long-term liabilities and deferred credits” on our Condensed Consolidated Balance Sheets. At both March 31, 2022 and December 31, 2021, we had recorded receivables (excluding receivables related to the Line 901 incident) totaling $11 million, for amounts probable of recovery under insurance and from third parties under indemnification agreements, $1 million of which for each period is reflected in “Other long-term assets, net” and the remainder is reflected in “Trade accounts receivable and other receivables, net” on our Condensed Consolidated Balance Sheets. 
 
In some cases, the actual cash expenditures associated with these liabilities may not occur for three years or longer. Our estimates used in determining these reserves are based on information currently available to us and our assessment of the ultimate outcome. Among the many uncertainties that impact our estimates are the necessary regulatory approvals for, and potential modification of, our remediation plans, the limited amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing or future legal claims giving rise to additional liabilities. Therefore, although we believe that the reserve is adequate, actual costs incurred (which may ultimately include costs for contingencies that are currently not reasonably estimable or costs for contingencies where the likelihood of loss is currently believed to be only reasonably possible or remote) may be in excess of the reserve and may potentially have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
 
Specific Legal, Environmental or Regulatory Matters

Line 901 Incident. In May 2015, we experienced a crude oil release from our Las Flores to Gaviota Pipeline (Line 901) in Santa Barbara County, California. A portion of the released crude oil reached the Pacific Ocean at Refugio State Beach through a drainage culvert. Following the release, we shut down the pipeline and initiated our emergency response plan. A Unified Command, which included the United States Coast Guard, the EPA, the State of California Department of Fish and Wildlife (“CDFW”), the California Office of Spill Prevention and Response and the Santa Barbara Office of Emergency Management, was established for the response effort. Clean-up and remediation operations with respect to impacted shoreline and other areas has been determined by the Unified Command to be complete, and the Unified Command has been dissolved. Our estimate of the amount of oil spilled, based on relevant facts, data and information, and as set forth in the Consent Decree described below, is approximately 2,934 barrels; of this amount, we estimate that 598 barrels reached the Pacific Ocean.

As a result of the Line 901 incident, several governmental agencies and regulators initiated investigations into the Line 901 incident, various claims have been made against us and a number of lawsuits have been filed against us, the majority of which have been resolved. Set forth below is a brief summary of actions and matters that are currently pending or recently resolved:
     
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As the “responsible party” for the Line 901 incident we are liable for various costs and for certain natural resource damages under the Oil Pollution Act. In this regard, following the Line 901 incident, we entered into a cooperative Natural Resource Damage Assessment (“NRDA”) process with the federal and state agencies designated or authorized by law to act as trustees for the natural resources of the United States and the State of California (collectively, the “Trustees”). Additionally, various government agencies sought to collect civil fines and penalties under applicable state and federal regulations. On March 13, 2020, the United States and the People of the State of California filed a civil complaint against Plains All American Pipeline, L.P. and Plains Pipeline L.P. along with a pre-negotiated settlement agreement in the form of a Consent Decree (the “Consent Decree”) that was signed by the United States Department of Justice, Environmental and Natural Resources Division, the United States Department of Transportation, Pipeline and Hazardous Materials Safety Administration, the EPA, CDFW, the California Department of Parks and Recreation, the California State Lands Commission, the California Department of Forestry and Fire Protection’s Office of the State Fire Marshal, Central Coast Regional Water Quality Control Board, and Regents of the University of California. The Consent Decree was approved and entered by the Federal District Court for the Central District of California on October 14, 2020. Pursuant to the terms of the Consent Decree, Plains paid $24 million in civil penalties and $22.325 million as compensation for injuries to, destruction of, loss of, or loss of use of natural resources resulting from the Line 901 incident. The Consent Decree also contains requirements for implementing certain agreed-upon injunctive relief, as well as requirements for potentially restarting Line 901 and the Sisquoc to Pentland portion of Line 903. The Consent Decree resolved all regulatory claims related to the incident.

Following an investigation and grand jury proceedings, in May of 2016, PAA was charged by a California state grand jury, pursuant to an indictment filed in California Superior Court, Santa Barbara County (the “May 2016 Indictment”), with alleged violations of California law in connection with the Line 901 incident. Fifteen charges from the May 2016 Indictment were the subject of a jury trial in California Superior Court in Santa Barbara County, and the jury returned a verdict on September 7, 2018, pursuant to which we were (i) found guilty on one felony discharge count and eight misdemeanor counts (which included one reporting count, one strict liability discharge count and six strict liability animal takings counts) and (ii) found not guilty on one strict liability animal takings count. The remaining counts were subsequently dismissed by the Court. On April 25, 2019, PAA was sentenced to pay fines and penalties in the aggregate amount of just under $3.35 million for the convictions covered by the September 2018 jury verdict (the “2019 Sentence”). The fines and penalties imposed in connection with the 2019 Sentence have been paid. In September 2021, the Superior Court concluded a series of hearings on the issue of whether there were any “direct victims” of the spill that are entitled to restitution under applicable criminal law. Through a series of final orders issued at the trial court level and without affecting any rights of the claimants under civil law, the Court dismissed the vast majority of the claims and ruled that the claimants were not entitled to restitution under applicable criminal laws. The Court did award an aggregate amount of less than $150,000 to a handful of claimants and we settled with approximately 40 claimants before the hearings for aggregate consideration that is not material. The prosecution and certain separately represented claimants have appealed the Court’s rulings.

Shortly following the Line 901 incident, we established a claims line and encouraged any parties that were damaged by the release to contact us to discuss their damage claims. We received a number of claims through the claims line and we have processed those claims and made payments as appropriate. Nine class action lawsuits were filed against us; however, after various claims were either dismissed or consolidated, two proceedings remain pending in the United States District Court for the Central District of California. In the first proceeding, the plaintiffs claim two different classes of claimants were damaged by the release: (i) commercial fishermen who landed fish in certain specified fishing blocks in the waters off the coast of Southern California or persons or businesses who resold commercial seafood caught in those areas; and (ii) owners and lessees of residential beachfront properties, or properties with a private easement to a beach, where plaintiffs claim oil from the spill washed up. In order to fully and finally resolve all claims and litigation for both classes, we have reached an agreement in principle to settle this case in exchange for a payment of $230 million (the “Class Action Settlement”). The Class Action Settlement is subject to negotiation of final documentation and approval of the trial court. In the second proceeding, the plaintiffs seek a declaratory judgment that Plains’ right-of-way agreements would not allow Plains to lay a new pipeline to replace Line 901 and/or the non-operating segment of Line 903 without paying additional compensation. No trial date has been set in that action.

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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In addition, after various other unitholder derivative lawsuits were either dismissed or consolidated, one proceeding remains pending in Delaware Chancery Court. Generally, the plaintiffs in the remaining derivative lawsuit claim that our Board of Directors failed to exercise proper oversight over PAA’s pipeline integrity efforts. In April 2022, Plains entered into a settlement agreement to settle this lawsuit, subject to court approval and notice to all PAA unitholders (the “Derivative Settlement”). Following court approval, we intend to effect notice to all PAA unitholders by filing a Current Report on Form 8-K with the SEC. The key terms of the Derivative Settlement include a payment of Plaintiff’s attorneys’ fees by our insurers in the amount of approximately $2.0 million and the agreement of Plains to comply with various covenants regarding the implementation or continuation of certain Board oversight practices with respect to pipeline integrity.

We also received several other individual lawsuits and claims from companies, governmental agencies and individuals alleging damages arising out of the Line 901 incident. These lawsuits and claims generally seek restitution, compensatory and punitive damages, and/or injunctive relief. The majority of these lawsuits have been settled or dismissed by the court. The following lawsuits remain: (i) a lawsuit pending in the United States District Court for the Central District of California for lost revenue or profit asserted by a former oil producer that declared bankruptcy and shut in its offshore production platform following the Line 901 incident; (ii) a lawsuit filed by the California State Land Commission in California Superior Court in Santa Barbara County, seeking lost royalties following the shut-down of Line 901, as well as cost related to the decommissioning of such platform, and (iii) lawsuits filed in California Superior Court in Santa Barbara County, by various companies and individuals who provided labor, goods, or services associated with oil production activities they claim were disrupted following the Line 901 incident. We are vigorously defending these remaining lawsuits and believe we have strong defenses, including a lack of duty owed to the claimants to keep Line 901 in service.

In connection with the foregoing, including the Class Action Settlement and the Derivative Settlement, we have made adjustments to our total estimated Line 901 costs and the portion of such costs that we believe are probable of recovery from insurance carriers, net of deductibles. Effective as of March 31, 2022, we estimate that the aggregate total costs we have incurred or will incur with respect to the Line 901 incident will be approximately $725 million, which includes actual and projected emergency response and clean-up costs, natural resource damage assessments, fines and penalties payable pursuant to the Consent Decree, certain third party claims settlements (including the Class Action Settlement and the Derivative Settlement), and estimated costs associated with our remaining Line 901 lawsuits and claims as described above, as well as estimates for certain legal fees and statutory interest where applicable. We accrue such estimates of aggregate total costs to “Field operating costs” in our Condensed Consolidated Statements of Operations. This estimate considers our prior experience in environmental investigation and remediation matters and available data from, and in consultation with, our environmental and other specialists, as well as currently available facts and presently enacted laws and regulations. We have made assumptions for (i) the resolution of certain third party claims and lawsuits, but excluding claims and lawsuits with respect to which losses are not probable and reasonably estimable, and excluding future claims and lawsuits and (ii) the nature, extent and cost of legal services that will be required in connection with all lawsuits, claims and other matters requiring legal or expert advice associated with the Line 901 incident. Our estimate does not include any lost revenue associated with the shutdown of Line 901 or 903 and does not include any liabilities or costs that are not reasonably estimable at this time or that relate to contingencies where we currently regard the likelihood of loss as being only reasonably possible or remote. We believe we have accrued adequate amounts for all probable and reasonably estimable costs; however, this estimate is subject to uncertainties associated with the assumptions that we have made. For example, with respect to potential losses that we regard as only reasonably possible or remote, we have made assumptions regarding the strength of our legal position based on our assessment of the relevant facts and applicable law and precedent; if our assumptions regarding such matters turn out to be inaccurate (i.e., we are found to be liable under circumstances where we regard the likelihood of loss as being only reasonably possible or remote), we could be responsible for significant costs and expenses that are not currently included in our estimates and accruals. In addition, for any potential losses that we regard as probable and for which we have accrued an estimate of the potential losses, our estimates regarding damages, legal fees, court costs and interest could turn out to be inaccurate and the actual losses we incur could be significantly higher than the amounts included in our estimates and accruals. Also, the amount of time it takes for us to resolve all of the current and future lawsuits and claims that relate to the Line 901 incident could turn out to be significantly longer than we have assumed, and as a result the costs we incur for legal services could be significantly higher than we have estimated. Accordingly, our assumptions and estimates may turn out to be inaccurate and our total costs could turn out to be materially higher; therefore, we can provide no assurance that we will not have to accrue significant additional costs in the future with respect to the Line 901 incident.

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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2022, we had a remaining undiscounted gross liability of $335 million related to this event, which aggregate amount is reflected in “Trade accounts payable” and “Other current liabilities” on our Condensed Consolidated Balance Sheet. We maintain insurance coverage, which is subject to certain exclusions and deductibles, in the event of such environmental liabilities; however, after giving effect to the settlements described above and assuming full collection of costs that we believe are probable of recovery from insurance providers, net of deductibles, we will reach the limit of our $500 million 2015 insurance program applicable to the Line 901 incident. Through March 31, 2022, we had collected, subject to customary reservations, approximately $260 million out of the $500 million of release costs that we believe are probable of recovery from insurance carriers, net of deductibles. Therefore, as of March 31, 2022, we have recognized a receivable of approximately $240 million for the portion of the release costs that we believe is probable of recovery from insurance, net of deductibles and amounts already collected. Such amount is recognized as a current asset in “Trade accounts receivable and other receivables, net” on our Condensed Consolidated Balance Sheet. We have completed the required clean-up and remediation work as determined by the Unified Command and the Unified Command has been dissolved; however, we expect to make payments for additional costs associated with restoration of the impacted areas, as well as legal, professional and regulatory costs during future periods. Taking into account the costs that we have included in our total estimate of costs for the Line 901 incident and considering what we regard as very strong defenses to the claims made in our remaining Line 901 lawsuits, we do not believe the ultimate resolution of such remaining lawsuits will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Insurance

Pipelines, terminals, trucks or other facilities or equipment may experience damage as a result of an accident, natural disaster, terrorist attack, cyber event or other event. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations. Consistent with insurance coverage generally available in the industry, in certain circumstances our insurance policies provide limited coverage for losses or liabilities relating to gradual pollution, with broader coverage for sudden and accidental occurrences. We maintain various types and varying levels of insurance coverage to cover our operations and properties, and we self-insure certain risks, including gradual pollution, cybersecurity and named windstorms. However, such insurance does not cover every potential risk that might occur, associated with operating pipelines, terminals and other facilities and equipment, including the potential loss of significant revenues and cash flows.

The occurrence of a significant event not fully insured, indemnified or reserved against, or the failure of a party to meet its indemnification obligations, could materially and adversely affect our operations and financial condition. While we strive to maintain adequate insurance coverage, our actual costs may exceed our coverage levels and insurance will not cover many types of interruptions that might occur, will not cover amounts up to applicable deductibles and will not cover all risks associated with certain of our assets and operations. With respect to our insurance coverage, our policies are subject to deductibles and retention levels that we consider reasonable and not excessive. Additionally, no assurance can be given that we will be able to maintain adequate insurance in the future at rates we consider reasonable. As a result, we may elect to self-insure or utilize higher deductibles in certain other insurance programs. In addition, although we believe that we have established adequate reserves and liquidity to the extent such risks are not insured, costs incurred in excess of these reserves may be higher or we may not receive insurance proceeds in a timely manner, which may potentially have a material adverse effect on our financial conditions, results of operations or cash flows.
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11—Segment Information
 
During the fourth quarter of 2021, we effected changes in the primary financial information provided to our CODM for assessing performance and allocating resources to present two operating segments, Crude Oil and NGL. Prior to the fourth quarter of 2021, this information was organized into three operating segments: Transportation, Facilities and Supply and Logistics. All segment data and related disclosures for earlier periods presented herein have been recast to reflect the new segment reporting structure. Our CODM evaluates segment performance based on measures including Segment Adjusted EBITDA (as defined below) and maintenance capital. During the fourth quarter of 2021, we modified our definition of Segment Adjusted EBITDA to exclude amounts attributable to noncontrolling interests in consolidated joint venture entities. In connection with the Permian JV formation in October 2021, our CODM determined this modification resulted in amounts that were more meaningful to evaluate segment performance. Amounts attributable to noncontrolling interests in consolidated joint venture entities for earlier periods presented herein have been recast to reflect this modification. See Note 20 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for additional information regarding the modifications to our segment reporting and for a full discussion of our basis for segmentation and performance measures.

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 (d) our proportionate share of the depreciation and amortization expense of unconsolidated entities, further adjusted (e) for certain selected items including (i) gains and losses on 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 either related to investing activities (such as the purchase of linefill) or purchases of long-term inventory, 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 the applicable amounts subsequently recognized into revenue and (v) other items that our CODM believes are integral to understanding our core segment operating performance and (f) to exclude the portion of all preceding items that is attributable to noncontrolling interests in consolidated joint venture entities (“Adjusted EBITDA attributable to noncontrolling interests in consolidated joint ventures”).
 
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables reflect certain financial data for each segment (in millions):

Crude Oil NGL Intersegment Revenues
Elimination
Total
Three Months Ended March 31, 2022
Revenues (1):
Product sales $ 12,811  $ 682  $ (112) $ 13,381 
Services 268  53  (8) 313 
Total revenues $ 13,079  $ 735  $ (120) $ 13,694 
Equity earnings in unconsolidated entities $ 97  $ —  $ 97 
Segment Adjusted EBITDA $ 453  $ 161  $ 614 
Maintenance capital expenditures $ 19  $ $ 27 
Three Months Ended March 31, 2021
Revenues (1):
Product sales $ 7,586  $ 600  $ (103) $ 8,083 
Services 267  39  (6) 300 
Total revenues $ 7,853  $ 639  $ (109) $ 8,383 
Equity earnings in unconsolidated entities $ 88  $ —  $ 88 
Segment Adjusted EBITDA $ 474  $ 69  $ 543 
Maintenance capital expenditures $ 28  $ $ 35 
(1)Segment revenues include intersegment amounts that are eliminated in Purchases and related costs. Intersegment activities are conducted at posted tariff rates where applicable, or otherwise at rates similar to those charged to third parties or rates that we believe approximate market at the time the agreement is executed or renegotiated.
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment Adjusted EBITDA Reconciliation

The following table reconciles Segment Adjusted EBITDA to Net income attributable to PAGP (in millions):
 
Three Months Ended
March 31,
  2022 2021
Segment Adjusted EBITDA $ 614  $ 543 
Adjustments: (1)
Depreciation and amortization of unconsolidated entities (2)
(20) (20)
Gains/(losses) from derivative activities and inventory valuation adjustments (3)
(88) 198 
Long-term inventory costing adjustments (4)
92  41 
Deficiencies under minimum volume commitments, net (5)
(6) 32 
Equity-indexed compensation expense (6)
(7) (5)
Net gain on foreign currency revaluation (7)
Line 901 incident (8)
(85) — 
Adjusted EBITDA attributable to noncontrolling interests in consolidated joint ventures (9)
76 
Unallocated general and administrative expenses (10)
(1) (1)
Depreciation and amortization (231) (178)
Gains/(losses) on asset sales and asset impairments, net 42  (2)
Interest expense, net (107) (107)
Other expense, net (37) (60)
Income before tax 244  445 
Income tax expense (35) (53)
Net income 209  392 
Net income attributable to noncontrolling interests (187) (322)
Net income attributable to PAGP $ 22  $ 70 
(1)Represents adjustments utilized by our CODM in the evaluation of segment results.
(2)Includes our proportionate share of the depreciation and amortization expense (including write-downs related to cancelled projects) of unconsolidated entities.
(3)We use derivative instruments for risk management purposes and our related processes include specific identification of hedging instruments to an underlying hedged transaction. Although we identify an underlying transaction for each derivative instrument we enter into, there may not be an accounting hedge relationship between the instrument and the underlying transaction. In the course of evaluating our results, we identify differences in the timing of earnings from the derivative instruments and the underlying transactions and exclude the related gains and losses in determining Segment Adjusted EBITDA such that the earnings from the derivative instruments and the underlying transactions impact Segment Adjusted EBITDA in the same period. In addition, we exclude gains and losses on derivatives that are related to (i) investing activities, such as the purchase of linefill, and (ii) purchases of long-term inventory. We also exclude the impact of corresponding inventory valuation adjustments, as applicable.
(4)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. We consider this inventory necessary to conduct our operations and we intend to carry this inventory for the foreseeable future. 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 exclude 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 from Segment Adjusted EBITDA.
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PLAINS GP HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(5)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. Some of these agreements include make-up rights if the minimum volume is not met. We record a receivable from the counterparty in the period that services are provided or when the transaction occurs, including amounts for deficiency obligations from counterparties associated with minimum volume commitments. If a counterparty has a make-up right associated with a deficiency, we defer the revenue attributable to the counterparty’s make-up right and subsequently recognize the revenue 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. We include the impact of amounts billed to counterparties for their deficiency obligation, net of applicable amounts subsequently recognized into revenue, as a selected item impacting comparability. Our CODM views the inclusion of the contractually committed revenues associated with that period as meaningful to Segment Adjusted EBITDA as the related asset has been constructed, is standing ready to provide the committed service and the fixed operating costs are included in the current period results.
(6)Our total equity-indexed compensation expense includes expense associated with awards that will be settled in PAA common units and awards that will be settled in cash. The awards that will be settled in PAA common units are included in PAA’s diluted net income per unit calculation when the applicable performance criteria have been met. We exclude compensation expense associated with these awards in determining Segment Adjusted EBITDA as the dilutive impact of the outstanding awards is included in PAA’s diluted net income per unit calculation, as applicable. The portion of compensation expense associated with awards that will settle in cash is not excluded in determining Segment Adjusted EBITDA. See Note 18 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for a discussion regarding our equity-indexed compensation plans.
(7)During the periods presented, there were fluctuations in the value of CAD to 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 therefore excluded in determining Segment Adjusted EBITDA.
(8)Includes costs recognized during the period related to the Line 901 incident that occurred in May 2015, net of amounts we believe are probable of recovery from insurance. See Note 10 for additional information regarding the Line 901 incident.
(9)Reflects amounts attributable to noncontrolling interests in the Permian JV and Red River LLC.
(10)Represents general and administrative expenses incremental to those of PAA, which are not allocated to our reporting segments in determining Segment Adjusted EBITDA.

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Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Introduction
 
The following discussion is intended to provide investors with an understanding of our financial condition and results of our operations and should be read in conjunction with our historical Consolidated Financial Statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations as presented in our 2021 Annual Report on Form 10-K. For more detailed information regarding the basis of presentation for the following financial information, see the Condensed Consolidated Financial Statements and related notes that are contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
 
Our discussion and analysis includes the following:
 
Executive Summary
Results of Operations
Liquidity and Capital Resources 
Recent Accounting Pronouncements
Forward-Looking Statements
 
Executive Summary
 
Company Overview
 
We are a Delaware limited partnership that has elected to be taxed as a corporation for United States federal income tax purposes. As of March 31, 2022, our sole cash-generating assets consisted of (i) a 100% managing member interest in GP LLC and (ii) an approximate 81% limited partner interest in AAP through our direct ownership of AAP units and indirect ownership of AAP units through GP LLC, which also holds the non-economic general partner interest in AAP. As of March 31, 2022, AAP directly owned a limited partner interest in PAA through its ownership of approximately 241.5 million PAA common units (approximately 31% of PAA’s total outstanding common units and Series A preferred units combined). AAP is the sole member of PAA GP, which holds the non-economic general partner interest in PAA.
  
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, we own 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 and NGL.

Segment Changes

During the fourth quarter of 2021, we reorganized our historical operating segments into two operating segments: Crude Oil and NGL. Additionally, during the fourth quarter of 2021, we modified our definition of Segment Adjusted EBITDA to exclude amounts attributable to noncontrolling interests in consolidated joint venture entities. See Note 20 to our Consolidated Financial Statements included in Part IV of our 2021 Annual Report on Form 10-K for additional information. All segment data and related disclosures for earlier periods presented herein have been recast to reflect the new segment reporting structure and the modification to our definition of Segment Adjusted EBITDA.
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Overview of Operating Results
 
During the first three months of 2022, we recognized net income of $209 million compared to net income of $392 million recognized during the first three months of 2021. Results for the first three months of 2022 decreased from the comparable 2021 period driven primarily by the impact of the mark-to-market of certain derivative instruments, and, to a lesser extent, the sale of our natural gas storage facilities and higher field operating costs primarily from (i) an increase in estimated costs associated with the Line 901 incident and (ii) gains related to hedged power costs resulting from the extreme winter weather event that occurred in February 2021 (“Winter Storm Uri”) recognized in the first quarter of 2021. These items were partially offset by more favorable margins in our NGL segment and increased earnings from higher tariff volumes on our pipelines.

See the “Results of Operations” section below for further discussion.

Results of Operations
 
Consolidated Results

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

Three Months Ended
March 31,
Variance
  2022 2021 $ %
Product sales revenues $ 13,381  $ 8,083  $ 5,298  66  %
Services revenues 313  300  13  %
Purchases and related costs (12,785) (7,392) (5,393) (73) %
Field operating costs (346) (219) (127) (58) %
General and administrative expenses (83) (68) (15) (22) %
Depreciation and amortization (231) (178) (53) (30) %
Gains/(losses) on asset sales and asset impairments, net 42  (2) 44  **
Equity earnings in unconsolidated entities 97  88  10  %
Interest expense, net
(107) (107) —  —  %
Other expense, net (37) (60) 23  38  %
Income tax expense (35) (53) 18  34  %
Net income 209  392  (183) (47) %
Net income attributable to noncontrolling interests (187) (322) 135  42  %
Net income attributable to PAGP $ 22  $ 70  $ (48) (69) %
Basic and diluted net income per Class A share $ 0.11  $ 0.36  $ (0.25) (69) %
Basic and diluted weighted average Class A shares outstanding 194  194  —  —  %
**    Indicates that variance as a percentage is not meaningful.

Revenues and Purchases

Fluctuations in our consolidated revenues and purchases and related costs are primarily associated with our merchant activities and generally explained in large part by changes in commodity prices. Our crude oil and NGL merchant activities are not directly affected by the absolute level of prices because the commodities that we buy and sell are generally indexed to the same pricing indices. Both product sales revenues and purchases and related costs will fluctuate with market prices; however, the absolute margins related to those sales and purchases will not necessarily have a corresponding increase or decrease.
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Additionally, product sales revenues include the impact of gains and losses related to derivative instruments used to manage our exposure to commodity price risk associated with such sales and purchases.

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

NYMEX WTI
Crude Oil Price
  Low High Average
Three Months Ended March 31, 2022 $ 76  $ 124  $ 95 
Three Months Ended March 31, 2021 $ 48  $ 66  $ 58 

Product sales revenues and purchases increased for the three months ended March 31, 2022, compared to the same period in 2021 primarily due to higher prices and volumes in the 2022 period.

Revenues from services increased for the three months ended March 31, 2022, compared to the same period in 2021 primarily due to higher prices and volumes in the 2022 period, partially offset by the impact of the sale of our natural gas storage facilities in the third quarter of 2021.

See further discussion of our net revenues in the “—Analysis of Operating Segments” section below.

Field Operating Costs

See discussion of field operating costs in the “—Analysis of Operating Segments” section below.

General and Administrative Expenses

The increase in general and administrative expenses for the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to (i) costs associated with the formation of the Permian JV, a portion of which are transition related, (ii) employee related costs, including an increase in equity-indexed compensation expense on equity-classified awards (which is excluded in the calculation of Adjusted EBITDA and Segment Adjusted EBITDA) due to changes in plan assumptions, and (iii) higher office rent due to a cost abatement in the prior year.

Gains/(Losses) on Asset Sales and Asset Impairments, Net

During the first quarter of 2022, we recognized a gain of $40 million related to the sale of land and buildings in California.

Depreciation and Amortization

The increase in depreciation and amortization expense for the three months ended March 31, 2022 compared to the same period in 2021 was driven by depreciation expense on the assets contributed by Oryx Midstream Holdings LLC (“Oryx Midstream”) upon formation of the Permian JV.

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Other Expense, Net

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

Three Months Ended
March 31,
  2022 2021
Loss related to mark-to-market adjustment of Preferred Distribution Rate Reset Option (1)
$ (44) $ (67)
Net gain on foreign currency revaluation (2)
$ (37) $ (60)