01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Plains All American Pipeline, L.P.
(PAA) reported 2010 net income attributable to Plains of $505 milliona, a $74 million (13%) decrease from $579 million in 2009, driven mainly by unfavorable results in its Supply & Logistics segment (segment profit of $240 million versus $345 million), lower LPG margins and derivative losses, and a roughly $30 million increase in equity compensation expense. Growth came from the Facilities segment (segment profit up 30% to $270 million) and the Transportation segment (up 8% to $516 million), supported by acquisitions and expansion projects. Total segment profit was essentially flat at $1,026 million, while revenues rose to $25.89 billion from $18.52 billion, largely from Supply & Logistics.
Distributable cash flow was $757 millionb, and the quarterly distribution was raised to $0.9575 per unit, paid February 14, 2011. The balance sheet grew to $13.70 billion in total assets, with total debt of $5.96 billion and partners' capital of $4.57 billion. Management reported a working capital surplus of about $166 million and roughly $877 million of available liquidity at year-end, which would have risen to about $1.4 billion after early-2011 transactions.
Those transactions include the $746 millionc Southern Pines natural gas storage acquisition by PAA Natural Gas Storage (PNG), a $600 million senior notes offering, a new $500 million 364-day credit facility, and the redemption of $200 million of 7.75% notes. PAA's ownership of PNG fell from about 77% to about 64% after PNG's private placement and PAA's share purchases.
Key risks cited include dependence on declining offshore California crude volumes, exposure to commodity price and market-structure volatility, a debt level of about $6.0 billiond, goodwill of $1.4 billion, and environmental liabilities reserved at approximately $66 million. Vulcan Energy sold its 50.1% interest in the general partner in December 2010 to a group including Occidental Petroleum, EMG, and Kayne Anderson-affiliated funds.
02—Key points
Key Highlights
- Net income attributable to Plains was $505 million in 2010, down $74 million (13%) from $579 million in 2009.
- Supply & Logistics segment profit fell 30% to $240 million, reflecting lower LPG margins, net derivative losses and less favorable crude quality differentials and market structure.
- Facilities segment profit rose 30% to $270 million and Transportation segment profit rose 8% to $516 million, driven by acquisitions, expansion projects and tariff increases.
- Total revenues were $25.89 billion in 2010 versus $18.52 billion in 2009, with the increase concentrated in Supply & Logistics.
- The quarterly distribution was raised to $0.9575 per unit (annualized $3.83) and paid February 14, 2011, with distribution coverage of approximately 111% for 2010.
- Early-2011 transactions included the $746 million Southern Pines acquisition, $600 million of 5.00% senior notes, a $500 million 364-day credit facility, and PNG's private placement, which reduced PAA's PNG ownership from about 77% to about 64%.
- Year-end total debt was $5.96 billion, and liquidity was about $877 million at December 31, 2010, or about $1.4 billion pro forma for the early-2011 transactions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Plains All American Pipeline kept $0.02.
- Revenue$25.89B100.0%
- Cost of revenue−$24.87B96.0%
- Gross profit$1.03B4.0%
- Operating costs−$259.0M1.0%
- Operating income$767.0M3.0%
- Interest, other & tax−$262.0M1.0%
- Net income$505.0M2.0%
Where FY2010 revenue went
$25.89B- Cost of revenue: $24.87B, 96% of revenue
- Net income: $505.0M, 2.0% of revenue
- Operating costs: $259.0M, 1.0% of revenue
- Interest, other & tax: $262.0M, 1.0% of revenue
Kept 2.0% as net incomeNet income $505.0M · 2.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $25.89B$18.52B | +39.8% |
| Gross Profit | $1.03B$1.03B | −0.4% |
| Operating Expenses | $25.13B$17.74B | +41.6% |
| Operating Income | $767.00M$779.00M | −1.5% |
| Interest Expense | $248.00M$224.00M | +10.7% |
| Net Income | $505.00M$580.00M | −12.9% |
05—Questions
Frequently Asked Questions
Why did PAA's net income decline in 2010 despite higher segment results in Facilities and Transportation?
The filing attributes the $74 million decline mainly to the Supply & Logistics segment, where segment profit fell $105 million. Contributing factors were lower LPG margins, net mark-to-market derivative losses of about $17 million, less favorable crude oil quality differentials and market structure, and an increase of approximately $30 million in equity compensation expense across segments. Higher depreciation and interest expense tied to the expanded asset base also reduced earnings.
What is the Southern Pines acquisition and how was it financed?
On February 9, 2011, PNG acquired SG Resources Mississippi, LLC, which owns the Southern Pines Energy Center, a FERC-regulated salt-cavern natural gas storage facility in Mississippi, for about $746 million, subject to post-closing adjustments. PNG financed it with a private placement of 17.4 million common units for net proceeds of about $370 million. PAA bought about 10.2 million PNG units for about $230 million, including a $12 million general partner contribution, and the $600 million senior notes and $500 million 364-day facility provided additional liquidity.
What were PAA's leverage and liquidity positions at year-end 2010?
Total debt was approximately $5.96 billion at December 31, 2010, including $4.63 billion of long-term debt and $1.33 billion of short-term borrowings. Management reported a working capital surplus of about $166 million and approximately $877 million of available liquidity, which the filing states would have increased to about $1.4 billion after the early-2011 transactions. The company stated it was in compliance with all covenants.
What key risks does the filing highlight for unitholders?
The filing highlights dependence on crude oil volumes from offshore California fields, which have experienced substantial production declines since 1995; commodity price and market-structure volatility affecting the Supply & Logistics segment; the risk of failing to complete acquisitions or internal growth projects; leverage and the need for capital at a reasonable cost; regulatory and tax changes, including the Canadian tax restructuring effective January 1, 2011; and environmental liabilities, for which a reserve of about $66 million was recorded at year-end.
How much has PAA been distributing to unitholders and how is cash distributed?
PAA distributed $3.76 per limited partner unit in 2010, up from $3.62 in 2009, with quarterly distributions rising from $0.9275 in the first quarter to $0.9500 in the fourth. The partnership agreement requires distribution of 100% of available cash within 45 days after each quarter-end. The general partner receives incentive distributions above $0.450 per unit, and paid $160 million in incentive distributions during 2010.
06—Continue