Presentation on theme: "IPAA Oil & Gas Investment Symposium New York, New York April 19, 2004"— Presentation transcript:
1IPAA Oil & Gas Investment Symposium New York, New York April 19, 2004
2Forward-Looking Statements & Non-GAAP Financial Measures Disclosure This presentation contains forward-looking statements, including, in particular, statements about Plains All American Pipeline, L.P.’s (“the Partnership” or “PAA”) plans, strategies and prospects. These have been based on the Partnership’s current assumptions, expectations and projections about future events.Although the Partnership believes that the expectations reflected in these forward-looking statements are reasonable, the Partnership can give no assurance that these expectations will prove to be correct or that savings or other benefits anticipated in the forward-looking statements will be achieved. Important factors, some of which may be beyond the Partnership’s control, that could cause actual results to differ materially from management’s expectations are disclosed in the Partnership’s filings with the Securities and Exchange Commission.This presentation contains non-GAAP financial measures. For a presentation of the most directly comparable GAAP measures and a reconciliation of the two, please visit our website at Click on the “Investor Relations” section on our homepage followed by the “Non-GAAP Reconciliations” link. In addition, we have attached an Appendix to this presentation including the reconciliation of EBITDA, which is used in this presentation, to net income.
3Partnership Profile (NYSE: PAA) Aggregate SizeAssets:Pipelines (miles) 14,000+Tankage (MMbbls.)Truck Fleet (units) +/- 500Crude handled (MMbpd)Geographic footprint:USA (states) +/- 40Canada (provinces)Employees +/- 2,000Operational MetricsAnnual Revenue (2003) $12.6 BTotal Assets (12/31/03) $2.1 BEnterprise Value $3.0 BEquity Market Cap $2.1 B2003 Fortune 500 Rank# Unitholders (approx.) ,000EBITDA (midpoint) $198.0 MMNet Income (midpoint) $101.8 MMBook Cap. (12/31/03) $1,266 MMDebt-to-Book Cap (12/31/03) %2004 Public Guidance (1)EBITDA and Net Income are the midpoint of PAA’s public guidance filed via 8-K on February 24, 2004 and exclude projected LTIP charges of $4.5 million in Such guidance includes the Capline acquisition which closed on 3/1/04, but not the Link acquisition which closed on 4/1/04.
4PAA’s Role in the Crude Oil Distribution Chain Plains All American’s OperationsGathering, Marketing, Terminalling,Storage and PipelinesProducersRefinersPipelineTruckPipelinePipeline GatheringInjection StationTerminal / Storage / ExchangeLocationBarge
5Principal Business Strategy Cohesive, Consistent & Fundamentally Sound Our principal business strategy is to capitalize on the regional crude oil supply and demand imbalances that exist in the U.S. and Canada by combining the strategic location and unique capabilities of our transportation and terminalling assets with our extensive marketing and distribution expertise to generate sustainable earnings and cash flowExecution of strategy to be accomplished by:Increasing and optimizing throughput on our existing assets and realizing cost efficienciesUtilizing and expanding our Cushing TerminalPursuing strategic and accretive acquisitionsOptimizing and expanding our presence in Canada, the Gulf Coast and Gulf of MexicoOn a smaller scale, we also engage in a similar business strategy with regard to LPGs.
6Industry Overview PADD II Demand to Be Satisfied by Imports from Canada, Cushing & Gulf Coast IVIIIIII
7Capline Pipeline System Industry Overview PADD II Demand to Be Satisfied by Imports from Canada, Cushing & Gulf CoastSupplyShortfall 2.8 MMbblsRefinery Inputs: 3.3 MMbblsProduction: .46 MMbblsSource: Energy Information AdministrationPADD II Supply Shortfall (Millions of Barrels per Day)C A N A D AVIVIIIIIIBP PipelinePAA Basin PipelineLink PipelineSeaway PipelineShell (W. Tulsa) PipelineCush-Po PipelineMid-Continent PipelineOsage PipelineOzark PipelinePhillips Borger PipelinePAA Red River PipelineMid-Continent (Sun) PipelineSTG PipelineCapline Pipeline System
8Strategically Located Asset Base (Excluding Link acquisition) RainbowFederatedPeaceSyncrudeHardistyN. SaskEdmontonManitoKerrobertRangelandBow RiverBodo/Cactus LakeS. SaskReginaWapellaMilkRiverWascanaConoco/CenexExpressBattleviewPoplarIPL / LakeheadBillingsBakerButteSt. PaulCasperFrontierAlto StorageFacilityChicagoGuernseySalt LakeCityPlatteWoodRiverTo Lima & ToledoAll American PipelineOsageBPEl DoradoPatokaCush-PoOzarkCapwoodSJV Gathering SystemPhillipsMid ValleyBorgerCushingPermian Basin GatheringPhillipsBPSeawayRed RiverWichitaFallsArkLaTexJalMesa3rd Party PipelinesPAA TerminalsPAA Owned PipelinesBasinExxonCaplineVenice Term.WTGLongviewWinkCorsicanaIraan to MidlandPipelineMidlandExxonSt. JamesIraanHoustonEIFSBay St. ElaineGatheringMcCameyCoteBlancheInglesideTerminalAtchafalayaPipelineBayou SaleGathering Sys.Patterson Term .Burns Term .
92003 Performance Assessment GoalsResults1. Deliver operating and financial performance in line with 2003 guidance2. Preserve and enhance the strength of our balance sheet and credit profile3. Increase our distribution to unitholders by 2% - 4%, excluding the impact of significant acquisitions4. Make, on average, $200 - $300 million per year of accretive and strategic acquisitionsExceeded financial guidance for yearEBITDA up 33% over 2002Credit rating upgrade to BBB-New credit facility (savings of 100 bps)5.625% senior notes issuanceExtended avg. maturities to 9 years41% debt to cap at 12/31/03$597 MM liquidity at 12/31/034.7% distribution increase (2/04 vs. 2/03)Total return to investors of 44%Made 10 acquisitions for $160 millionSigned $158 million Capline acquisition(Closed 3/1/04)
112004 Goals (as per 2/24/04 conference call) 1. Deliver operating and financial performance in line with our guidance.2. Improve our credit rating and preserve the strength of our balance sheet.3. Increase our distribution to unitholders by approximately 5%.4. Position PAA for continued growth by executing our organic expansion projects and pursuing our target of averaging $200 to $300 million per year of accretive and strategic acquisitions.
12except per unit amounts) Cash Flow from Operations 2004 Public Guidance (Released on Form 8-K on 2/24/04 – includes Capline & excludes Link)LowHigh$44,000$47,0009,4009,20034,60037,80013,40013,200$21,200$24,600Quarter EndedMarch 31, 2004LowHigh$195,000$201,00039,35038,850155,650162,15057,30056,900$98,350$105,250Year EndedDecember 31, 2004(Dollars in thousands,except per unit amounts)EBITDAInterest ExpenseCash Flow from OperationsDD&ANet IncomePAA will be providing updated financial guidance incorporating the Link acquisition on its earnings conference call on April 28, 2004Note: The guidance above excludes potential non-cash mark-to-market gains or losses related to SFAS 133 and projected Long-Term Incentive Plan charges of $1.9 million in Q1 and $4.5 million for the year.
132004 Capital Spending Plans (Excluding Link) Organic growth projects $ 51 millionAcquisition of Capline millionMaintenance capital millionTotal projected capital for 2004 $221 million
14Organic Growth Projects (Excluding Link) Projected CostProjects Related to 2003 AcquisitionsRed River Pipeline$8.7ArkLaTex Pipeline7.5(Dollars in millions)El Paso Assets1.6South Sask Pipeline3.7Alto Storage Cavern1.0Subtotal$22.52004 organic growth projects are split between post acquisition exploitation plans and new expansion opportunitiesAdditional Expansion ProjectsCushing Phase IV$10.0Iatan to Colorado City6.0Basin Expansion0.8Other expansion7.4Subtotal24.2Other4.5$51.2Grand Total
15Capline Acquisition: Overview Acquired entities owning an approximate 22% interest in the Capline Pipeline and an approximate 76% interest in the Capwood Pipeline from Shell for $158 millionCapline667-mile, 40-inch pipeline from St. James, LA to Patoka, ILCapacity: 1.14 million bpd total; 248,000 bpd net to PAA10.4 million barrels of tankage2 active dock facilities to handle tankers up to 600,000 barrelsDirect access to GOM production and LOOP (LA Offshore Oil Port)Capwood57-mile, 20-inch pipeline from Patoka, IL to Wood River, ILCapacity: 277,000 bpd total; 211,000 bpd net to PAAReceives crude from Capline, an ExxonMobil pipeline and has access to Canadian imports via Mustang PipelinePAA to become operator
16Capline Acquisition: Strategic Rationale Complements existing asset base and business strategyHigh quality, well constructed assetsImproves PAA’s position with regard to supply / demand imbalance in PADD II - access to over 2.7 million barrels of refinery capacityImproves overall quality of asset base and cash flowNon captive crude sources – access to foreign, GOM, and Canadian crude – all of which are forecast to increase over timeNatural hedge; offsets domestic depletion affecting other areas of PAA’s operations – as domestic production decreases, imports will increaseOpportunity to expand merchant activities with foreign crude importsImproves geographic diversificationIncreases relative size of fee based cash flow from pipeline segmentPurchasing an underutilized asset at/near the bottom of its performance cycleBaseline cash flow forecast supports purchase price and accretionMeaningful opportunities to increase cash flow in the future
17Capline is Complementary to Cushing (Excluding Link) IPL – Canada to Chicago (not to scale)IPLChicagoMustangTo Lima & ToledoWoodRiverPatokaBPEl DoradoOsageCapwoodOzarkCush-PoBorgerPhillipsCushingRed RiverMid ValleyBPPermian Basin GatheringSeawayPhillipsWichitaFallsC A N A D AVIVIIIIIICaplineExxonMesaBasinJalWTGLongviewWinkCorsicanaMidlandIraan to MidlandPipelineExxonIraanMcCameyHoustonBeaumontSt. James3rd Party PipelinesPAA Owned Pipelines
18Execution of Business Strategy and New Investments to Drive PAA’s Growth in 2004 & Beyond (Excluding Link)14%5%Represents mid-point of guidance furnished on Form 8-K on 2/24/04 and excludes items impacting comparability. Capline acquisition included as of March 1st. See reconciliations at end of presentation.
20Transaction OverviewOn April 1, 2004, PAA acquired the North American crude oil and pipeline business of Link Energy LLC for $330 million consisting of $273 million in cash and $57 million of assumed liabilities and other costsAdditionally anticipate spending $24 million in first 6 to 12 months after closing for integration, one-time capital expenditures and regulatory complianceLink crude oil business consists of:Approx. 7,000 miles of active crude oil pipelinesOver 10 million barrels of crude oil storage capacityFleet of approximately 200 owned or leased trucksApprox. 2 million barrels of crude oil linefill and inventoryGeographic break-down:Gulf Coast: miles of pipe & 4.6 MM Bbl. of storagePermian Basin: 3,100 miles of pipe & 3.4 MM Bbl. of storageMid-Continent: 2,400 miles of pipe & 2.1 MM Bbl. of storageRocky Mountains: miles of pipe & 0.2 MM Bbl. of storage
21Strategic Rationale of Link Acquisition Complements existing asset base and business strategySignificantly expands PAA footprint in Mid-Continent and RockiesImproves strategic positioning along Gulf Coast and in Permian Basin, particularly in New Mexico
22Economic Impact of Link Acquisition Estimate current annual EBITDA run-rate for Link assets of approximately $25 millionEstimate $20 - $30 million of annual cost savings will be captured within the first 18 months after closing50% - 60% of savings will be in forward-looking run-rate within six months of closing75% within 12 months of closing100% within 18 months of closingPurchasing an underutilized asset at/near the bottom of its performance cycleBased on year 2000 and mid-2001 run-rate, assets acquired generated EBITDA of $61 millionNote: EBITDA reconciliations are available at end of presentation and on website at
23Economic Impact of Link Acquisition Financing planTotal purchase price and additional costs of $354 millionNear-term financing requirements of $328 million60% equity financing of transaction = approx. $197 millionClosed $100 million private placement of Class C common units with group of institutional investors on April 15thDebt financing provided by new $200 million 364-day facility with one-year term out optionWill monitor market to term out with long-term debtOnce cost savings are fully realized, PAA estimates that the transaction will be accretive to its distribution capacity by $0.15 to $0.30 per unit, assumingBase annual EBITDA run-rate of $25 millionAnnual cost savings of $20 million to $30 millionAdditional upside possible through volume recovery, commercial synergies and margin enhancements
24Financial Overview What are our Performance Drivers Financial Overview What are our Performance Drivers? What is our Financial Growth Strategy? How are we currently positioned for future growth?
25Performance Drivers For PAA’s Two Segments Pipeline OperationsThroughput volumes & tariffs/fees per barrelVariable operating costsGathering, Marketing, Terminalling & Storage OperationsLease volumes gathered & margin per barrelLevel of margin influenced by relative strength/weakness of forward crude oil curve(Backwardated market = stronger margin; Contango market = weaker margin)Absolute level of crude price is not relevant and revenue is not a performance driverBulk volumes purchased/exchanged at interchange locations (designed to enhancemargins, by avoiding shipment costs, optimizing quality, etc.)Quality and grade differentialsLPG volumes and margin per barrel (seasonal attributes)Lock in margin initially; use logistical advantage to increase marginsTankage available to PAA for proprietary usage and 3rd party rentalsProprietary usage counter-balances relative strength or weakness in lease gatheringmargins (Backwardated market = low storage usage; Contango market = high storage usage)3rd party leasing generates rental and throughput fee income
26Performance Drivers For PAA’s Two Segments (Continued) NYMEX Crude Oil PricesSource: Bloomberg FinancialBackwardationContangoGathering &MarketingPipelineOperationsStorage &TerminallingContangoBackwardation
27Financial Strategy, Credit Rating Targets & Liquidity The Partnership’s target credit profile consists of:An average Debt / Book Capitalization ratio < 60%An average Debt / EBITDA ratio < 3.5xAn average EBITDA / Interest ratio > 3.3xFund growth with 50% equity and 50% debtCommitted to funding Link transaction with 60% equityCurrent Corporate/Senior Implied ratings: BBB- negative, Ba1 – Under ReviewObjective is to achieve and maintain mid to high “triple B/Baa” credit ratingsPro forma for Capline and Link at 12/31/03, approx $650 million of liquidity on committed credit facilities
28Balance Sheet Strength As of December 31, 2003(Dollars in Millions)Actual$70.0199.7249.3519.0746.7$1,265.741.0%0.03.3x5.1xCapline$142.00.0142.0Link$27.0227.0101.0$328.0200.0Subtotal$212.0199.7249.3661.0746.7$1,407.747.0%(1)(2)Pro Forma$239.0199.7249.3888.0847.7$1,735.7200.051.2%3.5x>4.0xLong-term debtRevolving credit facilitiesLink acquisition facility7.750% Senior notes due 20125.625% Senior notes due 2013Total long-term debtPartners' capitalTotal book capitalizationLong-term debt / book capitalLong-term debt / EBITDA (3)EBITDA / Interest (3)The $158 million Capline acquisition closed on March 1, A $16 million deposit was made in 2003, with the remainder borrowed in The equity component of the transaction was raised in December 2003.The Link transaction closed on April 1, On April 15, 2004, PAA closed the private placement of Series C Common Units, the net proceeds of which were used to retire debt incurred to fund the Link acquisition.For Subtotal column: Based on mid-point of 2004 Public Guidance per 8-K dated February 24, 2004, which included Capline. EBITDA excludes items affecting comparability and totals $198.0 million. Mid-point interest expense totals $39.1 million. For Pro Forma column, assumes mid-point of 2004 guidance normalized for full year of Capline, plus $50 million run-rate EBITDA for Link
31PAA Historical Distribution Growth $1.80$1.85$1.85$1.85$1.90$2.00$2.05$2.05$2.10$2.15$2.15$2.15$2.20$2.20$2.20$2.25Annualized Rate
32PAA Investment Thesis Proven business strategy and management team Several members of senior management have worked together as a team for ~ 15 to 20 yearsManagement owns 4% of GP and approx 400,000 LP unitsSolid cash flow and asset baseStable cash flow with low maintenance capital requirementsGeographically diverseCounter-cyclical balancedStrong track record of increasing cash flow and distributionsStrong balance sheet and coverage ratiosBusiness builder with firm grasp of industry fundamentals and changing dynamics
33NYSE: PAAExcept for the historical information contained herein, the matters discussed in this presentation are forward-looking statements that include risks and uncertainties. These risks and uncertainties include, among other things, market conditions, governmental regulations and other factors discussed in Plains All American Pipeline, L.P.’s filings with the Securities and Exchange Commission.
35Reconciliation of Non-GAAP Measures Credit Statistics Calculation of Credit Ratio (December 31, 2003 Actual)Long-Term Debt / Book Capitalization = $519.0 / $1, = 41.0%Calculation of Credit Ratios (December 31, 2003 pro forma for Capline acquisition)Long-Term Debt / Book Capitalization = $661.0 / $1, = 47.0%Long-Term Debt / EBITDA = $661.0 / $ = 3.3xEBITDA / Interest Expense = $198.0 / $39.1 = 5.1xCalculation of Credit Ratio (December 31, 2003 pro forma for Capline & Link)Long-Term Debt / Book Capitalization = $888.0 / $1, = 51.2%
36Reconciliation of Non-GAAP Measures Items Impacting Comparability Guidance (1)Actual20041Q 200420031Q 2003LTIP charge$(4.5)$(1.9)$(28.8)$-Loss on refinancing of debt--(3.3)-SFAS 133 noncash mark-to-market adjustment--0.40.9Total$(4.5)$(1.9)$(31.7)$0.9As contained in the Form 8-K furnished on February 24, 2004.
37Reconciliation of Non-GAAP Measures Reconciliation of EBITDA to Net Income Guidance (1)Actual20041Q 200420031Q 2003Net income$97.3$21.0$59.5$24.4Interest expense39.19.335.29.2EBIT$136.4$30.3$94.7$33.6Depreciation & amortization57.113.346.810.8Reported / Projected EBITDA$193.5$43.6$141.5$44.4Items Impacting Comparability4.51.931.7(0.9)EBITDA Excluding ItemsImpacting Comparability$198.0$45.5$173.2$43.5(1) As contained in the Form 8-K furnished on February 24, 2004.
38Reconciliation of Non-GAAP Measures Reconciliation of EBITDA to Cash Flow from Operating Activities Guidance (1)Actual20041Q 200420031Q 2003Net cash provided by (used in)operating activities$-$-$68.5$91.4Net change in assets andliabilities, net of acquisitions--62.4(57.1)Other items not affecting cashflows from operating activities:Gain on sale of assets--0.6-Allowance for doubtful accounts--(0.4)-Change in derivative fair value--0.40.9Loss on refinancing of debt--(3.3)-Net noncash portion of LTIPcharge--(28.1)-Net cash paid for termination ofinterest rate hedging instruments--6.2-Other noncash items----Interest expense--35.29.2Reported / Projected EBITDA$193.5$43.6$141.5$44.4Items Impacting Comparability4.51.931.7(0.9)EBITDA Excluding ItemsImpacting Comparability$198.0$45.5$173.2$43.5It is impractical to reconcile EBITDA to CFFOA for projected periods.
39Reconciliation of Non-GAAP Measures Reconciliation of Link EBITDA for Year 2000 to Net Income Net Income reconciliation2000Net Income (loss) from continuing operations$13.8Interest expense28.8Depreciation and amortization33.9EBITDA$76.5Adjustments for items impacting comparability:One time items(1)(6.0)Pro forma adjustments for assets sold(8.8)Capital vs. expense reclass(1.0)EBITDA excluding items impacting comparability$60.7Includes reductions of: 1) approximately $2.5 million related to an insurance recovery and 2) an $8.4 million gain on inventory sale, offset by additions of: 1) approximately $2.6 million related to an inventory write-off, 2) approximately $1.5 million related to NGL discontinued operations and 3) approximately $0.8 million of severance costs and other