01—Abstract
Summary
Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P. reported net income of $285.1 milliona in 2006 and earnings of $2.88 per diluted limited partner unit, compared with $217.8 million and $2.72 in 2005.
Results were driven by favorable crude oil market conditions and risk management execution in the marketing segment, along with higher volumes and tariff revenues on its pipeline systems. Total revenues were $22,444.4 millionb, up from $31,176.5 million in 2005, with the decline attributed to the adoption of EITF 04-13, which reduced both revenues and purchases on a buy/sell basis. The defining event of the year was the November 15, 2006 acquisition of Pacific Energy Partners, L.P., with a total value of approximately $2.5 billion.
The Pacific merger, together with six other 2006 acquisitions totaling about $565 million, pushed total assets to $8,714.9 millionc and long-term debt to $2,626.3 million, and the filing states the partnership was above its targeted long-term debt-to-EBITDA parameter at year end. Management plans roughly $500 million of internal growth capital spending in 2007 and reports an expected 2007 capital program of $545 million including maintenance.
Investors should weigh the leverage increase and the filing's risk disclosures, including pipeline release-related penalties under review by the DOJ, the Pacific-related California matters, the Pier 400 project milestone delays under the Valero agreements, and exposure to crude oil price and market structure volatility. The partnership's credit ratings were BBB- (negative outlook) from Standard & Poor's and Baa3 (stable outlook) from Moody's as of February 2007.
02—Key points
Key Highlights
- Net income rose to $285.1 million in 2006 from $217.8 million in 2005; diluted earnings per unit were $2.88 versus $2.72.
- Pacific Energy Partners merger, completed November 15, 2006, had a total value of approximately $2.5 billion and drove total assets up to $8,714.9 million from $4,120.3 million.
- Long-term debt rose to $2,626.3 million, and the filing states the long-term debt-to-EBITDA multiple was above the partnership's targeted parameter at year end.
- Segment profit reached $462.8 million in total, with marketing segment profit of $228.0 million, benefiting from a pronounced contango market and risk management execution.
- Cash distributions declared were $2.87 per unit in 2006, and the quarterly distribution was raised to $0.80 per unit, paid February 14, 2007.
- The 2007 internal growth capital program is expected to be approximately $500 million, with a total 2007 capital program of $545 million including maintenance capital.
- Operating cash flow was negative $275.3 million in 2006, reflecting working capital increases tied to crude oil inventory storage during contango.
03—Questions
Frequently Asked Questions
What drove the increase in earnings in 2006?
The filing attributes higher earnings primarily to favorable execution of risk management strategies in the marketing segment during a pronounced contango market with high crude oil volatility, as well as increased volumes and tariff revenues on pipeline systems. Higher field operating costs and LTIP charges partly offset these gains.
How did the Pacific acquisition change the partnership's financial profile?
The Pacific merger, valued at approximately $2.5 billion including assumed debt and transaction costs, added roughly 4,500 miles of crude oil pipeline and gathering systems and 550 miles of refined products pipelines. It increased goodwill to $1,026.2 million and total debt to $3,627.5 million, and the filing notes the purchase price allocation remains preliminary.
What are the key risks disclosed in the filing?
Risks include crude oil price and market structure volatility, dependence on offshore California and San Joaquin Valley production volumes, environmental releases and related penalties (including a probable DOJ penalty for 2004-2005 releases and a potential penalty from the Pacific Line 63 release), delays in the Pier 400 project milestones under the Valero agreements, leverage and covenant restrictions, and the potential for loss of investment-grade credit ratings.
What is the partnership's credit rating and financing position?
As of February 2007, senior unsecured ratings were BBB- with negative outlook from Standard & Poor's and Baa3 with stable outlook from Moody's, both investment grade. At year end, the partnership had approximately $1.25 billion available under committed revolving credit facilities and working capital of about $133 million.
What growth projects are planned for 2007?
The 2007 capital expansion projects total $500 million before maintenance capital and include the St. James storage facility ($75.0 million), Salt Lake City expansion ($55.0 million), Patoka tankage ($40.0 million), and Cheyenne Pipeline ($34.0 million). The filing also describes the Pine Prairie natural gas storage facility as partially operational in 2007 and fully operational in 2009.
04—Continue