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| PAA > SEC Filings for PAA > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Executive Summary
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 2008 Annual Report on Form 10-K. For more detailed information regarding the basis of presentation for the following financial information, see the "Notes to the Condensed Consolidated Financial Statements."
Our discussion and analysis includes the following:
† Overview of Operating Results, Capital Spending and Significant Activities
† Acquisitions and Internal Growth Projects
† Results of Operations
† Liquidity and Capital Resources
† Recent Accounting Pronouncements
† Critical Accounting Policies and Estimates
† Forward-Looking Statements and Associated Risks
Overview of Operating Results, Capital Spending and Significant Activities
During the first nine months of 2009, all three of our segments provided favorable operating results, particularly our marketing segment, which benefited from the favorable contango crude oil market structure early in the period and favorable LPG margins. Additional key items impacting the first nine months of 2009 include:
† Contributions to earnings from mid-year 2008 adjustments in pipeline tariff rates and the acquisition of Rainbow Pipe Line Company, Ltd. ("Rainbow") in May 2008, offset partially by the impact of tariff settlements in 2009.
† One months' contribution to earnings from the September 2009 acquisition of the remaining 50% indirect interest in PAA Natural Gas Storage, LLC ("PNGS") from Vulcan Gas Storage LLC ("Vulcan"), as well as increased earnings resulting from prior acquisitions and expansion projects included in our facilities segment.
† Equity compensation plan expense of approximately $47 million for the nine months of 2009 compared to $27 million for the corresponding prior year period. The increased expense primarily resulted from an increase in unit price for the first nine months of 2009 compared to a decrease in unit price for the first nine months of 2008.
† The issuance of 5,750,000 limited partner units at $36.90 per unit for net proceeds of approximately $210 million in March 2009, and the issuance of 5,290,000 limited partner units at $46.70 per unit for net proceeds of approximately $246 million in September 2009.
† In September 2009, we issued 1,907,305 common units valued at approximately $91 million in order to satisfy a portion of the PNGS Acquisition purchase price. In conjunction with the issuance, we received a contribution from our general partner of approximately $2 million. See Note 4 to the Condensed Consolidated Financial Statements for further discussion.
† The issuance and repayment of the following senior notes: † Issuance of $350 million of 8.75% senior notes for net proceeds of approximately $347 million in April 2009. † Issuance of $500 million of 4.25% senior notes for net proceeds of approximately $497 million in July 2009. † Repayment of $175 million of 4.75% senior notes in August 2009. † Issuance of $500 million of 5.75% senior notes for net proceeds of approximately $494 million in September 2009. |
Acquisitions and Internal Growth Projects
The following table summarizes our capital expenditures for acquisitions,
internal growth projects, maintenance capital and investments in unconsolidated
entities for the periods indicated (in millions):
Nine Months
Ended September 30,
2009 2008
Acquisition capital $ 281 $ 688
Internal growth projects 261 379
Maintenance capital 56 56
Investment in unconsolidated entities 4 35
Total $ 602 $ 1,158
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Acquisitions
PNGS Acquisition
On September 3, 2009, we acquired the remaining 50% interest in PNGS from Vulcan for an aggregate purchase price of $215 million. The gas storage operations are reflected in our facilities segment. See Note 4 to our Condensed Consolidated Financial Statements for further discussion of the purchase price and related allocation.
Other Acquisitions
During 2009, we completed three other acquisitions for aggregate consideration of approximately $66 million. These acquisitions included (i) a crude oil pipeline that is reflected in the our transportation segment, (ii) a natural gas processing business that is reflected in our facilities segment, and (iii) a refined products terminal that is reflected in our facilities segment. In connection with these transactions, we allocated approximately $9 million to goodwill.
In October 2009, we completed an acquisition for approximately $40 million. The assets acquired include six crude oil storage tanks (with a total of approximately 400,000 barrels of storage capacity), three receiving pipelines, a manifold system and various other related assets in Tulsa, Oklahoma. In conjunction with this acquisition, the seller entered into a 15-year tank lease and minimum throughput agreement with us (with options to extend the lease and throughput agreement).
Internal Growth Projects
Our internal growth projects primarily relate to the construction and expansion of pipeline systems and crude oil storage and terminal facilities. The following table summarizes our more notable projects undertaken in 2009 and the forecasted expenditures for the year (in millions):
Projects 2009 St. James-Phase III (1) 73 Rangeland tankage and connections 35 Kerrobert pumping project 34 Cushing-Phase VII 29 Patoka Phase II & III 20 Nipisi storage and truck terminal 20 Pier 400 18 Pine Prairie 15 Salt Lake City 14 Paulsboro tankage 12 Other projects, including acquisition related expansion projects (2) 110 Total $ 380 |
(2) Primarily pipeline connections and upgrades, truck stations, new tank construction and refurbishing, and carry-over of projects started in 2008.
Results of Operations
Analysis of Operating Segments
We manage our operations through three operating segments: (i) Transportation,
(ii) Facilities and (iii) Marketing. In order to evaluate segment performance,
management focuses on a variety of measures including segment profit, segment
volumes, segment profit per barrel and maintenance capital investment. See Note
15 to our Consolidated Financial Statements in our 2008 Annual Report on
Form 10-K for further discussion on how we evaluate segment performance.
Three Months Nine Months
Favorable/ Favorable/
Three Months (Unfavorable) Nine Months (Unfavorable)
Ended September 30, Variance Ended September 30, Variance
2009 2008 $ % 2009 2008 $ %
Transportation
segment profit $ 129 $ 119 $ 10 8 % $ 355 $ 315 $ 40 13 %
Facilities segment
profit 57 39 18 46 % 155 107 48 45 %
Marketing segment
profit 44 138 (94 ) (68 )% 282 190 92 49 %
Total segment profit 230 296 (66 ) (22 )% 792 612 180 29 %
Depreciation and
amortization (59 ) (49 ) (10 ) (20 )% (173 ) (150 ) (23 ) (15 )%
Interest expense (59 ) (52 ) (7 ) (13 )% (165 ) (143 ) (22 ) (15 )%
Other
income/(expense), net 12 14 (2 ) (14 )% 17 27 (10 ) (37 )%
Income tax expense (2 ) (3 ) 1 33 % (1 ) (7 ) 6 86 %
Net income 122 206 (84 ) (41 )% 470 339 131 39 %
Less: Net (income)
attributable to
noncontrolling
interest - - - - % (1 ) - (1 ) 100 %
Net income
attributable to
Plains $ 122 $ 206 $ (84 ) (41 )% $ 469 $ 339 $ 130 38 %
Earnings per basic
limited partner unit $ 0.65 $ 1.42 $ (0.77 ) (54 )% $ 2.84 $ 2.10 $ 0.74 35 %
Earnings per diluted
limited partner unit $ 0.65 $ 1.41 $ (0.76 ) (54 )% $ 2.82 $ 2.08 $ 0.74 36 %
Basic weighted
average units
outstanding 130 123 7 6 % 128 120 8 7 %
Diluted weighted
average units
outstanding 131 124 7 6 % 129 121 8 7 %
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Transportation Segment
The following table sets forth the operating results from our transportation
segment for the periods indicated:
Three Months Nine Months
Favorable/ Favorable/
Three Months (Unfavorable) Nine Months (Unfavorable)
Operating Results (1) Ended September 30, Variance Ended September 30, Variance
(in millions, except
per barrel amounts) 2009 2008 $ % 2009 2008 $ %
Revenues
Tariff activities $ 228 $ 209 $ 19 9 % $ 644 $ 583 $ 61 10 %
Trucking 22 33 (11 ) (33 )% 70 97 (27 ) (28 )%
Total transportation
revenues 250 242 8 3 % 714 680 34 5 %
Costs and Expenses
Trucking costs (15 ) (23 ) 8 35 % (47 ) (68 ) 21 31 %
Field operating costs
(excluding equity
compensation
(expense))/benefit (86 ) (86 ) - - % (249 ) (246 ) (3 ) (1 )%
Equity compensation
(expense)/benefit -
operations (2) (2 ) 1 (3 ) 300 % (6 ) (1 ) (5 ) (500 )%
Segment G&A expenses
(excluding equity
compensation expense) (14 ) (14 ) - - % (45 ) (42 ) (3 ) (7 )%
Equity compensation
expense - general and
administrative (2) (6 ) (2 ) (4 ) (200 )% (17 ) (12 ) (5 ) (42 )%
Equity earnings in
unconsolidated
entities 2 1 1 100 % 5 4 1 25 %
Segment profit $ 129 $ 119 $ 10 8 % $ 355 $ 315 $ 40 13 %
Maintenance capital $ 9 $ 13 $ 4 31 % $ 40 $ 38 $ (2 ) (5 )%
Segment profit per
barrel $ 0.48 $ 0.44 $ 0.04 9 % $ 0.44 $ 0.39 $ 0.05 13 %
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Three Months Nine Months
Favorable/ Favorable/
Three Months (Unfavorable) Nine Months (Unfavorable)
Average Daily Volumes Ended September 30, Variance Ended September 30, Variance
(in thousands of
barrels per day) (3) 2009 2008 Volumes % 2009 2008 Volumes %
Tariff activities
All American 43 44 (1 ) (2 )% 40 44 (4 ) (9 )%
Basin 335 375 (40 ) (11 )% 389 372 17 5 %
Capline 205 216 (11 ) (5 )% 205 218 (13 ) (6 )%
Line 63/Line 2000 141 131 10 8 % 136 151 (15 ) (10 )%
Salt Lake City Area
Systems 152 90 62 69 % 132 94 38 40 %
West Texas/New Mexico
Area Systems 355 370 (15 ) (4 )% 375 367 8 2 %
Manito 62 68 (6 ) (9 )% 62 70 (8 ) (11 )%
Rainbow 176 191 (15 ) (8 )% 184 108 76 70 %
Rangeland 51 54 (3 ) (6 )% 54 58 (4 ) (7 )%
Refined products 100 108 (8 ) (7 )% 96 110 (14 ) (13 )%
Other 1,219 1,234 (15 ) (1 )% 1,207 1,238 (31 ) (3 )%
Tariff activities
total 2,839 2,881 (42 ) (1 )% 2,880 2,830 50 2 %
Trucking 80 101 (21 ) (21 )% 84 96 (12 ) (13 )%
Transportation
segment total 2,919 2,982 (63 ) (2 )% 2,964 2,926 38 1 %
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(2) Equity compensation expense related to our equity compensation plans.
(3) Volumes associated with acquisitions represent total volumes for the number of days we actually owned the assets divided by the number of days in the period.
Transportation segment profit and segment profit per barrel for the three and nine months ended September 30, 2009 were impacted by the following:
Operating Revenues and Volumes. As noted in the table above, our transportation segment revenues increased and volumes were relatively flat for both the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008. The significant variances in revenues and average daily volumes between the comparative periods are discussed below:
† Acquisitions - The Rainbow acquisition was effective May 1, 2008 and contributed additional volumes of 76,000 barrels per day and approximately $13 million of additional tariff revenues (net of the resolution of tariff disputes) during the nine months ended September 30, 2009 relative to the same period of 2008.
† Expansion Activities - In the fourth quarter of 2008, we completed construction of a 93-mile expansion of the Salt Lake City Core Area system from Wahsatch, Utah to Salt Lake City. This line expansion, which was placed into service during the first quarter of 2009, contributed additional revenues for the three and nine months ended September 30, 2009 of approximately $4 million and $9 million, respectively.
† Loss Allowance Revenue - As is common in the industry, our tariffs incorporate a loss allowance factor that is intended to, among other things, offset losses due to evaporation, measurement and other losses in transit. We value the variance of allowance volumes to actual losses at the estimated net realizable value (including the impact of gains and losses from derivative-related activities) at the time the variance occurred and the result is recorded as either an increase or decrease to tariff revenues. Loss allowance revenues increased by approximately $5 million and $12 million for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008.
† Trucking - Revenues and volumes from trucking decreased for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008 primarily related to a decrease in demand.
† Rate increases - Rates increased on certain of our pipeline systems after the second quarter of 2008 and 2009 as a result of indexing by the Federal Energy Regulation Commission ("FERC"). In addition, we had similar type rate increases on non-FERC regulated pipelines
resulted in increased revenues for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008.
Equity Compensation Charges. Equity compensation charges increased in 2009 compared to 2008 primarily as a result of an increase in unit price for the nine-month period ended September 30, 2009 compared to a decrease in unit price for the nine-month period ended September 30, 2008. See Note 9 to our Condensed Consolidated Financial Statements for additional information on our equity compensation plans.
Facilities Segment
The following table sets forth the operating results from our facilities segment
for the periods indicated:
Three Months Nine Months
Favorable/ Favorable/
Three Months (Unfavorable) Nine Months (Unfavorable)
Operating Results (1) Ended September 30, Variance Ended September 30, Variance
(in millions, except per barrel amounts) 2009 2008 $ % 2009 2008 $ %
Storage and terminalling revenues (1) $ 97 $ 69 $ 28 41 % $ 259 $ 194 $ 65 34 %
Purchases and related costs (1 ) - (1 ) N/A (1 ) - (1 ) N/A
Field operating costs (32 ) (27 ) (5 ) (19 )% (85 ) (76 ) (9 ) (12 )%
Segment G&A expenses (excluding equity
compensation expense) (7 ) (5 ) (2 ) (40 )% (18 ) (13 ) (5 ) (38 )%
Equity compensation expense - general
and administrative (2) (3 ) (1 ) (2 ) (200 )% (7 ) (5 ) (2 ) (40 )%
Equity earnings in unconsolidated
entities 3 3 - - % 8 7 1 14 %
Segment profit $ 57 $ 39 $ 18 46 % $ 156 $ 107 $ 49 46 %
Maintenance capital $ 2 $ 5 $ 3 60 % $ 11 $ 15 $ 4 27 %
Segment profit per barrel $ 0.31 $ 0.23 $ 0.08 35 % $ 0.29 $ 0.21 $ 0.08 38 %
Three Months Nine Months
Favorable/ Favorable/
Three Months (Unfavorable) Nine Months (Unfavorable)
Ended September 30, Variance Ended September 30, Variance
Volumes (3)(4) 2009 2008 Volumes % 2009 2008 Volumes %
Crude oil, refined
products and LPG
storage
(average monthly
capacity in millions
of barrels) 56 55 1 2 % 56 54 2 4 %
Natural gas storage
(average monthly
capacity in billions
of cubic feet
("bcf")) (5) 27 14 13 93 % 21 13 8 62 %
LPG processing
(average throughput
in thousands of
barrels per day) 17 17 - - % 16 16 - - %
Facilities segment
total
(average monthly
capacity in millions
of barrels) 61 58 3 5 % 60 57 3 5 %
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(2) Equity compensation expense related to our equity compensation plans.
(3) Volumes associated with acquisitions represent total volumes for the number of months we actually owned the assets divided by the number of months in the period.
(4) Facilities total calculated as the sum of: (i) crude oil, refined products and LPG storage capacity; (ii) natural gas storage capacity divided by 6 to account for the 6:1 Mmcf of gas to crude oil barrel ratio; and (iii) LPG processing volumes multiplied by the number of days in the period and divided by the number of months in the period.
(5) In September 2009, we acquired the remaining 50% indirect interest in PNGS, which resulted in our 100% ownership of the natural gas storage business and related operating entities. Therefore, Natural gas storage volumes for 2008 and January through August 2009 are netted to our 50% interest in PNGS. September 2009 volumes represent our 100% interest in PNGS.
Facilities segment profit and segment profit per barrel for the three and nine months ended September 30, 2009 were impacted by the following:
Operating Revenues and Volumes. As noted in the table above, our facilities segment revenues and volumes increased for the three and nine months ended September 30, 2009 compared to the three and nine months ended September 30, 2008. The significant variances in revenues and average daily volumes between the comparative periods are discussed below:
† Expansion Projects - The Paulsboro, Patoka, St. James and Ft. Laramie expansion projects resulted in an aggregate increase in revenues of approximately $8 million and $24 million for the three and nine months ended September 30, 2009 compared to the same periods of 2008.
† Acquisitions - Revenues and volumes for the three and nine months ended September 30, 2009 were impacted by the PNGS Acquisition, which closed during the third quarter of 2009 and the acquisition of a natural gas processing business, which closed during the second quarter of 2009. Revenues and volumes for the three and nine months ended September 20, 2009 compared to the same periods during 2008 were also impacted by the San Pedro acquisition, which closed during the fourth quarter of 2008. Such acquisitions contributed approximately $12 million and $18 million in revenues for the three and nine months ended September 30, 2009 compared to the same periods of 2008, respectively.
† Leased Tankage - Revenues for the three and nine months ended September 30, 2009 increased primarily as a result of general escalations on existing leases.
Field Operating Costs. Field operating costs (excluding equity compensation charges) have increased in several categories for the three and nine months ended September 30, 2009 in comparison to the three and nine months ended September 30, 2008 primarily related to the expansion projects and acquisitions discussed above. The 2009 increased cost categories included (i) payroll and benefits and (ii) property taxes, partially offset by a decrease in utilities costs.
G&A Costs. G&A costs (excluding equity compensation charges) have increased in most categories for the three and nine months ended September 30, 2009 in comparison to the three and nine months ended September 30, 2008 primarily related to the acquisitions discussed above. The 2009 increased cost categories included (i) payroll and benefits, (ii) legal fees and (iii) consulting and other fees related to our acquisition transactions.
Equity Compensation Charges. Equity compensation charges increased in 2009 compared to 2008 primarily as a result of an increase in unit price for the nine-month period ended September 30, 2009 compared to a decrease in unit price for the nine-month period ended September 30, 2008. See Note 9 to our Condensed Consolidated Financial Statements for additional information on our equity compensation plans.
Marketing Segment
The following table sets forth the operating results from our marketing segment for the periods indicated:
Three Months Nine Months
Favorable/ Favorable/
. . .
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