Filed by Pacific Energy Partners, L.P.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities and Exchange Act of 1934
Subject Company: Pacific Energy Partners, L.P.
Commission File No. 1-31345
Pacific Energy Partners, L.P. Reports
Higher Earnings for Third Quarter 2006
LONG BEACH, Calif.--(BUSINESS WIRE)--Nov. 1, 2006--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 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
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 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) --
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) --
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
========== ======== ======== ========
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)
========= ======== ======== ========
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
========== ======== ======== ========
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
========= ======== ========= ========
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
========== ======== ======== ========
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
========== ========= ========= =======
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.
CONTACT: Pacific Energy Partners, L.P.
Jennifer Shigei, Manager, Investor Relations
562-728-2871
Fax: 562-728-2881
JShigei@PacificEnergy.com