01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA) is a Delaware limited partnership formed in 1998 that transports, stores, terminals and markets crude oil, refined products and LPG, and holds a 50% interest in PAA/Vulcan Gas Storage, LLC for natural gas storage. It operates three segments: Transportation, Facilities and Marketing. Segment profit rose to $713 milliona in 2007 from $463 million in 2006, and net income was $365 million, or $2.52 per diluted limited partner unit, versus $285 million in 2006.
Distributions paid in 2007 totaled $3.28b per unit, compared with $2.87 in 2006. The company's acquisition activity was modest in 2007, with four acquisitions for about $123 million, following the roughly $2.46 billion Pacific Energy Partners merger completed in November 2006. Internal growth capital spending was $525 million in 2007, and management plans about $330 million of internal growth projects in 2008.
Total debt was $3.58 billionc at year-end 2007, with long-term debt-to-total capitalization of about 43%. Senior unsecured ratings were BBB- (S&P) and Baa3 (Moody's), both investment grade with stable outlooks.
Key risks highlighted include declining offshore California (OCS) crude volumes, marketing results that depend on the contango/backwardation market structure (the market shifted to backwardation in July 2007), environmental releases and related EPA and DOJ proceedings, and pending Pier 400 and Patoka projects subject to regulatory approval. The filing also discloses a $1.0 billiond available borrowing capacity under committed credit facilities at year-end 2007.
02—Key points
Key Highlights
- Net income of $365 million in 2007, up from $285 million in 2006; diluted earnings of $2.52 per limited partner unit versus $2.88 in 2006.
- Total segment profit of $713 million in 2007, compared with $463 million in 2006; Marketing segment profit was $269 million and Transportation $334 million.
- Distributions paid of $3.28 per unit in 2007, compared with $2.87 in 2006; the February 2008 quarterly distribution was $0.85 per unit.
- Internal growth capital expenditures of $525 million in 2007, with about $330 million planned for 2008 internal growth projects.
- Total debt of $3.58 billion at December 31, 2007, including $2.6 billion of long-term debt and $1.0 billion of borrowings under the revolving credit facility; about $1.0 billion of borrowing capacity was available.
- Senior unsecured ratings of BBB- (Standard & Poor's) and Baa3 (Moody's), both investment grade with stable outlooks as of February 2008.
- Offshore California (OCS) crude volumes shipped on the All American Pipeline are in decline, with a 5,000 barrel-per-day decline estimated to reduce annual transportation segment profit by about $7 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 2008Financial Statements
| Revenue | $20.39B |
| Operating Expenses | $19.88B |
| Operating Income | $518.00M |
| Interest Expense | $162.00M |
| Net Income | $365.00M |
05—Questions
Frequently Asked Questions
What drove the increase in segment profit in 2007?
Total segment profit rose to $713 million from $463 million. The filing cites contributions from the November 2006 Pacific acquisition and eight other 2006 acquisitions, favorable execution of risk management strategies in a volatile crude market, and a $269 million Marketing segment profit, up from $228 million in 2006.
How does the marketing business perform across different market structures?
The filing says the marketing segment is counter-cyclically balanced and benefits from contango markets, where storage is valuable. The crude market shifted rapidly to backwardation in July 2007, which reduced storage incentives, and the filing says a prolonged transition period or lack of volatility may negatively affect results.
What are the main environmental and regulatory exposures?
The filing reports environmental reserves of about $36 million at December 31, 2007. It describes pipeline releases referred to the Department of Justice for Clean Water Act civil penalty proceedings, with the EPA's maximum permissible penalty for the two Texas releases cited at about $6.8 million, and a Pacific-legacy Line 63 release with potential state and federal penalties.
How is the partnership funding its growth and what are its leverage targets?
The company targets an average long-term debt-to-total capitalization ratio of about 50%, a debt-to-adjusted EBITDA multiple of about 3.5x, and interest coverage of about 3.3x or better. It intends to fund at least 50% of growth capital with equity and cash flow in excess of distributions. At December 31, 2007, long-term debt-to-total capitalization was about 43%.
What is the outlook for the Pier 400 and other major projects?
The filing estimates Pier 400 will cost about $468 million and remains subject to permits and approvals from several California agencies. The partnership expects it may be partially completed and placed in service in 2010 and fully operational in 2011, subject to timely approvals. Other 2008 projects include Patoka tankage (about $43 million) and Kerrobert facility work (about $36 million).
06—Continue