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Pacific Energy Partners, L.P. (NYSE:PPX) (“Pacific
Energy” or the “Partnership”)
announced that net income for the three months ended September 30, 2006,
was $19.2 million, or $0.48 per limited partner unit, compared to net
income of $12.2 million, or $0.39 per limited partner unit, for the
three months ended September 30, 2005. Recurring net income for the
three months ended September 30, 2006 was $20.3 million, or $0.51 per
limited partner unit, compared to recurring net income of $12.2 million,
or $0.39 per limited partner unit, for the corresponding period in 2005.
All per unit amounts in the text of this news release are reported on a
diluted basis.
The increase in recurring net income for the quarter ended September 30,
2006, reflects the benefit of the September 30, 2005, acquisition of
refined products terminals and a refined products pipeline from Valero
L.P., increased income from our California pipelines, increased margins
from crude oil marketing activities and higher revenue from our Southern
California terminals. Partially offsetting these increases was a decline
in transportation revenue from the Partnership’s
Canadian pipeline operations. In addition, the Partnership incurred
higher interest expense attributable to the financing of the refined
products asset acquisition and increased general and administrative
costs. There were approximately 28% more units outstanding in the third
quarter of 2006 compared to the corresponding quarter in 2005.
Recurring net income for the third quarter of 2006 excludes $1.1 million
of transaction costs related to the planned merger with Plains All
American Pipeline, L.P. (“Plains”).
“We are very pleased with our third quarter
results. Recurring net income was up 31 percent on a per unit basis
versus the prior year quarter and also exceeded the guidance given in
last quarter’s earnings press release. Our
core transportation and storage business performed well, and favorable
market conditions allowed us to generate better than expected crude oil
marketing income,” stated Irv Toole,
President and CEO of Pacific Energy. “Organic
pipeline and terminal growth projects in both of our business units
continue to progress and are a primary focus of the Partnership.”
On October 20, 2006, Pacific Energy announced a cash distribution of
$0.5675 per unit for the third quarter of 2006, or $2.27 per unit
annualized. This is unchanged from the second quarter 2006 distribution
level but is 10.7% higher than the third quarter 2005 distribution
level. The distribution will be paid on November 13, 2006, to holders of
record as of October 31, 2006.
Distributable cash flow available to the limited partners’
interest for the third quarter of 2006 was $26.9 million after deducting
$1.1 million in merger costs. On a diluted, weighted average, basis
there were 39,321,000 limited partner units outstanding during the third
quarter of 2006.
Earnings before interest, tax, depreciation and amortization expenses (“EBITDA”)
were $40.7 million in the third quarter of 2006.
OPERATING RESULTS BY SEGMENT
WEST COAST BUSINESS UNIT
Operating income was $24.2 million for the three months ended September
30, 2006, compared to $9.8 million in the corresponding period in 2005.
This increase was primarily due to the addition of the Northern
California and East Coast terminals on September 30, 2005, improved
operating income from California pipeline operations, higher tank
revenue from Los Angeles area terminal operations, and increased margins
from crude oil marketing activities.
The Northern California terminals are operating at capacity.
Construction of 450,000 barrels of additional storage capacity at
Martinez was completed in late September 2006, with lease revenue
beginning October 1. As previously announced, due to strong customer
demand, Pacific Energy increased its capital budget to provide for the
construction of an additional 850,000 barrels of storage capacity at
Martinez, which is under contract. It is projected that $1.1 million of
capital will be expended in 2006 for these tanks, with an additional
$27.1 million to be expended in 2007. Completion of 250,000 barrels is
expected in the third quarter of 2007 and the remaining 600,000 barrels
is expected to be completed in the fourth quarter of 2007.
The East Coast terminals are also operating near capacity. East Coast
terminal income includes the benefit of expanded ethanol facilities,
which began operations in the second quarter of 2006 and are now fully
operational, and the start-up of ultra low sulfur diesel and jet fuel
handling facilities.
Volumes transported to Los Angeles on the Partnership’s
crude oil pipelines for the three months ended September 30, 2006 were
approximately 6% higher than in the third quarter of 2005, due to
refinery maintenance and higher Outer Continental Shelf production
volumes which were lower in 2005 due to maintenance downtime. In
addition to the long-haul volume improvement, revenue increased as a
result of a $0.10 per barrel tariff increase effective May 1, 2006 on
Line 2000. In addition, deliveries to Bakersfield refineries more than
tripled from the prior year quarter as a result of pipeline
modifications in the San Joaquin Valley that were completed on October
1, 2005, that increased delivery capacity to those refineries.
Operating income for Los Angeles Basin terminals was higher compared to
the corresponding quarter in 2005 due to increased tank utilization,
higher rates on tank leases and lower operating expenses. The
reactivation of 300,000 barrels of storage at the Alamitos terminal was
completed in July 2006, and reactivation of a second 300,000 barrel tank
is scheduled to be completed in the first quarter of 2007. Total
capacity available to be leased after these reactivations will be 7.4
million barrels, with an additional 0.8 million barrels idle but
available for reactivation in the future.
The Partnership’s crude oil marketing income
in the third quarter of 2006 was significantly higher than in the prior
year quarter due to favorable margins and increased crude oil volumes.
The Partnership continues to advance the development of the Pier 400
deepwater import terminal in the Port of Los Angeles, with the draft
environmental impact report expected to be released by the Port in the
fourth quarter of 2006. This past quarter, efforts continued to be
focused on finalizing environmental mitigation factors with the Port of
Los Angeles and the Partnership’s customers.
The Partnership expects to receive the permits necessary to begin
construction by mid-year 2007, with start-up of operations expected in
the first quarter of 2009. The project, which will require a total
estimated investment of $315 million, is currently anticipated to
include 4,000,000 barrels of storage capacity that will be constructed
in two phases. Long term volume commitment agreements have been signed
with subsidiaries of Valero Energy Corporation and ConocoPhillips, and
it is anticipated that, with additional customer commitments currently
being finalized, the estimated 250,000 barrels per day of offloading
capacity will be fully subscribed.
ROCKY MOUNTAIN BUSINESS UNIT
Operating income was $12.2 million for the three months ended September
30, 2006, compared to $13.6 million in the corresponding period in 2005.
The $1.4 million decrease was primarily due to lower operating income
for the Rangeland pipeline system in Alberta, partially offset by higher
volumes on the Western Corridor system and the income contribution from
the Rocky Mountain Products Pipeline that was part of the Valero L.P.
acquisition. The decrease in Rangeland’s
third quarter 2006 income was due in part to the absence of an unusual
item that benefited the 2005 quarter: the correction of an error in the
procedures used to properly account for inventory and cost of goods sold
that resulted in an increase in Rangeland’s
pre-tax income in the third quarter 2005 of $1.2 million ($0.7 million
after tax).
Two major profit generating capital projects, the Salt Lake City
pipeline expansion project and the Cheyenne pipeline project are
proceeding on schedule and on budget. Construction of the first phase of
the Salt Lake City pipeline expansion began in October 2006 and is
scheduled to be completed around the end of this year. The second phase
is expected to be completed in the fourth quarter of 2007. Total cost of
this 93-mile,16-inch pipeline, with a capacity of 95,000 barrels per
day, is approximately $77 million and is supported by firm, ten-year
transportation agreements with four Salt Lake City refiners.
The Cheyenne Pipeline consists of a 24-inch crude oil pipeline,
approximately 10 miles in length, from Guernsey, Wyoming, to Pacific
Energy’s Fort Laramie, Wyoming tank farm and
a 16-inch crude oil pipeline, approximately 85 miles in length, from
Fort Laramie to the Frontier Oil and Refining Company Cheyenne refinery.
The project is on schedule to be completed in the second quarter of 2007
at a cost of approximately $59 million and is supported by a firm
ten-year commitment by Frontier Oil to ship 35,000 barrels per day on
the pipeline, and lease approximately 300,000 barrels of storage
capacity at Fort Laramie. The new pipeline system’s
initial capacity will be 55,000 barrels per day, expandable to a
capacity of 90,000 barrels per day.
CORPORATE ITEMS
General and administrative expenses were $5.6 million in the third
quarter of 2006, approximately $1.5 million higher than in the third
quarter of 2005. This increase was associated with support of newly
acquired assets, the Partnership’s long term
incentive plan, and an expense for the LB Pacific, LP (“LB
Pacific”) option plan introduced in the first
quarter of 2006, the cost of which is required by generally accepted
accounting principles to be recorded as a Pacific Energy expense even
though the plan is funded by LB Pacific not the Partnership.
Interest expense was $10.9 million for the third quarter of 2006, $4.6
million greater than in the comparable period in 2005, due to the
increase in debt for the Valero L.P. asset acquisition. Income tax
expense was $1.2 million lower compared to the third quarter of 2005, as
a result of reduced Rangeland earnings.
NINE MONTH RESULTS
For the nine months ended September 30, 2006, net income was $52.3
million, or $1.31 per limited partner unit, compared to $27.8 million,
or $0.96 per limited partner unit, for the nine months ended September
30, 2005. Recurring net income for the nine months ended September 30,
2006, was $52.3 million, or $1.31 per limited partner unit, compared
with $34.7 million, or $1.13 per limited partner unit, for the nine
months ended September 30, 2005. Recurring net income for the first nine
months of 2006 reflects the benefit of nine months of operations in 2006
from the assets acquired from Valero L.P., increased margins from crude
oil marketing activities, higher revenue and lower pipeline repair
expenses for the California pipeline operations, increased pipeline
revenue in the U.S. Rocky Mountain region, and higher Los Angeles area
storage revenue. Partially offsetting these increases were increased
interest and general and administrative expenses. In addition, there
were approximately 31% more units outstanding in the nine months ended
September 30, 2006 versus the comparable period of 2005.
Recurring net income for the nine months ended September 30, 2006
excludes $4.5 million of costs associated with the pending Plains merger
transaction, and a $4.6 million deferred tax benefit. Due to legislation
enacted in the second quarter of 2006, both federal and Alberta
corporate tax rates in Canada are being reduced, and Pacific Energy’s
deferred tax liability balance was required by accounting rules to be
adjusted to reflect the new rates. Recurring net income for the nine
months ended September 30, 2005 excludes a $2.0 million expense for the
insurance deductible associated with remediation of the March 2005 Line
63 oil release, a $3.1 million expense related to accelerated vesting of
restricted units under Pacific Energy’s
long-term incentive plan as a result of the change in control
attributable to the purchase of Pacific Energy’s
general partner by LB Pacific, and $1.8 million of expense from this
general partner transaction required to be recorded as a partnership
expense even though it was paid by the general partner, not the
Partnership.
For the nine months ended September 30, 2006, total capital spending was
$67.5 million: $57.5 million of expansion capital, $4.1 million of
sustaining capital (including $1.5 million in the third quarter), and
$5.9 million of transition capital.
LOOKING FORWARD
For the quarter ending December 31, 2006, Pacific Energy is forecasting
recurring net income of $0.34 to $0.40 per unit and EBITDA of $34
million to $38 million. Major maintenance expenses budgeted for 2006 but
not yet incurred will increase costs in the fourth quarter of 2006 and
are reflected in the guidance for the quarter and full year. Sustaining
capital expenditures for the fourth quarter of 2006 are expected to be
$2 million to $3 million.
For full year 2006, Pacific Energy is forecasting recurring net income
of $1.65 to $1.71 per unit and EBITDA of $144 million to $148 million.
Capital expenditures for the full year are projected to be $119 million,
including $105 million for expansion projects, $7 million for transition
capital projects and $7 million for sustaining capital projects. The
reduction in expansion capital spending over prior guidance reflects a
change in timing of certain project expenditures from 2006 to 2007.
The guidance for recurring net income for the fourth quarter and full
year 2006 does not include expenses related to the Plains merger
transaction or the deferred tax benefit resulting from the change in
Canadian tax rates. The guidance for EBITDA reflects $1.3 million and
$5.8 million, for the fourth quarter and full year, respectively, for
estimated merger expenses to be incurred prior to closing.
For more information about non-GAAP (“generally
accepted accounting principles”) measures,
see the schedules accompanying this press release.
MERGER WITH PLAINS ALL AMERICAN PIPELINE, L.P.
On June 12, 2006, Pacific Energy announced that it had entered into an
Agreement and Plan of Merger with Plains, pursuant to which the
Partnership will be merged with and into Plains. A special meeting of
unitholders of the Partnership to consider approval of the merger is
scheduled to occur on November 9, 2006. The parties expect to complete
the merger on November 15, 2006 assuming the proposals are approved by
the unitholders and all other conditions to closing are satisfied.
OTHER MATTERS
Pacific Energy will host a conference call at 2:00 p.m. EDT (11:00 a.m.
PDT) on Thursday, November 2, 2006, to discuss the results of the third
quarter of 2006. Please join us at www.PacificEnergy.com
for the live broadcast or dial in at 800-446-1671 or 847-413-3362
passcode 16033900. The call, with questions and answers, will continue
to be available on Pacific Energy’s web site
following the call.
About Pacific Energy:
Pacific Energy is a master limited partnership headquartered in Long
Beach, California, engaged principally in the business of gathering,
transporting, storing and distributing crude oil, refined products and
other related products. The Partnership generates revenues by
transporting such commodities on its pipelines, by leasing capacity in
its storage facilities and by providing other terminaling services.
Pacific Energy also buys and sells crude oil, activities that are
generally complementary to its crude oil operations. Pacific Energy
conducts its business through two business units, the West Coast
Business Unit, which includes activities in California and the
Philadelphia, PA area, and the Rocky Mountain Business Unit, which
includes activities in five Rocky Mountain states and Alberta, Canada.
For additional information about the Partnership, please visit www.PacificEnergy.com.
Investor Notice:
Pacific Energy and Plains All American Pipeline, L.P. have filed a joint
proxy statement/prospectus and other documents with the Securities and
Exchange Commission (“SEC”)
with respect to the proposed merger of Pacific Energy with and into
Plains, which joint proxy statement/prospectus has been declared
effective by the SEC. The definitive joint proxy statement/prospectus
has been sent to security holders of Pacific Energy and Plains seeking
their approval of the merger and related transactions. Investors and
security holders are urged to carefully read the joint proxy
statement/prospectus because it contains important information,
including detailed risk factors, regarding Pacific Energy, Plains and
the merger. Investors and security holders may obtain a free copy of the
definitive joint proxy statement/prospectus and other documents
containing information about Pacific Energy and Plains, without charge,
at the SEC's web site at www.sec.gov.
Copies of the definitive joint proxy statement/prospectus and the SEC
filings that are incorporated by reference in the joint proxy
statement/prospectus may also be obtained free of charge by directing a
request to Pacific Energy or Plains. Pacific Energy or Plains and the
officers and directors of the respective general partners of Pacific
Energy or Plains may be deemed to be participants in the solicitation of
proxies from their security holders in connection with the proposed
transaction. Information about these persons can be found in Pacific
Energy’s or Plains' respective Annual Reports
on Form 10-K filed with the SEC, and additional information about such
persons may be obtained from the joint proxy statement/prospectus.
Cautionary Statement Regarding Forward-Looking Statements:
This news release may include “forward-looking”
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements other than statements of historical
fact included or incorporated herein may constitute forward-looking
statements. Although Pacific Energy believes that the forward-looking
statements are reasonable, it can give no assurance that such
expectations will prove to be correct. The forward-looking statements
involve risks and uncertainties that may affect Pacific Energy’s
operations and financial performance. Among the factors that could cause
results to differ materially are those risks discussed in Pacific Energy’s
filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the year ended December 31, 2005, and
including the definitive joint proxy statement/prospectus referred to in
this press release.
PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per unit amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Operating revenues:
Pipeline transportation revenue
$ 36,995
$ 27,283
$ 105,652
$ 83,067
Storage and terminaling revenue
23,467
9,731
65,420
30,923
Pipeline buy/sell transportation revenue
10,010
11,683
31,136
28,905
Crude oil sales, net of purchases
9,924
5,823
27,453
13,647
Net revenues
80,396
54,520
229,661
156,542
Expenses:
Operating
34,046
25,019
99,120
72,065
General and administrative
5,649
4,115
18,236
12,987
Depreciation and amortization
10,398
6,560
30,692
19,695
Merger costs1
1,112
—
4,529
—
Accelerated long-term incentive plan compensation expense2
—
—
—
3,115
Line 63 oil release costs3
—
—
—
2,000
Reimbursed general partner transaction costs4
—
—
—
1,807
Total expenses
51,205
35,694
152,577
111,669
Share of net income of Frontier
373
516
1,246
1,363
Operating income
29,564
19,342
78,330
46,236
Net interest expense
(10,853)
(6,237)
(30,029)
(17,679)
Other income
720
494
1,455
1,387
Income before income tax expense
19,431
13,599
49,756
29,944
Income tax benefit (expense):
Current
(485)
(1,411)
(2,288)
(1,898)
Deferred5
289
(22)
4,824
(239)
(196)
(1,433)
2,536
(2,137)
Net income
$ 19,235
$ 12,166
$ 52,292
$ 27,807
Net income (loss) for the general partner interest6
$ 347
$ 243
$ 720
$ (1,215)
Net income for the limited partner interests6
$ 18,888
$ 11,923
$ 51,572
$ 29,022
Basic net income per limited partner unit
$ 0.48
$ 0.39
$ 1.31
$ 0.97
Diluted net income per limited partner unit
$ 0.48
$ 0.39
$ 1.31
$ 0.96
Weighted average units outstanding:
Basic
39,307
30,761
39,305
30,051
Diluted
39,321
30,762
39,332
30,089
PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
December 31,
2006
2005
Assets
Current assets
$ 265,226
$ 192,115
Property and equipment, net
1,252,750
1,185,534
Intangible assets
67,639
69,180
Investment in Frontier Pipeline Company
8,651
8,156
Other assets
17,957
21,467
Total assets
$ 1,612,223
$ 1,476,452
Liabilities and Partners’ Capital
Current liabilities
$ 204,160
$ 156,187
Long-term debt
669,163
565,632
Deferred income taxes
32,560
35,771
Environmental and other long-term liabilities
17,416
20,623
Partners’ capital
688,924
698,239
Total liabilities and partners’ capital
$ 1,612,223
$ 1,476,452
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2006
2005
Cash flows from operating activities:
Net income
$ 52,292
$ 27,807
Depreciation, amortization, non-cash employee compensation under
long-term incentive plan, deferred income taxes and Frontier
adjustment
27,458
24,256
Working capital adjustments
(30,259)
13,592
Net cash provided by operating activities
49,491
65,655
Cash flows from investing activities:
Acquisition
(2,365)
(461,165)
Net additions to property and equipment
(67,522)
(27,265)
Additions to pipeline linefill and minimum tank inventory
(16,106)
—
Other
181
—
Net cash used in investing activities
(85,812)
(488,430)
Cash flows from financing activities:
Issuance of common units, net of fees and offering expenses
—
289,122
Capital contribution from the general partner
—
8,569
Net proceeds from senior notes offering
—
170,997
Proceeds from bank credit facilities
182,094
203,291
Repayment of bank credit facilities
(81,463)
(195,661)
Deferred financing costs
—
(4,676)
Distributions to partners
(68,714)
(46,224)
Issuance of common units pursuant to exercise of unit option
—
707
Related parties
(28)
(1,171)
Net cash provided by financing activities
31,889
424,954
Effect of exchange rate changes on cash
83
213
Net increase in cash and cash equivalents
(4,349)
2,392
Cash and cash equivalents, beginning of period
18,064
23,383
Cash and cash equivalents, end of period
$ 13,715
$ 25,755
PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND OPERATING HIGHLIGHTS BY SEGMENT
Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)
West Coast
Business Unit
Rocky Mountain
Business Unit
Intersegment and Intrasegment Eliminations
Total
Three Months Ended September 30, 2006:
Revenues:
Pipeline transportation revenue
$ 18,224
$ 21,500
$ (2,729)
$ 36,995
Storage and terminaling revenue
23,467
—
23,467
Pipeline buy/sell transportation revenue
—
10,010
10,010
Crude oil sales, net of purchases
9,494
572
(142)
9,924
Net revenue
51,185
32,082
80,396
Expenses:
Operating expenses
21,505
15,412
(2,871)
34,046
Depreciation and amortization
5,528
4,870
10,398
Total expenses
27,033
20,282
44,444
Share of net income of Frontier
—
373
373
Operating income7
$ 24,152
$ 12,173
$ 36,325
Operating Data (barrels per day, in thousands)
Line 2000 and Line 63 pipeline systems
111.0
Rangeland pipeline system:
Sundre – North
19.7
Sundre – South
48.5
Western Corridor system
26.6
Salt Lake City Core system
126.7
Frontier Pipeline
46.2
Rocky Mountain Products Pipeline8
59.2
Three Months Ended September 30, 2005:
Revenues:
Pipeline transportation revenue
$ 13,887
$ 14,887
$ (1,491)
$ 27,283
Storage and terminaling revenue
9,731
—
9,731
Pipeline buy/sell transportation revenue
—
11,683
11,683
Crude oil sales, net of purchases
5,690
163
(30)
5,823
Net revenue
29,308
26,733
54,520
Expenses:
Operating expenses
16,004
10,536
(1,521)
25,019
Depreciation and amortization
3,491
3,069
6,560
Total expenses
19,495
13,605
31,579
Share of net income of Frontier
—
516
516
Operating income7
$ 9,813
$ 13,644
$ 23,457
Operating Data (barrels per day, in thousands)
Line 2000 and Line 63 pipeline systems
104.4
Rangeland pipeline system:
Sundre – North
19.3
Sundre – South
48.1
Western Corridor system
26.8
Salt Lake City Core system
125.6
Frontier Pipeline
49.6
Rocky Mountain Products Pipeline8
—
PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND OPERATING HIGHLIGHTS BY SEGMENT
Nine Months Ended September 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)
West Coast
Business Unit
Rocky Mountain
Business Unit
Intersegment and Intrasegment Eliminations
Total
Nine Months Ended September 30, 2006:
Revenues:
Pipeline transportation revenue
$ 52,083
$ 60,790
$ (7,221)
$ 105,652
Storage and terminaling revenue
65,420
—
65,420
Pipeline buy/sell transportation revenue
—
31,136
31,136
Crude oil sales, net of purchases
26,000
1,860
(407)
27,453
Net revenue
143,503
93,786
229,661
Expenses:
Operating expenses
63,200
43,548
(7,628)
99,120
Depreciation and amortization
16,534
14,158
30,692
Total expenses
79,734
57,706
129,812
Share of net income of Frontier
—
1,246
1,246
Operating income7
$ 63,769
$ 37,326
$ 101,095
Operating Data (barrels per day, in thousands)
Line 2000 and Line 63 pipeline systems
112.6
Rangeland pipeline system:
Sundre – North
21.9
Sundre – South
44.5
Western Corridor system
26.3
Salt Lake City Core system
125.3
Frontier Pipeline
46.6
Rocky Mountain Products Pipeline8
60.3
Nine Months Ended September 30, 2005:
Revenues:
Pipeline transportation revenue
$ 46,525
$ 41,348
$ (4,806)
$ 83,067
Storage and terminaling revenue
31,073
—
(150)
30,923
Pipeline buy/sell transportation revenue
—
28,905
28,905
Crude oil sales, net of purchases
13,368
369
(90)
13,647
Net revenue
90,966
70,622
156,542
Expenses:
Operating expenses
46,507
30,604
(5,046)
72,065
Line 63 oil release costs3
2,000
—
2,000
Depreciation and amortization
10,497
9,198
19,695
Total expenses
59,004
39,802
93,760
Share of net income of Frontier
—
1,363
1,363
Operating income7
$ 31,962
$ 32,183
$ 64,145
Operating Data (barrels per day, in thousands)
Line 2000 and Line 63 pipeline systems
120.8
Rangeland pipeline system:
Sundre – North
21.3
Sundre – South
45.3
Western Corridor system
24.0
Salt Lake City Core system
119.8
Frontier Pipeline
46.4
Rocky Mountain Products Pipeline8
—
PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands)
RECONCILIATION OF OPERATING INCOME BY SEGMENT TO CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Operating income by Business Unit:
West Coast Business Unit
$ 24,152
$ 9,813
$ 63,769
$ 31,962
Rocky Mountain Business Unit
12,173
13,644
37,326
32,183
36,325
23,457
101,095
64,145
General expenses and other income (expense):7
General and administrative expense
(5,649)
(4,115)
(18,236)
(12,987)
Merger costs1
(1,112)
—
(4,529)
—
Accelerated long-term incentive plan compensation expense2
—
—
—
(3,115)
Reimbursed general partner transaction costs4
—
—
—
(1,807)
Interest expense
(10,853)
(6,237)
(30,029)
(17,679)
Other income
720
494
1,455
1,387
Income tax benefit (expense)5
(196)
(1,433)
2,536
(2,137)
Net income
$ 19,235
$ 12,166
$ 52,292
$ 27,807
LIMITED PARTNERS AND GENERAL PARTNER ALLOCATION OF NET INCOME
Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Net income for the limited partner interests:
Net income
$ 19,235
$ 12,166
$ 52,292
$ 27,807
Costs allocated to general partner:
LBP Option Plan costs9
370
—
1,250
—
Senior Notes consent solicitation and other costs
—
—
—
893
Severance costs
—
—
—
914
Total costs allocated to general partner
370
—
1,250
1,807
Income before costs allocated to general partner
19,605
12,166
53,542
29,614
Less: General partner incentive distribution rights paid
(331)
—
(917)
—
Subtotal
19,274
12,166
52,625
29,614
Less: General partner 2% ownership
(386)
(243)
(1,053)
(592)
Net income allocated to limited partners
$ 18,888
$ 11,923
$ 51,572
$ 29,022
Net income for the general partner interest:
General partner 2% ownership
$ 386
$ 243
$ 1,053
$ 592
Incentive distribution payments to general partner
331
—
917
—
Costs allocated to general partner
(370)
—
(1,250)
(1,807)
Net income (loss) allocated to general partner
$ 347
$ 243
$ 720
$ (1,215)
PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands, except per unit amounts)
RECONCILIATION OF NET INCOME TO RECURRING NET INCOME10
Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Net income
$ 19,235
$ 12,166
$ 52,292
$ 27,807
Add: Merger costs1
1,112
—
4,529
—
Add: Accelerated long-term incentive plan compensation expense2
—
—
—
3,115
Add: Line 63 oil release costs3
—
—
—
2,000
Add: Reimbursed general partner transaction costs4
—
—
—
1,807
Less: Deferred tax rate adjustment5
—
—
(4,560)
—
Recurring net income
$ 20,347
$ 12,166
$ 52,261
$ 34,729
Recurring net income for the general partner interest
$ 369
$ 243
$ 719
$ 695
Recurring net income for the limited partner interest
$ 19,978
$ 11,923
$ 51,542
$ 34,034
Basic and diluted recurring net income per limited partner unit
$ 0.51
$ 0.39
$ 1.31
$ 1.13
RECONCILIATION OF NET INCOME TO EBITDA11
Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Net income
$ 19,235
$ 12,166
$ 52,292
$ 27,807
Interest expense
10,853
6,237
30,029
17,679
Depreciation and amortization
10,398
6,560
30,692
19,695
Income tax (benefit) expense
196
1,433
(2,536)
2,137
EBITDA
$ 40,682
$ 26,396
$ 110,477
$ 67,318
PACIFIC ENERGY PARTNERS, L.P.
RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH FLOW12
(Unaudited)
(Amounts in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2006
2005
2006
2005
Net income
$ 19,235
$ 12,166
$ 52,292
$ 27,807
Depreciation and amortization
10,398
6,560
30,692
19,695
Amortization of debt issue costs and accretion of discount on
long-term debt
625
487
1,847
1,424
Non-cash employee compensation under long-term incentive plan
236
—
732
1,429
Costs allocated to general partner6
370
—
1,250
1,807
Deferred income tax expense (benefit)5
(289)
22
(4,824)
239
Sustaining capital expenditures
(1,502)
(2,243)
(4,148)
(3,070)
Distributable cash flow
29,073
16,992
77,841
49,331
Less: net (increase) decrease in operating assets and Liabilities
(22,783)
165
(30,259)
13,592
Less: share of income of Frontier
(373)
(516)
(1,246)
(1,363)
Add: distributions from Frontier
—
667
622
1,317
Less: non-cash employee compensation under long-term incentive
plan added (deducted) above
(236)
—
(732)
(1,429)
Add: employee compensation under long-term incentive plan
236
—
782
2,886
Less: costs reimbursed by general partner
—
—
—
(1,807)
Add: other non-cash adjustments
(16)
(40)
(1,665)
58
Add: sustaining capital expenditures
1,502
2,243
4,148
3,070
Net cash provided by operating activities
$ 7,403
$ 19,511
$ 49,491
$ 65,655
Total distributable cash flow
$ 29,073
$ 16,992
$ 77,841
$ 49,331
General partner interest in distributable cash flow
(2,192)
(458)
(4,423)
(1,659)
Limited partner interest in distributable cash flow
$ 26,881
$ 16,534
$ 73,418
$ 47,672
PACIFIC ENERGY PARTNERS, L.P.
RECONCILIATION OF RECURRING NET INCOME GUIDANCE TO NET INCOME
GUIDANCE AND EBITDA GUIDANCE13
(Unaudited)
(Amounts in millions)
Three Months Ending
December 31, 2006
Year Ending
December 31, 2006
Low
High
Low
High
Recurring net income guidance14
$ 13.7
$ 16.0
$ 65.9
$ 68.2
Less: Merger costs
(1.4)
(1.2)
(5.9)
(5.7)
Add: Deferred tax rate adjustment
—
—
4.6
4.6
Net income guidance15
$ 12.3
$ 14.8
$ 64.6
$ 67.1
Add: Depreciation and amortization
10.6
11.0
41.3
41.7
Add: Interest expense
10.8
11.5
40.8
41.5
Add: Income tax expense (benefit)16
—
0.2
(2.5)
(2.3)
Earnings before interest, tax, depreciation and amortization (EBITDA)
$ 33.7
$ 37.5
$ 144.2
$ 148.0
PACIFIC ENERGY PARTNERS, L.P.
NOTES TO FINANCIAL SCHEDULES
(Unaudited)
(Amounts in millions, except volume data)
1 On June 12, 2006, we announced that we had
entered into a merger agreement with Plains All American Pipeline, L.P. (“PAA”),
pursuant to which we will be merged into PAA. PAA will acquire common
units (except for common units purchased from LB Pacific, LP) of Pacific
Energy through a tax-free unit-for-unit merger in which each unitholder
of Pacific Energy will receive 0.77 newly issued PAA common units for
each Pacific Energy common unit. Under the terms of a separate
agreement, PAA will acquire from LB Pacific, LP and its affiliates (“LB
Pacific”) the general partner interest and
incentive distribution rights of the Partnership as well as 5.2 million
common units and 5.2 million subordinated units for a total of $700
million in cash. For the three and nine months ended September 30, 2006,
we incurred $1.1 million and $4.5 million, respectively, in professional
fees and other costs directly related to the merger.
2 On March 3, 2005, in connection with a
change in control of the Partnership’s
general partner, all restricted units outstanding under the Long-Term
Incentive Plan immediately vested pursuant to the terms of the grants.
The Partnership recognized compensation expense of $3.1 million relating
to the accelerated vesting. Of this compensation expense, $0.6 million
was considered operating expense and $2.5 million was general and
administrative expense.
3 On March 23, 2005, there was an oil release
of approximately 3,400 barrels in northern Los Angeles County. Although
this event involved an outlay of cash, we believe these costs are
unusual and are not indicative of the Partnership’s
recurring earnings.
4 In 2005, our general partner reimbursed us
$1.8 million for transaction costs incurred in connection with the
change in control of our general partner. Generally accepted accounting
principles require us to record an expense with the reimbursement shown
as a partner’s capital contribution.
5 During the nine months ended September 30,
2006, we recognized into earnings a $4.6 million deferred tax benefit to
adjust our deferred tax liability for recently enacted reductions in the
Canadian provincial and federal income tax rates.
6 See “Limited
Partners and General Partner Allocation of Net Income”
schedule included herein.
7 General and administrative expenses, merger
costs, accelerated long-term incentive plan expense, reimbursed general
partner transaction costs, net interest expense, other income and income
tax expense are not allocated among the West Coast and Rocky Mountain
business units.
8 The Rocky Mountain Products Pipeline was
purchased on September 30, 2005.
9 In January 2006, LB Pacific, LP (“LBP”),
the owner of our General Partner, granted options under its LBP Option
Plan (the “Plan”)
to certain of our officers and key employees. Under the Plan,
participants are granted options to acquire partnership interests in
LBP. We are not obligated to pay any amounts to LBP for the benefits
granted or paid to our officers and key employees under the Plan,
although generally accepted accounting principles require that we record
an expense in the Partnership’s financial
statements with a corresponding increase in the general partner’s
capital account. For the three and nine months ended September 30, 2006,
we recorded compensation expense of $0.4 million and $1.3 million,
respectively, relating to the LBP Option Plan.
10 Recurring net income is a non-GAAP
financial measure. This measure is used to more precisely compare year
over year net income by eliminating one-time, non-recurring charges. You
should not consider recurring net income as an alternative to net
income, income before taxes, cash flow from operations, or any other
measure of financial performance presented in accordance with accounting
principles generally accepted in the United States. Our recurring net
income may not be comparable to similarly titled measures of other
entities.
11 EBITDA (earnings before interest, taxes,
depreciation and amortization expense) is used as a supplemental
performance measure by management to assess (i) the financial
performance of our assets without regard to financing methods, capital
structures or historical cost basis, (ii) the ability of our assets to
generate cash sufficient to pay interest cost and support our
indebtedness, (iii) our operating performance and return on capital as
compared to those of other companies in the midstream energy sector,
without regard to financing and capital structure, and (iv) the
viability of projects and the overall rates of return on alternative
investment opportunities. You should not consider EBITDA as an
alternative to net income, income before taxes, cash flow from
operations, or any other measure of financial performance presented in
accordance with accounting principles generally accepted in the United
States. Our EBITDA may not be comparable to similarly titled measures of
other entities. Additional information regarding EBITDA is included in
our annual report on Form 10-K for the year ended December 31, 2005. For
the three and nine months ended September 30, 2006, EBITDA has been
reduced by $1.1 million and $4.5 million, respectively, for costs
directly related to the proposed merger with Plains All American
Pipeline, L.P. For the nine months ended September 30, 2005, EBITDA was
reduced by $3.1 million of compensation expense relating to the
accelerated vesting of our long term incentive compensation plan, $2.0
million of oil release costs and $1.8 million of general partner costs
that was required by GAAP to be recorded in our income statement. There
was no unusual impact on EBITDA for the three months ended September 30,
2005.
12 Distributable Cash Flow provides additional
information for evaluating our ability to make the minimum quarterly
distribution and is presented solely as a supplemental measure. You
should not consider Distributable Cash Flow as an alternative to net
income, income before taxes, cash flow from operations, or any other
measure of financial performance presented in accordance with accounting
principles generally accepted in the United States. Our Distributable
Cash Flow may not be comparable to similarly titled measures of other
entities. Additional information regarding distributable cash flow is
included in our annual report on Form 10-K for the year ended December
31, 2005.
13 The guidance for the three months ending
December 31, 2006 and for the twelve months ending December 31, 2006 are
based on assumptions and estimates that we believe are reasonable given
our assessment of historical trends, business cycles and other
information reasonably available. However, our assumptions and future
performance are both subject to a wide range of business risks and
uncertainties so no assurance can be provided that actual performance
will fall within the guidance ranges. Please see “Forward-Looking
Statements” above. These risks and
uncertainties, as well as other unforeseeable risks and uncertainties,
could cause our actual results to differ materially from those in the
table. This financial guidance is given as of the date hereof, based on
information known to us as of November 1, 2006. We undertake no
obligation to publicly update or revise any forward-looking statements.
14 Recurring net income guidance for the
twelve months ending December 31, 2006 excludes $4.5 million of merger
costs and a $4.6 million deferred tax benefit to adjust our deferred tax
liability for reductions in the Canadian provincial and federal income
tax rates that were enacted into law in the second quarter of 2006.
15 Included in the net income guidance for the
year ending December 31, 2006 is forecast general and administrative
expense of $23 million to $24 million.
16 Included for the year ending December 31,
2006 is forecast cash tax expense of $2.7 million and forecast deferred
tax benefit of $5.1 million.
Pacific Energy Partners, L.P. (NYSE:PPX) ("Pacific Energy" or the
"Partnership") announced that net income for the three months ended
September 30, 2006, was $19.2 million, or $0.48 per limited partner
unit, compared to net income of $12.2 million, or $0.39 per limited
partner unit, for the three months ended September 30, 2005. Recurring
net income for the three months ended September 30, 2006 was $20.3
million, or $0.51 per limited partner unit, compared to recurring net
income of $12.2 million, or $0.39 per limited partner unit, for the
corresponding period in 2005. All per unit amounts in the text of this
news release are reported on a diluted basis.
The increase in recurring net income for the quarter ended
September 30, 2006, reflects the benefit of the September 30, 2005,
acquisition of refined products terminals and a refined products
pipeline from Valero L.P., increased income from our California
pipelines, increased margins from crude oil marketing activities and
higher revenue from our Southern California terminals. Partially
offsetting these increases was a decline in transportation revenue
from the Partnership's Canadian pipeline operations. In addition, the
Partnership incurred higher interest expense attributable to the
financing of the refined products asset acquisition and increased
general and administrative costs. There were approximately 28% more
units outstanding in the third quarter of 2006 compared to the
corresponding quarter in 2005.
Recurring net income for the third quarter of 2006 excludes $1.1
million of transaction costs related to the planned merger with Plains
All American Pipeline, L.P. ("Plains").
"We are very pleased with our third quarter results. Recurring net
income was up 31 percent on a per unit basis versus the prior year
quarter and also exceeded the guidance given in last quarter's
earnings press release. Our core transportation and storage business
performed well, and favorable market conditions allowed us to generate
better than expected crude oil marketing income," stated Irv Toole,
President and CEO of Pacific Energy. "Organic pipeline and terminal
growth projects in both of our business units continue to progress and
are a primary focus of the Partnership."
On October 20, 2006, Pacific Energy announced a cash distribution
of $0.5675 per unit for the third quarter of 2006, or $2.27 per unit
annualized. This is unchanged from the second quarter 2006
distribution level but is 10.7% higher than the third quarter 2005
distribution level. The distribution will be paid on November 13,
2006, to holders of record as of October 31, 2006.
Distributable cash flow available to the limited partners'
interest for the third quarter of 2006 was $26.9 million after
deducting $1.1 million in merger costs. On a diluted, weighted
average, basis there were 39,321,000 limited partner units outstanding
during the third quarter of 2006.
Earnings before interest, tax, depreciation and amortization
expenses ("EBITDA") were $40.7 million in the third quarter of 2006.
OPERATING RESULTS BY SEGMENT
WEST COAST BUSINESS UNIT
Operating income was $24.2 million for the three months ended
September 30, 2006, compared to $9.8 million in the corresponding
period in 2005. This increase was primarily due to the addition of the
Northern California and East Coast terminals on September 30, 2005,
improved operating income from California pipeline operations, higher
tank revenue from Los Angeles area terminal operations, and increased
margins from crude oil marketing activities.
The Northern California terminals are operating at capacity.
Construction of 450,000 barrels of additional storage capacity at
Martinez was completed in late September 2006, with lease revenue
beginning October 1. As previously announced, due to strong customer
demand, Pacific Energy increased its capital budget to provide for the
construction of an additional 850,000 barrels of storage capacity at
Martinez, which is under contract. It is projected that $1.1 million
of capital will be expended in 2006 for these tanks, with an
additional $27.1 million to be expended in 2007. Completion of 250,000
barrels is expected in the third quarter of 2007 and the remaining
600,000 barrels is expected to be completed in the fourth quarter of
2007.
The East Coast terminals are also operating near capacity. East
Coast terminal income includes the benefit of expanded ethanol
facilities, which began operations in the second quarter of 2006 and
are now fully operational, and the start-up of ultra low sulfur diesel
and jet fuel handling facilities.
Volumes transported to Los Angeles on the Partnership's crude oil
pipelines for the three months ended September 30, 2006 were
approximately 6% higher than in the third quarter of 2005, due to
refinery maintenance and higher Outer Continental Shelf production
volumes which were lower in 2005 due to maintenance downtime. In
addition to the long-haul volume improvement, revenue increased as a
result of a $0.10 per barrel tariff increase effective May 1, 2006 on
Line 2000. In addition, deliveries to Bakersfield refineries more than
tripled from the prior year quarter as a result of pipeline
modifications in the San Joaquin Valley that were completed on October
1, 2005, that increased delivery capacity to those refineries.
Operating income for Los Angeles Basin terminals was higher
compared to the corresponding quarter in 2005 due to increased tank
utilization, higher rates on tank leases and lower operating expenses.
The reactivation of 300,000 barrels of storage at the Alamitos
terminal was completed in July 2006, and reactivation of a second
300,000 barrel tank is scheduled to be completed in the first quarter
of 2007. Total capacity available to be leased after these
reactivations will be 7.4 million barrels, with an additional 0.8
million barrels idle but available for reactivation in the future.
The Partnership's crude oil marketing income in the third quarter
of 2006 was significantly higher than in the prior year quarter due to
favorable margins and increased crude oil volumes.
The Partnership continues to advance the development of the Pier
400 deepwater import terminal in the Port of Los Angeles, with the
draft environmental impact report expected to be released by the Port
in the fourth quarter of 2006. This past quarter, efforts continued to
be focused on finalizing environmental mitigation factors with the
Port of Los Angeles and the Partnership's customers. The Partnership
expects to receive the permits necessary to begin construction by
mid-year 2007, with start-up of operations expected in the first
quarter of 2009. The project, which will require a total estimated
investment of $315 million, is currently anticipated to include
4,000,000 barrels of storage capacity that will be constructed in two
phases. Long term volume commitment agreements have been signed with
subsidiaries of Valero Energy Corporation and ConocoPhillips, and it
is anticipated that, with additional customer commitments currently
being finalized, the estimated 250,000 barrels per day of offloading
capacity will be fully subscribed.
ROCKY MOUNTAIN BUSINESS UNIT
Operating income was $12.2 million for the three months ended
September 30, 2006, compared to $13.6 million in the corresponding
period in 2005. The $1.4 million decrease was primarily due to lower
operating income for the Rangeland pipeline system in Alberta,
partially offset by higher volumes on the Western Corridor system and
the income contribution from the Rocky Mountain Products Pipeline that
was part of the Valero L.P. acquisition. The decrease in Rangeland's
third quarter 2006 income was due in part to the absence of an unusual
item that benefited the 2005 quarter: the correction of an error in
the procedures used to properly account for inventory and cost of
goods sold that resulted in an increase in Rangeland's pre-tax income
in the third quarter 2005 of $1.2 million ($0.7 million after tax).
Two major profit generating capital projects, the Salt Lake City
pipeline expansion project and the Cheyenne pipeline project are
proceeding on schedule and on budget. Construction of the first phase
of the Salt Lake City pipeline expansion began in October 2006 and is
scheduled to be completed around the end of this year. The second
phase is expected to be completed in the fourth quarter of 2007. Total
cost of this 93-mile,16-inch pipeline, with a capacity of 95,000
barrels per day, is approximately $77 million and is supported by
firm, ten-year transportation agreements with four Salt Lake City
refiners.
The Cheyenne Pipeline consists of a 24-inch crude oil pipeline,
approximately 10 miles in length, from Guernsey, Wyoming, to Pacific
Energy's Fort Laramie, Wyoming tank farm and a 16-inch crude oil
pipeline, approximately 85 miles in length, from Fort Laramie to the
Frontier Oil and Refining Company Cheyenne refinery. The project is on
schedule to be completed in the second quarter of 2007 at a cost of
approximately $59 million and is supported by a firm ten-year
commitment by Frontier Oil to ship 35,000 barrels per day on the
pipeline, and lease approximately 300,000 barrels of storage capacity
at Fort Laramie. The new pipeline system's initial capacity will be
55,000 barrels per day, expandable to a capacity of 90,000 barrels per
day.
CORPORATE ITEMS
General and administrative expenses were $5.6 million in the third
quarter of 2006, approximately $1.5 million higher than in the third
quarter of 2005. This increase was associated with support of newly
acquired assets, the Partnership's long term incentive plan, and an
expense for the LB Pacific, LP ("LB Pacific") option plan introduced
in the first quarter of 2006, the cost of which is required by
generally accepted accounting principles to be recorded as a Pacific
Energy expense even though the plan is funded by LB Pacific not the
Partnership.
Interest expense was $10.9 million for the third quarter of 2006,
$4.6 million greater than in the comparable period in 2005, due to the
increase in debt for the Valero L.P. asset acquisition. Income tax
expense was $1.2 million lower compared to the third quarter of 2005,
as a result of reduced Rangeland earnings.
NINE MONTH RESULTS
For the nine months ended September 30, 2006, net income was $52.3
million, or $1.31 per limited partner unit, compared to $27.8 million,
or $0.96 per limited partner unit, for the nine months ended September
30, 2005. Recurring net income for the nine months ended September 30,
2006, was $52.3 million, or $1.31 per limited partner unit, compared
with $34.7 million, or $1.13 per limited partner unit, for the nine
months ended September 30, 2005. Recurring net income for the first
nine months of 2006 reflects the benefit of nine months of operations
in 2006 from the assets acquired from Valero L.P., increased margins
from crude oil marketing activities, higher revenue and lower pipeline
repair expenses for the California pipeline operations, increased
pipeline revenue in the U.S. Rocky Mountain region, and higher Los
Angeles area storage revenue. Partially offsetting these increases
were increased interest and general and administrative expenses. In
addition, there were approximately 31% more units outstanding in the
nine months ended September 30, 2006 versus the comparable period of
2005.
Recurring net income for the nine months ended September 30, 2006
excludes $4.5 million of costs associated with the pending Plains
merger transaction, and a $4.6 million deferred tax benefit. Due to
legislation enacted in the second quarter of 2006, both federal and
Alberta corporate tax rates in Canada are being reduced, and Pacific
Energy's deferred tax liability balance was required by accounting
rules to be adjusted to reflect the new rates. Recurring net income
for the nine months ended September 30, 2005 excludes a $2.0 million
expense for the insurance deductible associated with remediation of
the March 2005 Line 63 oil release, a $3.1 million expense related to
accelerated vesting of restricted units under Pacific Energy's
long-term incentive plan as a result of the change in control
attributable to the purchase of Pacific Energy's general partner by LB
Pacific, and $1.8 million of expense from this general partner
transaction required to be recorded as a partnership expense even
though it was paid by the general partner, not the Partnership.
For the nine months ended September 30, 2006, total capital
spending was $67.5 million: $57.5 million of expansion capital, $4.1
million of sustaining capital (including $1.5 million in the third
quarter), and $5.9 million of transition capital.
LOOKING FORWARD
For the quarter ending December 31, 2006, Pacific Energy is
forecasting recurring net income of $0.34 to $0.40 per unit and EBITDA
of $34 million to $38 million. Major maintenance expenses budgeted for
2006 but not yet incurred will increase costs in the fourth quarter of
2006 and are reflected in the guidance for the quarter and full year.
Sustaining capital expenditures for the fourth quarter of 2006 are
expected to be $2 million to $3 million.
For full year 2006, Pacific Energy is forecasting recurring net
income of $1.65 to $1.71 per unit and EBITDA of $144 million to $148
million. Capital expenditures for the full year are projected to be
$119 million, including $105 million for expansion projects, $7
million for transition capital projects and $7 million for sustaining
capital projects. The reduction in expansion capital spending over
prior guidance reflects a change in timing of certain project
expenditures from 2006 to 2007.
The guidance for recurring net income for the fourth quarter and
full year 2006 does not include expenses related to the Plains merger
transaction or the deferred tax benefit resulting from the change in
Canadian tax rates. The guidance for EBITDA reflects $1.3 million and
$5.8 million, for the fourth quarter and full year, respectively, for
estimated merger expenses to be incurred prior to closing.
For more information about non-GAAP ("generally accepted
accounting principles") measures, see the schedules accompanying this
press release.
MERGER WITH PLAINS ALL AMERICAN PIPELINE, L.P.
On June 12, 2006, Pacific Energy announced that it had entered
into an Agreement and Plan of Merger with Plains, pursuant to which
the Partnership will be merged with and into Plains. A special meeting
of unitholders of the Partnership to consider approval of the merger
is scheduled to occur on November 9, 2006. The parties expect to
complete the merger on November 15, 2006 assuming the proposals are
approved by the unitholders and all other conditions to closing are
satisfied.
OTHER MATTERS
Pacific Energy will host a conference call at 2:00 p.m. EDT (11:00
a.m. PDT) on Thursday, November 2, 2006, to discuss the results of the
third quarter of 2006. Please join us at www.PacificEnergy.com for the
live broadcast or dial in at 800-446-1671 or 847-413-3362 passcode
16033900. The call, with questions and answers, will continue to be
available on Pacific Energy's web site following the call.
About Pacific Energy:
Pacific Energy is a master limited partnership headquartered in
Long Beach, California, engaged principally in the business of
gathering, transporting, storing and distributing crude oil, refined
products and other related products. The Partnership generates
revenues by transporting such commodities on its pipelines, by leasing
capacity in its storage facilities and by providing other terminaling
services. Pacific Energy also buys and sells crude oil, activities
that are generally complementary to its crude oil operations. Pacific
Energy conducts its business through two business units, the West
Coast Business Unit, which includes activities in California and the
Philadelphia, PA area, and the Rocky Mountain Business Unit, which
includes activities in five Rocky Mountain states and Alberta, Canada.
For additional information about the Partnership, please visit
www.PacificEnergy.com.
Investor Notice:
Pacific Energy and Plains All American Pipeline, L.P. have filed a
joint proxy statement/prospectus and other documents with the
Securities and Exchange Commission ("SEC") with respect to the
proposed merger of Pacific Energy with and into Plains, which joint
proxy statement/prospectus has been declared effective by the SEC. The
definitive joint proxy statement/prospectus has been sent to security
holders of Pacific Energy and Plains seeking their approval of the
merger and related transactions. Investors and security holders are
urged to carefully read the joint proxy statement/prospectus because
it contains important information, including detailed risk factors,
regarding Pacific Energy, Plains and the merger. Investors and
security holders may obtain a free copy of the definitive joint proxy
statement/prospectus and other documents containing information about
Pacific Energy and Plains, without charge, at the SEC's web site at
www.sec.gov. Copies of the definitive joint proxy statement/prospectus
and the SEC filings that are incorporated by reference in the joint
proxy statement/prospectus may also be obtained free of charge by
directing a request to Pacific Energy or Plains. Pacific Energy or
Plains and the officers and directors of the respective general
partners of Pacific Energy or Plains may be deemed to be participants
in the solicitation of proxies from their security holders in
connection with the proposed transaction. Information about these
persons can be found in Pacific Energy's or Plains' respective Annual
Reports on Form 10-K filed with the SEC, and additional information
about such persons may be obtained from the joint proxy
statement/prospectus.
Cautionary Statement Regarding Forward-Looking Statements:
This news release may include "forward-looking" statements within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical fact included or
incorporated herein may constitute forward-looking statements.
Although Pacific Energy believes that the forward-looking statements
are reasonable, it can give no assurance that such expectations will
prove to be correct. The forward-looking statements involve risks and
uncertainties that may affect Pacific Energy's operations and
financial performance. Among the factors that could cause results to
differ materially are those risks discussed in Pacific Energy's
filings with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the year ended December 31, 2005, and
including the definitive joint proxy statement/prospectus referred to
in this press release.
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*T
PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per unit amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2006 2005 2006 2005
---------- -------- --------- --------
Operating revenues:
Pipeline transportation
revenue $36,995 $27,283 $105,652 $83,067
Storage and terminaling
revenue 23,467 9,731 65,420 30,923
Pipeline buy/sell
transportation revenue 10,010 11,683 31,136 28,905
Crude oil sales, net of
purchases 9,924 5,823 27,453 13,647
---------- -------- --------- --------
Net revenues 80,396 54,520 229,661 156,542
---------- -------- --------- --------
Expenses:
Operating 34,046 25,019 99,120 72,065
General and administrative 5,649 4,115 18,236 12,987
Depreciation and amortization 10,398 6,560 30,692 19,695
Merger costs(1) 1,112 -- 4,529 --
Accelerated long-term
incentive plan compensation
expense(2) -- -- -- 3,115
Line 63 oil release costs(3) -- -- -- 2,000
Reimbursed general partner
transaction costs(4) -- -- -- 1,807
---------- -------- --------- --------
Total expenses 51,205 35,694 152,577 111,669
---------- -------- --------- --------
Share of net income of Frontier 373 516 1,246 1,363
---------- -------- --------- --------
Operating income 29,564 19,342 78,330 46,236
Net interest expense (10,853) (6,237) (30,029) (17,679)
Other income 720 494 1,455 1,387
---------- -------- --------- --------
Income before income tax
expense 19,431 13,599 49,756 29,944
---------- -------- --------- --------
Income tax benefit (expense):
Current (485) (1,411) (2,288) (1,898)
Deferred(5) 289 (22) 4,824 (239)
---------- -------- --------- --------
(196) (1,433) 2,536 (2,137)
---------- -------- --------- --------
Net income $19,235 $12,166 $52,292 $27,807
========== ======== ========= ========
Net income (loss) for the
general partner interest(6) $347 $243 $720 $(1,215)
========== ======== ========= ========
Net income for the limited
partner interests(6) $18,888 $11,923 $51,572 $29,022
========== ======== ========= ========
Basic net income per limited
partner unit $0.48 $0.39 $1.31 $0.97
========== ======== ========= ========
Diluted net income per limited
partner unit $0.48 $0.39 $1.31 $0.96
========== ======== ========= ========
Weighted average units
outstanding:
Basic 39,307 30,761 39,305 30,051
Diluted 39,321 30,762 39,332 30,089
*T
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PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands)
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2006 2005
------------- --------------
Assets
Current assets $265,226 $192,115
Property and equipment, net 1,252,750 1,185,534
Intangible assets 67,639 69,180
Investment in Frontier Pipeline Company 8,651 8,156
Other assets 17,957 21,467
------------- --------------
Total assets $1,612,223 $1,476,452
============= ==============
Liabilities and Partners' Capital
Current liabilities $204,160 $156,187
Long-term debt 669,163 565,632
Deferred income taxes 32,560 35,771
Environmental and other long-term
liabilities 17,416 20,623
Partners' capital 688,924 698,239
------------- --------------
Total liabilities and
partners' capital $1,612,223 $1,476,452
============= ==============
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
------------------
2006 2005
-------- ---------
Cash flows from operating activities:
Net income $52,292 $27,807
Depreciation, amortization, non-cash employee
compensation under long-term incentive plan,
deferred income taxes and Frontier adjustment 27,458 24,256
Working capital adjustments (30,259) 13,592
-------- ---------
Net cash provided by operating activities 49,491 65,655
-------- ---------
Cash flows from investing activities:
Acquisition (2,365) (461,165)
Net additions to property and equipment (67,522) (27,265)
Additions to pipeline linefill and minimum tank
inventory (16,106) --
Other 181 --
-------- ---------
Net cash used in investing activities (85,812) (488,430)
-------- ---------
Cash flows from financing activities:
Issuance of common units, net of fees and
offering expenses -- 289,122
Capital contribution from the general partner -- 8,569
Net proceeds from senior notes offering -- 170,997
Proceeds from bank credit facilities 182,094 203,291
Repayment of bank credit facilities (81,463) (195,661)
Deferred financing costs -- (4,676)
Distributions to partners (68,714) (46,224)
Issuance of common units pursuant to exercise of
unit option -- 707
Related parties (28) (1,171)
-------- ---------
Net cash provided by financing activities 31,889 424,954
-------- ---------
Effect of exchange rate changes on cash 83 213
-------- ---------
Net increase in cash and cash equivalents (4,349) 2,392
Cash and cash equivalents, beginning of period 18,064 23,383
-------- ---------
Cash and cash equivalents, end of period $13,715 $25,755
======== =========
*T
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PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND OPERATING HIGHLIGHTS BY SEGMENT
Three Months Ended September 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)
West Rocky Intersegment
Coast Mountain and
Business Business Intrasegment
Unit Unit Eliminations Total
-------- --------- ------------- --------
Three Months Ended September
30, 2006:
Revenues:
Pipeline transportation
revenue $18,224 $21,500 $(2,729) $36,995
Storage and terminaling
revenue 23,467 -- 23,467
Pipeline buy/sell
transportation revenue -- 10,010 10,010
Crude oil sales, net of
purchases 9,494 572 (142) 9,924
-------- --------- --------
Net revenue 51,185 32,082 80,396
-------- --------- --------
Expenses:
Operating expenses 21,505 15,412 (2,871) 34,046
Depreciation and
amortization 5,528 4,870 10,398
-------- --------- --------
Total expenses 27,033 20,282 44,444
-------- --------- --------
Share of net income of
Frontier -- 373 373
-------- --------- --------
Operating income(7) $24,152 $12,173 $36,325
======== ========= ========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 111.0
Rangeland pipeline system:
Sundre - North 19.7
Sundre - South 48.5
Western Corridor system 26.6
Salt Lake City Core system 126.7
Frontier Pipeline 46.2
Rocky Mountain Products
Pipeline(8) 59.2
Three Months Ended September
30, 2005:
Revenues:
Pipeline transportation
revenue $13,887 $14,887 $(1,491) $27,283
Storage and terminaling
revenue 9,731 -- 9,731
Pipeline buy/sell
transportation revenue -- 11,683 11,683
Crude oil sales, net of
purchases 5,690 163 (30) 5,823
-------- --------- --------
Net revenue 29,308 26,733 54,520
-------- --------- --------
Expenses:
Operating expenses 16,004 10,536 (1,521) 25,019
Depreciation and
amortization 3,491 3,069 6,560
-------- --------- --------
Total expenses 19,495 13,605 31,579
-------- --------- --------
Share of net income of
Frontier -- 516 516
-------- --------- --------
Operating income(7) $9,813 $13,644 $23,457
======== ========= ========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 104.4
Rangeland pipeline system:
Sundre - North 19.3
Sundre - South 48.1
Western Corridor system 26.8
Salt Lake City Core system 125.6
Frontier Pipeline 49.6
Rocky Mountain Products
Pipeline(8) --
*T
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PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND OPERATING HIGHLIGHTS BY SEGMENT
Nine Months Ended September 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)
West Rocky Intersegment
Coast Mountain and
Business Business Intrasegment
Unit Unit Eliminations Total
-------- --------- ------------- ---------
Nine Months Ended September
30, 2006:
Revenues:
Pipeline transportation
revenue $52,083 $60,790 $(7,221) $105,652
Storage and terminaling
revenue 65,420 -- 65,420
Pipeline buy/sell
transportation revenue -- 31,136 31,136
Crude oil sales, net of
purchases 26,000 1,860 (407) 27,453
-------- --------- ---------
Net revenue 143,503 93,786 229,661
-------- --------- ---------
Expenses:
Operating expenses 63,200 43,548 (7,628) 99,120
Depreciation and
amortization 16,534 14,158 30,692
-------- --------- ---------
Total expenses 79,734 57,706 129,812
-------- --------- ---------
Share of net income of
Frontier -- 1,246 1,246
-------- --------- ---------
Operating income(7) $63,769 $37,326 $101,095
======== ========= =========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 112.6
Rangeland pipeline
system:
Sundre - North 21.9
Sundre - South 44.5
Western Corridor system 26.3
Salt Lake City Core
system 125.3
Frontier Pipeline 46.6
Rocky Mountain Products
Pipeline(8) 60.3
Nine Months Ended September
30, 2005:
Revenues:
Pipeline transportation
revenue $46,525 $41,348 $(4,806) $83,067
Storage and terminaling
revenue 31,073 -- (150) 30,923
Pipeline buy/sell
transportation revenue -- 28,905 28,905
Crude oil sales, net of
purchases 13,368 369 (90) 13,647
-------- --------- ---------
Net revenue 90,966 70,622 156,542
-------- --------- ---------
Expenses:
Operating expenses 46,507 30,604 (5,046) 72,065
Line 63 oil release
costs(3) 2,000 -- 2,000
Depreciation and
amortization 10,497 9,198 19,695
-------- --------- ---------
Total expenses 59,004 39,802 93,760
-------- --------- ---------
Share of net income of
Frontier -- 1,363 1,363
-------- --------- ---------
Operating income(7) $31,962 $32,183 $64,145
======== ========= =========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 120.8
Rangeland pipeline
system:
Sundre - North 21.3
Sundre - South 45.3
Western Corridor system 24.0
Salt Lake City Core
system 119.8
Frontier Pipeline 46.4
Rocky Mountain Products
Pipeline(8) --
*T
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PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands)
RECONCILIATION OF OPERATING INCOME BY SEGMENT TO CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
2006 2005 2006 2005
---------- -------- -------- --------
Operating income by Business
Unit:
West Coast Business Unit $24,152 $9,813 $63,769 $31,962
Rocky Mountain Business Unit 12,173 13,644 37,326 32,183
---------- -------- -------- --------
36,325 23,457 101,095 64,145
General expenses and other
income (expense):(7)
General and administrative
expense (5,649) (4,115) (18,236) (12,987)
Merger costs(1) (1,112) -- (4,529) --
Accelerated long-term
incentive plan compensation
expense(2) -- -- -- (3,115)
Reimbursed general partner
transaction costs(4) -- -- -- (1,807)
Interest expense (10,853) (6,237) (30,029) (17,679)
Other income 720 494 1,455 1,387
Income tax benefit
(expense)(5) (196) (1,433) 2,536 (2,137)
---------- -------- -------- --------
Net income $19,235 $12,166 $52,292 $27,807
========== ======== ======== ========
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LIMITED PARTNERS AND GENERAL PARTNER ALLOCATION OF NET INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2006 2005 2006 2005
--------- -------- -------- --------
Net income for the limited
partner interests:
Net income $19,235 $12,166 $52,292 $27,807
Costs allocated to general
partner:
LBP Option Plan costs(9) 370 -- 1,250 --
Senior Notes consent
solicitation and other costs -- -- -- 893
Severance costs -- -- -- 914
--------- -------- -------- --------
Total costs allocated to general
partner 370 -- 1,250 1,807
--------- -------- -------- --------
Income before costs allocated to
general partner 19,605 12,166 53,542 29,614
Less: General partner incentive
distribution rights paid (331) -- (917) --
--------- -------- -------- --------
Subtotal 19,274 12,166 52,625 29,614
Less: General partner 2%
ownership (386) (243) (1,053) (592)
--------- -------- -------- --------
Net income allocated to limited
partners $18,888 $11,923 $51,572 $29,022
========= ======== ======== ========
Net income for the general
partner interest:
General partner 2% ownership $386 $243 $1,053 $592
Incentive distribution payments
to general partner 331 -- 917 --
Costs allocated to general
partner (370) -- (1,250) (1,807)
--------- -------- -------- --------
Net income (loss) allocated to
general partner $347 $243 $720 $(1,215)
========= ======== ======== ========
*T
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PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands, except per unit amounts)
RECONCILIATION OF NET INCOME TO RECURRING NET INCOME(10)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
2006 2005 2006 2005
---------- -------- -------- --------
Net income $19,235 $12,166 $52,292 $27,807
Add: Merger costs(1) 1,112 -- 4,529 --
Add: Accelerated long-term
incentive plan compensation
expense(2) -- -- -- 3,115
Add: Line 63 oil release
costs(3) -- -- -- 2,000
Add: Reimbursed general
partner transaction costs(4) -- -- -- 1,807
Less: Deferred tax rate
adjustment(5) -- -- (4,560) --
---------- -------- -------- --------
Recurring net income $20,347 $12,166 $52,261 $34,729
========== ======== ======== ========
Recurring net income for the
general partner interest $369 $243 $719 $695
========== ======== ======== ========
Recurring net income for the
limited partner interest $19,978 $11,923 $51,542 $34,034
========== ======== ======== ========
Basic and diluted recurring net
income per limited partner unit $0.51 $0.39 $1.31 $1.13
========== ======== ======== ========
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RECONCILIATION OF NET INCOME TO EBITDA(11)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2006 2005 2006 2005
--------- -------- --------- --------
Net income $19,235 $12,166 $52,292 $27,807
Interest expense 10,853 6,237 30,029 17,679
Depreciation and amortization 10,398 6,560 30,692 19,695
Income tax (benefit) expense 196 1,433 (2,536) 2,137
--------- -------- --------- --------
EBITDA $40,682 $26,396 $110,477 $67,318
========= ======== ========= ========
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PACIFIC ENERGY PARTNERS, L.P.
RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH FLOW(12)
(Unaudited)
(Amounts in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
2006 2005 2006 2005
---------- -------- -------- --------
Net income $19,235 $12,166 $52,292 $27,807
Depreciation and amortization 10,398 6,560 30,692 19,695
Amortization of debt issue costs
and accretion of discount on
long-term debt 625 487 1,847 1,424
Non-cash employee compensation
under long-term incentive plan 236 -- 732 1,429
Costs allocated to general
partner(6) 370 -- 1,250 1,807
Deferred income tax expense
(benefit)(5) (289) 22 (4,824) 239
Sustaining capital expenditures (1,502) (2,243) (4,148) (3,070)
---------- -------- -------- --------
Distributable cash flow 29,073 16,992 77,841 49,331
Less: net (increase) decrease in
operating assets and
Liabilities (22,783) 165 (30,259) 13,592
Less: share of income of
Frontier (373) (516) (1,246) (1,363)
Add: distributions from Frontier -- 667 622 1,317
Less: non-cash employee
compensation under long-term
incentive plan added (deducted)
above (236) -- (732) (1,429)
Add: employee compensation under
long-term incentive plan 236 -- 782 2,886
Less: costs reimbursed by
general partner -- -- -- (1,807)
Add: other non-cash adjustments (16) (40) (1,665) 58
Add: sustaining capital
expenditures 1,502 2,243 4,148 3,070
---------- -------- -------- --------
Net cash provided by operating
activities $7,403 $19,511 $49,491 $65,655
========== ======== ======== ========
Total distributable cash flow $29,073 $16,992 $77,841 $49,331
General partner interest in
distributable cash flow (2,192) (458) (4,423) (1,659)
---------- -------- -------- --------
Limited partner interest in
distributable cash flow $26,881 $16,534 $73,418 $47,672
========== ======== ======== ========
*T
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PACIFIC ENERGY PARTNERS, L.P.
RECONCILIATION OF RECURRING NET INCOME GUIDANCE TO NET INCOME GUIDANCE
AND EBITDA GUIDANCE(13)
(Unaudited)
(Amounts in millions)
Three Months Ending Year Ending
December 31, 2006 December 31, 2006
-------------------- -----------------
Low High Low High
---------- --------- --------- -------
Recurring net income
guidance(14) $13.7 $16.0 $65.9 $68.2
Less: Merger costs (1.4) (1.2) (5.9) (5.7)
Add: Deferred tax rate
adjustment -- -- 4.6 4.6
---------- --------- --------- -------
Net income guidance(15) $12.3 $14.8 $64.6 $67.1
Add: Depreciation and
amortization 10.6 11.0 41.3 41.7
Add: Interest expense 10.8 11.5 40.8 41.5
Add: Income tax expense
(benefit)(16) -- 0.2 (2.5) (2.3)
---------- --------- --------- -------
Earnings before interest, tax,
depreciation and amortization
(EBITDA) $33.7 $37.5 $144.2 $148.0
========== ========= ========= =======
*T
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PACIFIC ENERGY PARTNERS, L.P.
NOTES TO FINANCIAL SCHEDULES
(Unaudited)
(Amounts in millions, except volume data)
*T
(1) On June 12, 2006, we announced that we had entered into a
merger agreement with Plains All American Pipeline, L.P. ("PAA"),
pursuant to which we will be merged into PAA. PAA will acquire common
units (except for common units purchased from LB Pacific, LP) of
Pacific Energy through a tax-free unit-for-unit merger in which each
unitholder of Pacific Energy will receive 0.77 newly issued PAA common
units for each Pacific Energy common unit. Under the terms of a
separate agreement, PAA will acquire from LB Pacific, LP and its
affiliates ("LB Pacific") the general partner interest and incentive
distribution rights of the Partnership as well as 5.2 million common
units and 5.2 million subordinated units for a total of $700 million
in cash. For the three and nine months ended September 30, 2006, we
incurred $1.1 million and $4.5 million, respectively, in professional
fees and other costs directly related to the merger.
(2) On March 3, 2005, in connection with a change in control of
the Partnership's general partner, all restricted units outstanding
under the Long-Term Incentive Plan immediately vested pursuant to the
terms of the grants. The Partnership recognized compensation expense
of $3.1 million relating to the accelerated vesting. Of this
compensation expense, $0.6 million was considered operating expense
and $2.5 million was general and administrative expense.
(3) On March 23, 2005, there was an oil release of approximately
3,400 barrels in northern Los Angeles County. Although this event
involved an outlay of cash, we believe these costs are unusual and are
not indicative of the Partnership's recurring earnings.
(4) In 2005, our general partner reimbursed us $1.8 million for
transaction costs incurred in connection with the change in control of
our general partner. Generally accepted accounting principles require
us to record an expense with the reimbursement shown as a partner's
capital contribution.
(5) During the nine months ended September 30, 2006, we recognized
into earnings a $4.6 million deferred tax benefit to adjust our
deferred tax liability for recently enacted reductions in the Canadian
provincial and federal income tax rates.
(6) See "Limited Partners and General Partner Allocation of Net
Income" schedule included herein.
(7) General and administrative expenses, merger costs, accelerated
long-term incentive plan expense, reimbursed general partner
transaction costs, net interest expense, other income and income tax
expense are not allocated among the West Coast and Rocky Mountain
business units.
(8) The Rocky Mountain Products Pipeline was purchased on
September 30, 2005.
(9) In January 2006, LB Pacific, LP ("LBP"), the owner of our
General Partner, granted options under its LBP Option Plan (the
"Plan") to certain of our officers and key employees. Under the Plan,
participants are granted options to acquire partnership interests in
LBP. We are not obligated to pay any amounts to LBP for the benefits
granted or paid to our officers and key employees under the Plan,
although generally accepted accounting principles require that we
record an expense in the Partnership's financial statements with a
corresponding increase in the general partner's capital account. For
the three and nine months ended September 30, 2006, we recorded
compensation expense of $0.4 million and $1.3 million, respectively,
relating to the LBP Option Plan.
(10) Recurring net income is a non-GAAP financial measure. This
measure is used to more precisely compare year over year net income by
eliminating one-time, non-recurring charges. You should not consider
recurring net income as an alternative to net income, income before
taxes, cash flow from operations, or any other measure of financial
performance presented in accordance with accounting principles
generally accepted in the United States. Our recurring net income may
not be comparable to similarly titled measures of other entities.
(11) EBITDA (earnings before interest, taxes, depreciation and
amortization expense) is used as a supplemental performance measure by
management to assess (i) the financial performance of our assets
without regard to financing methods, capital structures or historical
cost basis, (ii) the ability of our assets to generate cash sufficient
to pay interest cost and support our indebtedness, (iii) our operating
performance and return on capital as compared to those of other
companies in the midstream energy sector, without regard to financing
and capital structure, and (iv) the viability of projects and the
overall rates of return on alternative investment opportunities. You
should not consider EBITDA as an alternative to net income, income
before taxes, cash flow from operations, or any other measure of
financial performance presented in accordance with accounting
principles generally accepted in the United States. Our EBITDA may not
be comparable to similarly titled measures of other entities.
Additional information regarding EBITDA is included in our annual
report on Form 10-K for the year ended December 31, 2005. For the
three and nine months ended September 30, 2006, EBITDA has been
reduced by $1.1 million and $4.5 million, respectively, for costs
directly related to the proposed merger with Plains All American
Pipeline, L.P. For the nine months ended September 30, 2005, EBITDA
was reduced by $3.1 million of compensation expense relating to the
accelerated vesting of our long term incentive compensation plan, $2.0
million of oil release costs and $1.8 million of general partner costs
that was required by GAAP to be recorded in our income statement.
There was no unusual impact on EBITDA for the three months ended
September 30, 2005.
(12) Distributable Cash Flow provides additional information for
evaluating our ability to make the minimum quarterly distribution and
is presented solely as a supplemental measure. You should not consider
Distributable Cash Flow as an alternative to net income, income before
taxes, cash flow from operations, or any other measure of financial
performance presented in accordance with accounting principles
generally accepted in the United States. Our Distributable Cash Flow
may not be comparable to similarly titled measures of other entities.
Additional information regarding distributable cash flow is included
in our annual report on Form 10-K for the year ended December 31,
2005.
(13) The guidance for the three months ending December 31, 2006
and for the twelve months ending December 31, 2006 are based on
assumptions and estimates that we believe are reasonable given our
assessment of historical trends, business cycles and other information
reasonably available. However, our assumptions and future performance
are both subject to a wide range of business risks and uncertainties
so no assurance can be provided that actual performance will fall
within the guidance ranges. Please see "Forward-Looking Statements"
above. These risks and uncertainties, as well as other unforeseeable
risks and uncertainties, could cause our actual results to differ
materially from those in the table. This financial guidance is given
as of the date hereof, based on information known to us as of November
1, 2006. We undertake no obligation to publicly update or revise any
forward-looking statements.
(14) Recurring net income guidance for the twelve months ending
December 31, 2006 excludes $4.5 million of merger costs and a $4.6
million deferred tax benefit to adjust our deferred tax liability for
reductions in the Canadian provincial and federal income tax rates
that were enacted into law in the second quarter of 2006.
(15) Included in the net income guidance for the year ending
December 31, 2006 is forecast general and administrative expense of
$23 million to $24 million.
(16) Included for the year ending December 31, 2006 is forecast
cash tax expense of $2.7 million and forecast deferred tax benefit of
$5.1 million.