(Houston - July 17, 2008) Plains All American Pipeline, L.P. (NYSE:PAA) today issued the following statement by Greg L. Armstrong, the Partnership's Chairman and CEO:
PAA has received several inquiries from various stakeholders regarding recent market volatility. Our policy is not to comment on market activity or rumors, but in this situation only, we believe the most efficient method to address the questions raised by our stakeholders is to issue a statement setting forth the factual responses to such questions. Many of the questions focus specifically on PAA and are directed to topics such as PAA's financial condition, income statement or operations. It would be inappropriate for us to respond to questions regarding the circumstances of another entity, either directly or indirectly, and we will not do so. However, in keeping with our commitment to transparent and complete disclosure, we have prepared the following statements that we believe address the vast majority of questions with respect to PAA:
- PAA handles over three million barrels per day of physical crude oil, refined products and liquefied petroleum gas in over 40 U.S. states and five Canadian provinces. As such, we have a significant number of customers and counter-parties.
- Even though the values of crude oil and refined products in today's market environment are at historically high levels, we have a rigorous credit review process and have various arrangements in place that serve to minimize our credit exposure to our various counter-parties. With regard to SemGroup Energy Partners, L.P.'s recent announcement pertaining to liquidity issues of its parent SemGroup, L.P., the volume of product involved in our transactions with SemGroup, L.P. and its affiliates is very small, constituting less than one-half of one percent of PAA's aggregate daily volume. Accordingly, we do not expect to have any material credit exposure to SemGroup as a result of their current situation.
- PAA uses the New York Mercantile Exchange (NYMEX) and similar financial markets for the purpose of hedging physical sales volumes and storage assets, and not for the purpose of speculating on commodity prices. We estimate that approximately 95% of our crude oil hedging activities are conducted on the NYMEX and similar financial markets or are physical transactions based on NYMEX prices.
- PAA, like any participant in the commodities markets, posts margin or receives margin related to its hedging instruments on a daily basis, depending upon the fluctuations in the prices of the commodities underlying the hedging instruments. PAA's margin balance including initial margin requirements totaled less than $70 million at June 30, 2008 and July 16, 2008. In addition, PAA's peak margin balance has never been higher than approximately $215 million – even during the significant contango markets experienced over the last four years during which we stored significant volumes – which peak amount represents approximately 2% of PAA's total assets at June 30, 2008. Importantly, and consistent with the purpose for which we enter the hedges, the margin we post or receive is substantially equivalent to the corresponding increase or decrease in value realized in our physical positions and tankage activities.
- PAA is subject to the provisions of Statement of Financial Accounting Standards No. 133 "Accounting For Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), which governs the accounting for derivative instruments used by PAA to manage its exposure to commodity price risk. Such derivative instruments are recorded on the balance sheet as either assets or liabilities measured at their fair value as of the balance sheet date. In addition, changes in the fair value of derivative instruments are recognized currently in earnings unless specific hedge accounting criteria are met, in which case changes in fair value of cash flow hedges are deferred to Accumulated Other Comprehensive Income and reclassified into earnings when the underlying transaction affects earnings.
- PAA uses derivatives as an effective element of our risk management strategy that in certain cases, for accounting purposes, are not consistently effective to be treated as a hedge. In other cases, for administrative reasons, we do not designate derivatives as hedges for accounting purposes. As a result, both the balance sheet and the income statement can be impacted by significant fluctuations in commodity prices, primarily crude oil. Over the last five years, the impact of SFAS 133 adjustments has ranged in any given quarter from a gain of approximately $18 million to a loss of approximately $20 million. During the second quarter, crude oil prices increased approximately 40%, increasing from $99.70 per barrel on April 1, 2008 to $140.00 per barrel on June 30, 2008. We do not forecast the effects of SFAS 133 for purposes of issuing guidance; however, we would expect the unprecedented increase in price and volatility in the second quarter to have a more pronounced impact on PAA's SFAS 133 adjustment for the period than it has historically. Generally, these amounts reverse in future periods and are excluded from our Adjusted EBITDA guidance.
- PAA has well defined and documented risk management policies and procedures that are consistently monitored, with reports reviewed on a daily basis by several members of senior management. Additionally, as a large, publicly traded company, PAA is subject to the certification requirements of the Sarbanes-Oxley Act and other regulatory requirements designed to test and maintain satisfactory internal controls and procedures.
- PAA has significant liquidity, including a $1.6 billion revolving credit facility that matures in 2012. As of June 30, 2008, PAA had $1.2 billion of availability under this facility. The balance of the facility was comprised of approximately $300 million of routine inventory-related borrowings and approximately $115 million of issued letters of credit. PAA's long-term debt has an average maturity of approximately 13 years.
- PAA has a $1.2 billion uncommitted hedged inventory facility. As of June 30, 2008, PAA had approximately $780 million of unused capacity under this facility. This is an annual facility which matures in November of each year and the facility has been renewed each year since it was established in 2003.
- PAA is today reiterating the full year 2008 guidance range for Adjusted EBITDA of $835 million to $875 million that was furnished via Form 8-K on May 29, 2008. Furthermore, we currently expect our Adjusted EBITDA for the second quarter of 2008 will meet or exceed the upper end of the $200 million to $215 million guidance range that was also provided in the May 29th 8-K.
- On Monday, July 14, 2008, PAA declared a quarterly distribution of $0.8875 per common unit, representing an increase of 6.9% over the distribution of $0.83 paid in August 2007. PAA is today reiterating its goal of increasing year-over-year cash distributions in 2008 by $0.25 to $0.30 per unit which, based on the 2007 distribution exit rate of $3.36 per unit, equates to an annualized distribution level of $3.61 to $3.66 per unit in November 2008. This goal represents a year-over-year increase of approximately 7.4% to 8.9% over the November 2007 distribution.
We believe PAA is one of the most transparent partnerships in the MLP universe and trust that this information, along with the significant financial and operating related information available on our website (www.paalp.com), will provide the answers to the critical questions regarding Plains All American Pipeline.
We look forward to updating you on PAA's second quarter operating and financial results as well as our ongoing growth activities on our quarterly conference call to be held on August 7, 2008.
Thank you,
Greg L. Armstrong
Forward Looking Statements
Except for the historical information contained herein, the matters discussed in this news release are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from results anticipated in the forward-looking statements. These risks and uncertainties include, among other things: future developments and circumstances at the time distributions are declared; failure to implement or capitalize on planned internal growth projects; the success of our risk management activities; environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves; maintenance of our credit rating and ability to receive open credit from our suppliers and trade counterparties; abrupt or severe declines or interruptions in outer continental shelf production located offshore California and transported on our pipeline system; shortages or cost increases of power supplies, materials or labor; the availability of adequate third party production volumes for transportation and marketing in the areas in which we operate and other factors that could cause declines in volumes shipped on our pipelines by us and third party shippers, such as declines in production from existing oil and gas reserves or failure to develop additional oil and gas reserves; fluctuations in refinery capacity in areas supplied by our mainlines and other factors affecting demand for various grades of crude oil, refined products and natural gas and resulting changes in pricing conditions or transportation throughput requirements; the availability of, and our ability to consummate, acquisition or combination opportunities; the successful integration and future performance of acquired assets and businesses and the risks associated with operating in lines of business that are distinct and separate from our historical operations; our access to capital to fund additional acquisitions and our ability to obtain debt or equity financing on satisfactory terms; unanticipated changes in crude oil market structure and volatility (or lack thereof); the impact of current and future laws, rulings, governmental regulations and interpretations; the effects of competition; continued creditworthiness of, and performance by, our counterparties, including financial institutions and trading companies with which we do business; interruptions in service and fluctuations in tariffs or volumes on third-party pipelines; increased costs or lack of availability of insurance; fluctuations in the debt and equity markets, including the price of our units at the time of vesting under our long-term incentive plans; the currency exchange rate of the Canadian dollar; weather interference with business operations or project construction; risks related to the development and operation of natural gas storage facilities; general economic, market or business conditions; and other factors and uncertainties inherent in the transportation, storage, terminalling, and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas related petroleum products discussed in the Partnership's filings with the Securities and Exchange Commission.
Non-GAAP Financial Measures
In this release, the Partnership's EBITDA disclosure is not presented in accordance with U.S. generally accepted accounting principles (GAAP) and is not intended to be used in lieu of GAAP presentations. EBITDA is a non-GAAP financial measure. Adjusted EBITDA excludes selected items impacting comparability. Adjusted EBITDA is presented because PAA management believes those measures provide additional information with respect to both the performance of our fundamental business activities as well as our ability to meet our future debt service, capital expenditures and working capital requirements. A calculation of Adjusted EBITDA and a reconciliation of EBITDA to net income for the referenced periods are set forth below.
|
|
Three Months Ending |
|
Twelve Months Ending |
|
|
June 30, 2008 |
|
December 31, 2008 |
(Dollars in Millions) |
|
Low
|
|
High |
|
Low |
|
High |
|
|
|
|
|
|
|
|
|
Net Income Reconciliation |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
195 |
|
|
$ |
212 |
|
|
$ |
801 |
|
|
$ |
843 |
|
Depreciation and amortization expense |
|
|
(55 |
) |
|
|
(53 |
) |
|
|
(213 |
) |
|
|
(208 |
) |
Earning before interest and taxes ("EBIT") |
|
|
140 |
|
|
|
159 |
|
|
|
588 |
|
|
|
635 |
|
Interest expense |
|
|
(51 |
) |
|
|
(49 |
) |
|
|
(198 |
) |
|
|
(193 |
) |
Income tax benefit (expense) |
|
|
2 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
Net Income |
|
$ |
91 |
|
|
$ |
111 |
|
|
$ |
390 |
|
|
$ |
442 |
|
|
|
|
|
|
|
|
|
|
Selected Items Impacting Comparability |
|
|
|
|
|
|
|
|
Equity compensation charge |
|
|
(17 |
) |
|
|
(17 |
) |
|
|
(41 |
) |
|
|
(41 |
) |
SFAS 133 Mark-to-Market Adjustment |
|
|
- |
|
|
|
- |
|
|
|
(5 |
) |
|
|
(5 |
) |
Gains on Rainbow acquisition hedges |
|
|
12 |
|
|
|
14 |
|
|
|
12 |
|
|
|
14 |
|
Total |
|
$ |
(5 |
) |
|
$ |
(3 |
) |
|
$ |
(34 |
) |
|
$ |
(32 |
) |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA Reconciliation |
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
195 |
|
|
$ |
212 |
|
|
$ |
801 |
|
|
$ |
843 |
|
Selected Items Impacting Comparability |
|
|
5 |
|
|
|
3 |
|
|
|
34 |
|
|
|
32 |
|
Adjusted EBITDA |
|
$ |
200 |
|
|
$ |
215 |
|
|
$ |
835 |
|
|
$ |
875 |
|
Plains All American Pipeline, L.P. is a publicly traded master limited partnership engaged in the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas related petroleum products. Through its 50% ownership in PAA/Vulcan Gas Storage LLC, the partnership is also engaged in the development and operation of natural gas storage facilities. The Partnership is headquartered in Houston, Texas.
Contact:
Vice President
A. Patrick Diamond, 713-646-4487 or 800-564-3036
|