HOUSTON--(Business Wire)--
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.
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*T
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.
*T
-- 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.
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*T
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
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*T
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.
Plains All American Pipeline, L.P., Houston
Vice President
A. Patrick Diamond, 713-646-4487 or 800-564-3036
Copyright Business Wire 2008
