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| PAA > SEC Filings for PAA > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-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
† Internal Growth Projects and Acquisitions
† Results of Operations
† Liquidity and Capital Resources
† Recent Accounting Pronouncements
† Critical Accounting Policies and Estimates
Overview of Operating Results, Capital Spending and Significant Activities
During the first six months of 2009, all three of our segments provided favorable operating results, particularly our marketing segment which benefited from the mark-to-market of certain derivative contracts, a favorable contango crude oil market structure; and favorable LPG margins. Additional key items impacting operating results during the first six months of 2009 include:
† Contributions to earnings from (i) mid-year 2008 adjustments in pipeline tariff rates and (ii) the acquisition of Rainbow Pipe Line Company, Ltd. ("Rainbow") in May 2008, offset partially by the impact of tarriff settlements in 2009.
† Increased earnings from expansion projects and acquisitions completed within our facilities segment.
† Equity compensation plan expense of approximately $30 million for the six months of 2009 compared to $24 million for the corresponding prior year period. The increased expense primarily resulted from an increase in unit price for the first six months of 2009 compared to a decrease in unit price for the first six 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.
† The issuance of $350 million of senior notes for net proceeds of approximately $347 million in April 2009.
Internal Growth Projects and Acquisitions
The following table summarizes our capital expenditures for acquisitions,
investments in unconsolidated entities, internal growth projects and maintenance
capital for the periods indicated (in millions):
Six Months
Ended June 30,
2009 2008
Acquisition capital (1) $ 60 $ 688
Investment in unconsolidated entities 4 40
Internal growth projects 157 256
Maintenance capital 44 37
Total $ 265 $ 1,021
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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 Patoka Phase II & III 30 Cushing Phase VII 29 Nipisi storage and truck terminal 20 Salt Lake City pipeline 14 Pier 400 13 Paulsboro 12 Other projects, including acquisition related expansion projects (2) 110 Total $ 370 |
(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 Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Ended June 30, Variance Ended June 30, Variance
2009 2008 $ % 2009 2008 $ %
Transportation
segment profit $ 114 $ 106 $ 8 8 % $ 226 $ 195 $ 31 16 %
Facilities segment
profit 52 36 16 44 % 98 68 30 44 %
Marketing segment
profit 78 (5 ) 83 1,660 % 238 52 186 358 %
Total segment profit 244 137 107 78 % 562 315 247 78 %
Depreciation and
amortization (56 ) (52 ) (4 ) (8 )% (114 ) (100 ) (14 ) (14 )%
Interest expense (56 ) (49 ) (7 ) (14 )% (107 ) (91 ) (16 ) (18 )%
Interest income and
other
income/(expense), net 2 10 (8 ) (80 )% 5 12 (7 ) (58 )%
Income tax
benefit/(expense) 2 (5 ) 7 140 % 1 (3 ) 4 133 %
Net income $ 136 $ 41 $ 95 232 % $ 347 $ 133 $ 214 161 %
Earnings per basic
limited partner unit $ 0.79 $ 0.09 $ 0.70 778 % $ 2.20 $ 0.65 $ 1.55 238 %
Earnings per diluted
limited partner unit $ 0.78 $ 0.09 $ 0.69 767 % $ 2.18 $ 0.64 $ 1.54 241 %
Basic weighted
average units
outstanding 129 120 9 8 % 126 118 8 7 %
Diluted weighted
average units
outstanding 130 121 9 7 % 127 119 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 Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Operating Results (1) Ended June 30, Variance Ended June 30, Variance
(in millions, except
per barrel amounts) 2009 2008 $ % 2009 2008 $ %
Revenues
Tariff activities $ 214 $ 199 $ 15 8 % $ 416 $ 373 $ 43 12 %
Trucking 24 33 (9 ) (27 )% 48 64 (16 ) (25 )%
Total transportation
revenues 238 232 6 3 % 464 437 27 6 %
Costs and Expenses
Trucking costs (16 ) (23 ) 7 30 % (32 ) (45 ) 13 29 %
Field operating costs
(excluding equity
compensation expense) (86 ) (81 ) (5 ) (6 )% (163 ) (160 ) (3 ) (2 )%
Equity compensation
expense - operations
(2) (2 ) (1 ) (1 ) (100 )% (4 ) (2 ) (2 ) (100 )%
Segment G&A expenses
(excluding equity
compensation expense) (14 ) (14 ) - - % (30 ) (28 ) (2 ) (7 )%
Equity compensation
expense - general and
administrative (2) (8 ) (8 ) - - % (12 ) (10 ) (2 ) (20 )%
Equity earnings in
unconsolidated
entities 2 1 1 100 % 3 3 - - %
Segment profit $ 114 $ 106 $ 8 8 % $ 226 $ 195 $ 31 16 %
Maintenance capital $ 16 $ 11 $ 5 45 % $ 30 $ 25 $ 5 20 %
Segment profit per
barrel $ 0.41 $ 0.38 $ 0.03 7 % $ 0.42 $ 0.37 $ 0.05 13 %
Three Months Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Average Daily Volumes Ended June 30, Variance Ended June 30, Variance
(in thousands of
barrels per day) (3) 2009 2008 Volumes % 2009 2008 Volumes %
Tariff activities
All American 42 43 (1 ) (2 )% 39 45 (6 ) (13 )%
Basin 440 377 63 17 % 417 370 47 13 %
Capline 204 247 (43 ) (17 )% 205 218 (13 ) (6 )%
Line 63/Line 2000 145 160 (15 ) (9 )% 133 161 (28 ) (17 )%
Salt Lake City Area
Systems 139 96 43 45 % 121 96 25 26 %
West Texas/New Mexico
Area Systems 374 382 (8 ) (2 )% 384 366 18 5 %
Manito 61 72 (11 ) (15 )% 63 70 (7 ) (10 )%
Rainbow 181 132 49 37 % 188 66 122 185 %
Rangeland 53 59 (6 ) (10 )% 56 60 (4 ) (7 )%
Refined products 91 107 (16 ) (15 )% 94 111 (17 ) (15 )%
Other 1,260 1,274 (14 ) (1 )% 1,201 1,234 (33 ) (3 )%
Tariff activities
total 2,990 2,949 41 1 % 2,901 2,797 104 4 %
Trucking 84 89 (5 ) (6 )% 86 93 (7 ) (8 )%
Transportation
segment total 3,074 3,038 36 1 % 2,987 2,890 97 3 %
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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 six months ended June 30, 2009 were impacted by the following:
Operating Revenues and Volumes. As noted in the table above, our transportation segment revenues and volumes increased for
both the three and six months ended June 30, 2009 as compared to the three and six months ended June 30, 2008. The significant variances in revenues and average daily volumes between the comparative periods are discussed below:
† Acquisitions and Expansion Projects - The Rainbow acquisition was effective May 1, 2008 and contributed additional volumes of 122,000 barrels per day and approximately $18 million of additional tariff revenues (net of the resolution of tariff disputes) during the six months ended June 30, 2009 relative to the same period of 2008.
† 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 $7 million for the three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008.
† Rate increases - Rates increased on certain of our pipeline systems after the second quarter of 2008 as a result of indexing by the Federal Energy Regulation Commission ("FERC") and normal course of business adjustments elsewhere, which resulted in increased revenues for the three and six months ended June 30, 2009 compared to the three and six months ended June 30, 2008.
Field Operating Costs. Excluding equity compensation costs (see below) and the
Rainbow acquisition related costs of approximately $4 million and $9 million for
the three and six months ended June 30, 2009, field operating costs decreased
for the three and six months ended June 30, 2009 compared to the same periods
during 2008 primarily due to decreases in (i) fuel and utilities costs and (ii)
costs associated with API 653 compliance and pipeline integrity testing. These
decreases were partially offset by the increases in (i) payroll and benefits,
(ii) maintenance costs and (iii) property taxes.
Equity Compensation Charges. Equity compensation charges increased in 2009 compared to 2008 primarily as a result of an increase in unit price for the six-month period ended June 30, 2009 compared to a decrease in unit price for the six-month period ended June 30, 2008. See Note 8 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 Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Operating Results
(1) Ended June 30, Variance Ended June 30, Variance
(in millions, except
per barrel amounts) 2009 2008 $ % 2009 2008 $ %
Storage and
terminalling
revenues (1) $ 85 $ 65 $ 20 31 % $ 162 $ 124 $ 38 31 %
Field operating
costs (27 ) (25 ) (2 ) (8 )% (54 ) (48 ) (6 ) (13 )%
Segment G&A expenses
(excluding equity
compensation
expense) (6 ) (4 ) (2 ) (50 )% (11 ) (8 ) (3 ) (38 )%
Equity compensation
expense - general
and administrative
(2) (3 ) (3 ) - - % (4 ) (4 ) - - %
Equity earnings in
unconsolidated
entities 3 3 - - % 5 4 1 25 %
Segment profit $ 52 $ 36 $ 16 44 % $ 98 $ 68 $ 30 44 %
Maintenance capital $ 3 $ 5 $ (2 ) (40 )% $ 10 $ 10 $ - - %
Segment profit per
barrel $ 0.29 $ 0.22 $ 0.07 31 % $ 0.28 $ 0.21 $ 0.07 32 %
Three Months Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Ended June 30, Variance Ended June 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 52 4 8 % 55 52 3 6 %
Natural gas storage,
net to our 50%
interest
(average monthly
capacity in billions
of cubic feet
("bcf")) 20 14 6 43 % 18 13 5 38 %
LPG processing
(average throughput
in thousands of
barrels per day) 17 17 - - % 16 16 - - %
Facilities segment
total
(average monthly
capacity in millions
of barrels) 60 55 5 9 % 59 54 5 9 %
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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 mcf 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.
Facilities segment profit and segment profit per barrel for the three and six months ended June 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 six months ended June 30, 2009 compared to the three and six months ended June 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 increase in revenues of approximately $8 million and $16 million and volumes of approximately 6 million barrels per month and 6 million barrels per month for the three- and six- month periods ended June 30, 2009 compared to the same periods of 2008.
† Acquisitions - Revenues and volumes for the three and six months ended June 30, 2009 were impacted by the San Pedro acquisition, which closed during the fourth quarter of 2008, and the natural gas processing acquisition, which closed during the second quarter of 2009. The San Pedro and natural gas processing acquisitions contributed approximately $4 million and $7 million in revenues and volumes of approximately 1 million barrels per month and 1 million barrels per month for the three- and six- month periods ended June 30, 2009 compared to the same periods of 2008, respectively.
† Rate Increases - Revenues for the three and six months ended June 30, 2009 increased as a result of higher lease rates received at various facilities, due in part to our decision in mid-2008 to increase the amount of tankage leased to third parties as well as general escalations on existing leases.
Field Operating Costs. Field operating costs (excluding equity compensation
charges) have increased in most categories for the three and six months ended
June 30, 2009 in comparison to the three and six months ended June 30, 2008
primarily related to the expansion projects and acquisitions discussed above.
The 2009 increased costs primarily relate to (i) payroll and benefits,
(ii) maintenance costs and (iii) property taxes, partially offset by a decrease
in fuel costs.
Marketing Segment
The following table sets forth the operating results from our marketing segment
for the periods indicated:
Three Months Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Operating Results
(1) Ended June 30, Variance Ended June 30, Variance
(in millions, except
per barrel amounts) 2009 2008 $ % 2009 2008 $ %
Revenues $ 4,099 $ 8,881 $ (4,782 ) (54 )% $ 7,231 $ 15,918 $ (8,687 ) (55 )%
Purchases and
related costs (3) (3,951 ) (8,819 ) 4,868 55 % (6,854 ) (15,739 ) 8,885 56 %
Field operating
costs (47 ) (45 ) (2 ) (4 )% (96 ) (87 ) (9 ) (10 )%
Segment G&A expenses
(excluding equity
compensation
expense) (17 ) (16 ) (1 ) (6 )% (33 ) (32 ) (1 ) (3 )%
Equity compensation
expense - general
and administrative
(4) (6 ) (6 ) - - % (10 ) (8 ) (2 ) (25 )%
Segment
profit/(loss) (2) $ 78 $ (5 ) $ 83 1,660 % $ 238 $ 52 $ 186 358 %
Maintenance capital $ 3 $ 1 $ 2 200 % $ 4 $ 2 $ 2 100 %
Segment profit per
barrel (5) $ 1.11 $ (0.06 ) $ 1.17 1,950 % $ 1.60 $ 0.32 $ 1.28 400 %
Three Months Six Months
Favorable/ Favorable/
Three Months (Unfavorable) Six Months (Unfavorable)
Average Daily
Volumes (6) Ended June 30, Variance Ended June 30, Variance
(in thousands of
barrels per day) 2009 2008 Volumes % 2009 2008 Volumes %
Crude oil lease
gathering purchases 623 672 (49 ) (7 )% 627 676 (49 ) (7 )%
Refined products
sales 36 24 12 50 % 36 22 14 64 %
LPG sales 60 51 9 18 % 102 93 9 10 %
Waterborne foreign
crude oil imported 57 102 (45 ) (44 )% 57 89 (32 ) (36 )%
Marketing segment
total 776 849 (73 ) (9 )% 822 880 (58 ) (7 )%
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(2) Includes net gains/(losses) related to inventory valuation adjustments and derivative activities.
(3) Purchases and related costs include interest expense on hedged inventory purchases of approximately $3 million and $5 million for the three and six months ended June 30, 2009, respectively, compared to $4 million and $10 million for the three and six months ended June 30, 2008, respectively.
(4) Equity compensation expense related to our equity compensation plans.
(5) Calculated based on crude oil lease gathering purchased volumes, refined products volumes, LPG sales volumes and waterborne foreign crude oil imported volumes.
(6) 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.
Marketing segment profit and segment profit per barrel for the three and six months ended June 30, 2009 were impacted by the following:
Revenues and Purchases and Related Costs. The absolute amount of our revenues and purchases decreased in the three and six months ended June 30, 2009 as compared to the three and six months ended June 30, 2008, primarily resulting from lower commodity prices in the 2009 period. The NYMEX benchmark price of crude oil ranged from $45 to $73 per barrel and $100 to $143 per barrel during the three months ended June 30, 2009 and 2008, respectively, and from $34 to $73 per barrel and $86 to $143 per barrel during the six months
ended June 30, 2009 and 2008, respectively. Because the commodities that we buy and sell are generally indexed to the same pricing indices for both the purchase and sale, revenues and costs related to purchases will fluctuate with market prices. However, the margins related to those purchases and sales will not necessarily have a corresponding increase or decrease. Generally, we expect a base level of earnings from our marketing segment that may be optimized and enhanced when there is a high level of volatility, favorable basis differentials or a steep contango or backwardated market structure.
. . .
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