01—Abstract
Summary
Summary of the 10-K filed March 2, 2006. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA), a Delaware limited partnership formed in September 1998, reported its 2005 annual results in this Form 10-K filed March 2, 2006. The partnership describes itself as one of the largest midstream crude oil companies in North America, operating about 15,000 miles of gathering and mainline crude oil pipelines, about 39 million barrels of active above-ground crude oil terminalling and storage, and an LPG business. Its 50% interest in PAA/Vulcan Gas Storage, LLC, formed in 2005 to acquire Energy Center Investments LLC for approximately $250 milliona, marks its entry into natural gas storage.
For 2005, revenues were $31,177.3 millionb (up from $20,975.5 million in 2004), operating income was $275.6 million (up from $180.0 million), and net income was $217.8 million, or $2.72 per diluted limited partner unit, compared with $130.0 million and $1.89 in 2004. Management attributed the improvement to favorable contango market conditions, a full year of 2004 acquisitions (notably Link Energy and Capline), and higher volumes. Results were partly offset by a $26.1 million Long-Term Incentive Plan charge and an $18.9 million mark-to-market loss under SFAS 133.
Cash flow from operations fell to $24.1 millionc in 2005 from $104.0 million in 2004, reflecting a $412 million inventory build. Total long-term debt was $951.7 million at year-end, and partners' capital was $1,330.7 million. Credit ratings were BBB- (S&P) and Baa3 (Moody's), both stable and investment grade as of February 2006.
Distributions paid in 2005 totaled $2.58d per unit, and a quarterly distribution of $0.6875 was paid on February 14, 2006. Risks disclosed include a pending export license investigation by the Bureau of Industry and Security, a possible Clean Water Act civil penalty action related to two 2004–2005 crude oil pipeline releases, dependence on production from offshore California fields with declining volumes, and the costs of pipeline integrity and API 653 tank-inspection compliance.
02—Key points
Key Highlights
- 2005 total revenues of $31,177.3 million, up from $20,975.5 million in 2004, with operating income of $275.6 million versus $180.0 million.
- Net income of $217.8 million; diluted net income per limited partner unit of $2.72, compared with $1.89 in 2004.
- Segment profit rose to $359.1 million in total, with GMT&S segment profit of $183.9 million (up from $91.5 million) and Pipeline segment profit of $175.2 million (up from $157.2 million).
- Operating cash flow fell to $24.1 million from $104.0 million, mainly due to a $412 million increase in inventory; total debt was $1,330.1 million at December 31, 2005.
- Entered natural gas storage through a 50% interest in PAA/Vulcan Gas Storage, LLC, which acquired Energy Center Investments LLC for about $250 million; PAA's investment was $112.5 million.
- Credit ratings of BBB- (S&P) and Baa3 (Moody's), both stable and investment grade as of February 2006; the company was within its targeted credit profile at year-end 2005.
- Distributions of $2.58 per unit paid in 2005; a $0.6875 quarterly distribution was paid February 14, 2006.
03—Questions
Frequently Asked Questions
What drove the increase in 2005 earnings?
The filing attributes the improvement to favorable market conditions, including a prolonged contango market, successful risk management, a full year of businesses acquired in 2004 (Link Energy and Capline), and higher volumes. These gains were partly offset by a $26.1 million LTIP charge and an $18.9 million SFAS 133 mark-to-market loss.
Why was operating cash flow lower in 2005 despite higher earnings?
Net cash provided by operating activities was $24.1 million in 2005, versus $104.0 million in 2004. The filing says this reflects an increase in inventory of approximately $412 million, which was financed with borrowings, offset by other working capital changes.
What are the main legal and regulatory matters disclosed?
The company disclosed an export license matter with the Bureau of Industry and Security related to crude oil exports to Canada, for which it has received neither a warning letter nor a charging letter and cannot reasonably estimate the impact. It also disclosed that the EPA referred two 2004–2005 crude oil releases in Texas, and several smaller releases, to the Department of Justice for a possible Clean Water Act civil penalty action. Aggregate remediation costs for the two releases were estimated at $4.5 million to $5.0 million.
What are the key risks related to the pipeline business?
Key risks include declining production from the Santa Ynez and Point Arguello offshore California fields, which the filing says carried a 5,000 barrel per day decline sensitivity of about $3.5 million in pipeline segment profit; shipper volume reductions, since third-party shippers generally lack long-term commitments; and rising pipeline integrity and API 653 tank compliance costs, with a 2006 pipeline integrity estimate of about $10.0 million.
What is the outlook for growth and capital spending?
The company expects to spend approximately $230 million on internal growth projects in 2006, plus about $23 million in maintenance capital. Its stated acquisition target is $200 million to $300 million per year, subject to attractive assets becoming available. The St. James terminal is expected to be operational in mid-2007, and the Pine Prairie natural gas storage facility is expected to be partially operational in 2007 and fully operational in 2009.
04—Continue