WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

OR

For the transition period from             to            

Commission File Number 1-313345

PACIFIC ENERGY PARTNERS, L.P.

(Exact name of registrant as specified in its charter)

5900 Cherry Avenue

Long Beach, CA 90805-4408

(Address of principal executive offices)

(562) 728-2800

(Registrant’s telephone number, including area code)

                Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o

                Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý  No o

                There were 19,121,638 of the registrant’s Common Units and 10,465,000 of the registrant’s Subordinated Units outstanding at September 30, 2004.

PACIFIC ENERGY PARTNERS, L.P.

FORM 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PACIFIC ENERGY PARTNERS, L.P. (Note 1)

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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PACIFIC ENERGY PARTNERS, L.P. (Note 1)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to condensed consolidated financial statements.

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PACIFIC ENERGY PARTNERS, L.P. (Note 1)

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

See accompanying notes to condensed consolidated financial statements.

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PACIFIC ENERGY PARTNERS, L.P. (Note 1)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying notes to condensed consolidated financial statements.

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PACIFIC ENERGY PARTNERS, L.P. (Note 1)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed consolidated financial statements.

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PACIFIC ENERGY PARTNERS, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

        Pacific Energy Partners, L.P. and its subsidiaries (the “Partnership”) are engaged principally in the business of gathering, transporting, storing and distributing crude oil and related products in California and the Rocky Mountain region of the U.S. and Canada. The Partnership generates revenue primarily by transporting crude oil on its pipelines and by leasing storage capacity. The Partnership also buys, blends and sells crude oil, activities that are complementary to the Partnership’s pipeline transportation business. The Partnership operates primarily in California, Colorado, Montana, Wyoming and Utah in the United States, and in Alberta, Canada and conducts its business through two regional operating units: West Coast operations and Rocky Mountain operations.

        The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with Securities and Exchange Commission (“SEC”) regulations. Accordingly, these statements have been condensed and do not include all of the information and footnotes required for complete financial statements. These statements involve the use of estimates and judgments where appropriate. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. The results of operations for the three and nine months ended September 30, 2004 and 2003 are not necessarily indicative of the results of operations for the full year. The financial data for the three and nine months ended September 30, 2004 and 2003 is derived from the Partnership’s unaudited condensed consolidated financial statements. The financial data as of December 31, 2003 is derived from the Partnership’s audited consolidated financial statements. All significant intercompany balances and transactions have been eliminated during the consolidation process.

        These financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in the Partnership’s annual report on Form 10-K for the year ended December 31, 2003.

Revenue Recognition

        During the second quarter of 2004, the Partnership completed the acquisition (see “Note 2 — Acquisitions” below) of the Rangeland Pipeline system and the Mid-Alberta pipeline (the “MAPL pipeline”).  Revenue from the Rangeland Pipeline system (including the MAPL pipeline) is recognized upon delivery of the crude oil, condensate and butane to the customer. Customers who wish to transport product on the Rangeland Pipeline system may either: (i) sell product at the inlet to the pipeline without repurchasing product; or (ii) sell product at an inlet point and repurchase such product at agreed upon delivery points for the price paid at the inlet to the pipeline plus an established location differential on a pre-arranged basis.

Derivative Instruments

        The Partnership uses, on a limited basis, certain derivative instruments (principally futures and options) to hedge its minimal exposure to market price volatility related to its crude oil inventory or future sales of crude oil. Derivatives used to hedge market price volatility related to inventory are generally designated as fair value hedges, and derivatives related to future sale of crude oil are generally designated as cash flow hedges. The Partnership does not engage in speculative derivative activities. Derivative instruments are included in other assets in the accompanying consolidated balance sheets.

        Changes in the fair value of the Partnership’s derivative instruments related to crude oil inventory are recognized in net income. “Crude oil sales, net of purchases” were net of a loss of $1.7 million for the three months ended September 30, 2004 and an immaterial amount for 2003, and $2.3 million and $0.3 million for the nine months ended September 30, 2004 and 2003, respectively, reflecting changes in the fair value of derivative instruments held for crude oil marketing activities. Changes in the fair value of the Partnership’s derivative instruments related to the future sale of crude oil are deferred and

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reflected in “accumulated other  comprehensive income,” a component of partners’ capital, until the related revenue is included in the consolidated statements of income. As of September 30, 2004, $1.8 million relating to the changes in the fair value of highly effective derivative instruments was included in “accumulated other comprehensive income” and is expected to be reclassified to earnings in 2004.

        In August and September 2002, the Partnership entered into three interest rate swap agreements that were to mature in 2009, with notional amounts of $140.0 million, and two interest rate swap transactions that were to mature in 2007, with notional amounts of $30.0 million. The Partnership designated these swaps as a hedge of its exposure to variability in future cash flows attributable to the LIBOR interest payments due on $170.0 million outstanding under the term loan facility. The average swap rate on this $170.0 million of debt was approximately 4.25%, resulting in an all-in interest rate on the $170.0 million of debt of approximately 6.50% (including the applicable margin of 2.25%). In June 2004, in conjunction with the issuance of the 7.125% Senior Notes and the repayment of the term loan, the Partnership bought back the swaps for a loss of $0.6 million.

        In connection with the issuance of the 7.125% Senior Notes, the Partnership entered into interest rate swap agreements with an aggregate notional principal amount of $80.0 million to receive interest at a fixed rate of 7.125% and to pay interest at an average variable rate of six month LIBOR plus 1.6681% (set in advance or in arrears depending on the swap transaction). The interest rate swaps mature June 15, 2014 and are callable at the same dates and terms as the 7.125% Senior Notes. The Partnership designated these swaps as a hedge of the change in the Senior Notes fair value attributable to changes in the six month LIBOR interest rate. Changes in fair values of the interest rate swaps are recorded into earnings each period. Similarly, changes in the fair value of the underlying $80.0 million of Senior Notes are recorded into earnings each period.  During the three months ended September 30, 2004, we recognized reductions in interest expense of $0.7 million related to the difference between the fixed rate and the floating rate of interest on the interest rate swaps.  During the quarter ended September 30, 2004, we measured the hedge effectiveness of this interest rate swap and noted that no gain or loss from ineffectiveness was required to be recognized.  The fair value of this interest rate swap was a gain of approximately $2.9 million at September 30, 2004.

Foreign Currency Translation

        The financial statements of operating subsidiaries in Canada are measured using the Canadian dollar as the functional currency. Balance sheet amounts are translated at the end of period exchange rate.  Income statement and cash flow amounts are translated at the average exchange rate for the period. Adjustments from translating these financial statements into U.S. dollars are accumulated in the equity section of the balance sheet under the caption, “accumulated other comprehensive income (loss).”

Income Taxes

        The Partnership and its U.S. subsidiaries are not taxable entities and are not subject to federal or state income taxes as the tax effect of operations is accrued to its unitholders. The Partnership’s Canadian subsidiaries are taxable entities in Canada and are subject to Canadian federal and provincial income taxes. In addition, monies repatriated from Canada into the U.S. may be subject to withholding taxes.

        Net income for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax bases and financial reporting bases of assets and liabilities and the taxable income allocation requirements under the Partnership’s First Amended and Restated Agreement of Limited Partnership, as amended.

        Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in net income in the period that includes the enactment date.

        Pursuant to FAS No. 109, “Accounting for Income Taxes”, in the second quarter of 2004, the Partnership recorded a deferred tax liability of $33.9 million, representing the tax effect of the difference between the amounts paid for shares of certain entities that owned the assets that comprise the Rangeland Pipeline system (see “Note 2 — Acquisitions” below), and the underlying tax basis of the assets.

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Net Income per Unit

        Basic net income per limited partner unit is determined by dividing net income after deducting the amount allocated to the general partner interest, by the weighted average number of outstanding limited partner units.

        Diluted net income per limited partner unit is calculated in the same manner as basic net income per limited partner unit except that the weighted average number of outstanding limited partner units is increased to include the dilutive effect of outstanding unit options and restricted units by application of the treasury stock method.  Set forth below is a reconciliation of the basic weighted average outstanding limited partner units to diluted weighted average outstanding limited partner units.

Reclassifications

        Certain prior year balances in the accompanying condensed consolidated financial statements have been reclassified to conform to the current year presentation.

2.     ACQUISITIONS

Rangeland

        On May 11, 2004, the Partnership completed the acquisition of all of the outstanding shares of Rangeland Pipeline Company (“RPC”), Rangeland Marketing Company (“RMC”) and Aurora Pipeline Company Ltd. (“APC”), the corporations that owned various components of the Rangeland Pipeline System and the related marketing business from BP Canada Energy Company (“BP”). The Rangeland Pipeline System is located in the province of Alberta, Canada. The purchase price for the shares of RPC, RMC and APC was Cdn$130 million plus approximately Cdn$29 million for linefill, working capital, transaction costs and transition capital expenditures. The aggregate purchase price was approximately U.S. $116 million and was funded through a combination of proceeds from the Partnership’s March 30, 2004 equity offering and a Cdn$45 million borrowing from a new Cdn$100 million revolving credit facility in Canada. The acquisition was accounted for as an acquisition of assets.

        The majority of the Rangeland Pipeline System was constructed in 1966 with smaller portions being built as early as 1955 and certain pump stations built as late as 1971. The Partnership is depreciating the pipeline over forty years from the purchase date.

        Pursuant to a transportation service agreement between RMC, RPC and APC, RMC has contracted for the rights to the entire capacity of the Rangeland pipeline. Customers who wish to transport product on the Rangeland pipelines may, therefore, either: (i) sell product to RMC at the inlet to the pipeline without repurchasing product from RMC; or (ii) sell product to RMC at an inlet point and repurchase such product at agreed upon delivery points for the price paid at the inlet to the pipeline plus an established location differential. RMC owns the buy/sell contracts with customers, which were assumed with the purchase, but the marketing function was conducted by employees of BP to whom we were not able to and did not offer employment.

        The Rangeland Pipeline System has historically been operated without regard to maximizing either pipeline throughput or profitability; rather, it was operated as an integral part of a larger marketing and trading oriented enterprise. Similarly the MAPL Pipeline, which the Partnership also purchased (see “Mid Alberta Pipeline” below), was not operated with regard to maximizing pipeline operations or profitability; it was operated as a cost center in a larger enterprise. The Partnership intends to make significant changes to the revenue-generating capability of both systems by combining and integrating fully all of its Canadian and U.S. Rocky Mountain pipeline systems under common management, by expanding the throughput capacity of

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 the MAPL system and by connecting into other pipelines and establishing a new pump station and receiving terminal in Edmonton, Alberta. This new facility will be able to access additional sources of Canadian crude oil, which will allow the Partnership to participate in transporting the projected increase in production of Canadian synthetic crude oil.

        In effect, the Partnership is converting what has been primarily a gathering system for crude oil, condensate and butane in southern Alberta into a trunk line transportation system that will be able to transport multiple grades of conventional and synthetic crude oils from the Edmonton oil hub to U.S. Rocky Mountain refining centers.

        Until April 2003, the assets comprising the Rangeland Pipeline System were held by three legal entities: BP, APC and BP Canada Energy Resources Company (“BPR”). In April 2003, in order to facilitate their sale, BPR formed RPC and RMC, and transferred the Rangeland pipeline and marketing assets to the newly formed entities. APC, which contains only a short segment of pipeline and de minimis other assets, liabilities, revenues and expenses, remained unchanged. None of RPC, RMC or APC ever had any employees of their own. All operations and administrative and technical support functions associated with the Rangeland pipeline system, including field services and operations, executive management, marketing, engineering, environmental, risk management, payroll, treasury, human resources and legal remained with BPR and BP. These included services provided by approximately 90 BP employees who also provided varying amounts of support for BP’s other pipelines.

        Although the RPC and RMC legal entities were formed in April 2003, revenues, expenses, and other financial measures continued to be included within the financial statements of BPR and BP. Financial statements for RPC, RMC and Aurora were not maintained on a current basis.

        Upon closing of the purchase transaction, BP terminated employees directly involved in the operation of the Rangeland Pipeline System, including field-level supervisors, and the Partnership hired those who accepted an offer of employment. Except for one former marketing person (who had not been directly involved with marketing of the Rangeland Pipeline System for several years), no members of senior management, and no financial, marketing or technical personnel who had been associated with the management and support of the Rangeland system were made available by BP for possible employment with the Partnership following the completion of this acquisition. Consequently, the Partnership hired its own marketing, accounting and technical staffs, which are located in its new Calgary office or in Olds, Alberta. The Partnership also utilizes its existing executive and support staff in Long Beach, California and Denver, Colorado to provide management oversight and administrative and technical support for the Alberta assets.

        The existing accounting software and computer hardware were not included with the assets purchased by the Partnership. The Partnership was able, however, to acquire as part of the transaction, the Supervisory Control and Data Acquisition (SCADA) system necessary to operate the pipeline. Subsequent to the closing, the Partnership acquired software associated with the complex task of volumetric and revenue accounting from the seller for no additional consideration. The Partnership will use its existing financial accounting software for other accounting functions.

Mid Alberta Pipeline

        On June 30, 2004, the Partnership completed the acquisition of the MAPL Pipeline from Imperial Oil. The MAPL pipeline is located in Alberta, Canada. The purchase price for MAPL was Cdn$31.5 million, of which Cdn$5.0 million is payable June 30, 2007. In addition to the MAPL pipeline, the Partnership acquired linefill for Cdn$5.0 million.  The aggregate purchase price, including linefill, transaction costs and first-year construction costs, was approximately U.S. $30 million, most of which was funded from the Partnership’s existing Canadian credit facility.

        The first section of MAPL pipeline was constructed in 1960 and other sections were constructed in 1985 and 1994. The Partnership anticipates depreciating the pipeline over forty years from the date of purchase.

        Imperial Oil did not make any of its employees available for possible employment with the Partnership following the completion of the acquisition. In connection with the purchase, the Partnership entered into a two-year transitional services agreement with Imperial Oil whereby Imperial Oil provides necessary services to operate the initiating pump station and the control center and software that control movements through the MAPL pipeline. The Partnership has the right to cancel the transitional services agreement at any time. The Partnership expects to assume all MAPL pipeline operations and transfer MAPL operations to the Partnership’s Rangeland control center after its initiation facilities in Edmonton are constructed and operational.

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        The existing accounting software or computer hardware was not included with the assets purchased by the Partnership.  The task of volumetric and revenue accounting has been consolidated with the accounting process for the Rangeland Pipeline system. The Partnership uses its existing financial accounting software for other accounting functions.

        The acquisition of MAPL was accounted for as an acquisition of assets.  Following the acquisition, the MAPL pipeline assets were integrated into and will be operated as part of the Rangeland Pipeline system.

Purchase Price Allocations

        The acquisitions of Rangeland and MAPL have been accounted for by the purchase method of accounting pursuant to Statement of Financial Accounting Standards (“FAS”) No. 141, “Business Combinations” and, accordingly the consolidated statements of income include the results of Rangeland and MAPL from their acquisition dates. Based upon independent appraisals of the fair values of the acquired assets, the Partnership is completing its review and determination of the fair values of the assets acquired and liabilities assumed. Accordingly, the allocation of the purchase price is subject to revision. Based upon the preliminary estimates, the purchase price is being allocated to depreciable pipelines and related equipment, crude oil inventory, pipeline linefill, and rights of way, as well as to amortizable intangible assets. In addition to the cash purchase price and related acquisition costs, the Partnership assumed an environmental liability of approximately $2.2 million, and pursuant to FAS 109, Accounting for Income Taxes the Partnership recorded a deferred tax liability of approximately $33.9 million, representing the tax effect of the difference between the amounts paid for shares of RPC, RMC and APC, and the underlying tax basis of the assets.

3.     LONG-TERM DEBT

        The Partnership’s long-term debt obligations at September 30, 2004 and December 31, 2003 are shown below:

Senior Secured U.S. Revolving Credit Facility and Term Loan

        The revolving credit facility is a $200.0 million facility which matures on July 26, 2007 and is available for general partnership purposes, including working capital, letters of credit and distributions to unitholders, and to finance future acquisitions. Borrowings under the revolving credit facility are limited by various financial covenants in the credit agreement. The revolving credit facility has a borrowing sublimit of $45.0 million for working capital, letters of credit and partnership distributions to unitholders.

        The revolving credit facility bears interest at the Partnership’s option, at either (i) the base rate, which is equal to the higher of the prime rate as announced by Fleet National Bank or the Federal Funds rate plus 0.50% or (ii) LIBOR plus an applicable margin ranging from 0.75% to 2.00%. The applicable margins are subject to change based on the credit rating of the revolving credit facility or, if is not rated, the credit rating of the Partnership’s U.S. operating subsidiary, Pacific Energy Group LLC.  The Partnership incurs a commitment fee which ranges from 0.125% to 0.375% per annum on the unused portion of the revolving credit facility.

        As of September 30, 2004, $38.0 million was outstanding under the revolving credit facility and $111 million of undrawn credit was available under the credit facility.

        On June 16, 2004, the Partnership repaid all amounts outstanding under the term loan. Amounts under the term loan that have been repaid may not be re-borrowed.

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Canadian Revolving Credit Facility

        On May 11, 2004, Rangeland Pipeline Company, a Canadian subsidiary of the Partnership, entered into a Canadian revolving credit facility agreement which is guaranteed by certain Canadian subsidiaries of the Partnership. The maximum amount available under the Canadian revolving credit facility is Cdn$75 million, which will be further increased to Cdn$100 million after certain other conditions are satisfied. The Canadian revolving credit facility is secured by liens on all of the property and assets of the Partnership’s Canadian subsidiaries.

        Indebtedness under the Canadian revolving credit facility bears interest, at Rangeland Pipeline Company’s option, at either (i) the Canadian prime rate or the U.S. base rate (each plus an applicable margin ranging from 1.00% to 1.625%, or (ii) Bankers’ Acceptance discount rates, or LIBOR plus an applicable margin ranging from 2.00% to 2.65%. The applicable margins are subject to change based on certain financial ratios.

        The Canadian revolving credit facility matures on May 11, 2007.  Amounts outstanding under the credit facility may be repaid at any time prior to maturity.

        The Canadian revolving credit facility is available for general corporate purposes and also provides for the issuance of letters of credit. Borrowings under this facility are limited by various financial covenants that are set forth in the Canadian credit agreement. As of September 30, 2004, Rangeland Pipeline Company was in compliance with all covenants under the Canadian agreement. At September 30, 2004, borrowings totaling Cdn$65.0 million (U.S.$51.4 million) and letters of credit totaling Cdn$5.0 million (U.S.$4.0 million) were outstanding under the Canadian revolving credit facility. As of September 30, 2004, the Partnership had available but undrawn credit of Cdn$5.0 million (U.S.$4.0 million) under its Canadian revolving credit facility.

        Rangeland Pipeline Company incurs a commitment or standby fee which ranges from 25% to 35% of the applicable margin, based on the unused portion of the Canadian revolving credit facility. Under the Canadian credit agreement, Rangeland Pipeline Company is prohibited from declaring dividends or making any other distributions or payments to its parent or its affiliates if any default or event of default, as defined in the Canadian credit agreement, occurs or would result from such declaration or payment, or if a material adverse effect, as defined in the Canadian credit agreement, would result from such declaration or payment, or if the distributions and payments would exceed certain limits. The Canadian credit agreement also contains covenants requiring Rangeland Pipeline Company, including its subsidiaries and affiliates, to maintain specified financial ratios. In addition, the Canadian credit agreement contains other restrictive covenants. As of September 30, 2004, Rangeland Pipeline Company was in compliance with all covenants under the Canadian credit agreement.

7.125% Senior Notes

        On June 16, 2004, the Partnership and its 100% owned subsidiary, Pacific Energy Finance Corporation, completed the sale of $250 million of 7.125% senior notes due June 15, 2014 (the “Senior Notes”).  The Senior Notes were sold in a private offering to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933 (the “Securities Act”) and to non-U.S. persons under Regulation S under the Securities Act.  The Senior Notes were issued at a discount of $4.4 million, resulting in an effective interest rate of 7.375%. Interest payments are due on June 15 and December 15 of each year, beginning on December 15, 2004. At any time prior to June 15, 2007, the Partnership has the option to redeem up to 35% of the aggregate principal amount of notes at a redemption price of 107.125% of the principal amount with the net cash proceeds of one or more equity offerings. The Partnership has the option to redeem the Senior Notes, in whole or in part, at anytime on or after June 15, 2009 at the following redemption prices:

        The Senior Notes are jointly and severally guaranteed by certain of the Partnership’s subsidiaries, including Pacific Energy Group LLC, Pacific Marketing and Transportation LLC, Rocky Mountain Pipeline System LLC, Ranch Pipeline LLC, PEG Canada GP LLC and PEG Canada, L.P.

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        In addition, the indenture governing the Senior Notes contains certain covenants that, among other things, limit the Partnership’s ability and the ability of its restricted subsidiaries to incur or guarantee indebtedness or issue certain types of preferred equity securities; sell assets; pay distributions on, redeem or repurchase Partnership units; consolidate, merge or transfer all or substantially all of its assets. At September 30, 2004, the Partnership was in compliance with all such covenants.

        Net proceeds from the issuance of the Senior Notes were $241.1 million after deducting the $4.4 million discount and offering expenses of $4.5 million. The net proceeds were used principally to repay the Partnership’s $225 million term loan and to repay $14 million of indebtedness outstanding under the Partnership’s U.S. revolving credit facility.

        On September 2, 2004, the Partnership filed a Registration Statement on Form S-4 to register the Senior Notes.  On September 23, 2004, the Partnership commenced an exchange offer, which allowed the holders of the Senior Notes to exchange Senior Notes for new notes with materially identical terms that have been registered under the Securities Act (the “New Notes”).  The exchange offer expired on October 29, 2004, and all Senior Notes were exchanged for New Notes.  The New Notes are not listed on any securities exchange.

        Future Payment for MAPL Assets

        In connection with the purchase of the MAPL pipeline, the Partnership is obligated to pay the seller Cdn$5.0 million (U.S.$4.0 million) on June 30, 2007. The future payment was discounted at 5%. The carrying value of the future payment was Cdn$4.4 million (U.S.$3.4 million) at September 30, 2004.

4.     WRITE OFF OF DEFERRED FINANCING COSTS AND INTEREST RATE SWAP TERMINATION EXPENSE

        On June 16, 2004, in connection with the repayment of its term loan, the Partnership had a $2.3 million non-cash write-down of deferred financing costs and incurred a $0.6 million cash expense to terminate related interest rate swaps.

5.     PARTNERS’ CAPITAL

        On March 30, 2004, the Partnership issued and sold 4,200,000 common units in an underwritten public offering at a price of $28.50. The common units sold in the offering were registered pursuant to the registration statement on SEC Form S-3 filed on August 1, 2003. Net proceeds from the offering, including the Partnership’s general partner’s contribution of $2.4 million, totaled approximately $116.7 million after deducting underwriting fees and offering expenses of $5.4 million. The Partnership repaid approximately $10 million in borrowings under its U.S. revolving credit facilities, which were incurred in the first quarter of 2004 to fund the deposit on the Rangeland acquisition, and used approximately $76 million of the net proceeds to fund a portion of the aggregate purchase price of the Rangeland and Mid Alberta pipeline acquisitions. The Partnership utilized the remaining $31 million in net proceeds to repay borrowings under its U.S. revolving credit facility.

        On April 12, 2004, the underwriters exercised a portion of the over-allotment option granted in connection with the offering of common units on March 30, 2004 and purchased an additional 425,000 common units from the Partnership at a price of $28.50 per unit to cover over allotments. Including the related capital contribution of the General Partner of $247,000, the Partnership received net proceeds of $11.8 million after underwriting fees. The Partnership used the $12 million in net proceeds from the exercise of the overallotment option to reduce the balance outstanding under its U.S. revolving credit facility.

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6.     RELATED PARTY TRANSACTIONS

        In the ordinary course of its operations, the Partnership engages in various transactions with The Anschutz Corporation (“TAC”), the parent company of the Partnership’s general partner, and TAC’s affiliates. These transactions, which are more thoroughly described below, are summarized in the following table for the three and nine months ended September 30, 2004 and 2003:

        Related party balances at September 30, 2004 and December 31, 2003 were as follows:

Revenue from Related Parties

        A subsidiary of TAC was a shipper on the Partnership’s Line 2000 and was charged the published tariff rates applicable to “participating shippers” until March 31, 2003, when an agreement between the TAC subsidiary and a third party, the performance of which required the TAC subsidiary to ship on Line 2000, was assigned to the Partnership for consideration equal to the value of transferred inventory. In addition, a subsidiary of TAC is a shipper on pipelines owned by Rocky Mountain Pipeline LLC (“RMPS”) a subsidiary of the Partnership, and is charged published tariff rates.

        RMPS serves as the contract operator for certain gas producing properties owned by a subsidiary of TAC in Wyoming and Utah, in exchange for which RMPS is reimbursed its direct costs of operation and is paid an annual fee of $0.3 million as compensation for the time spent by RMPS management and for other overhead services related to their activities. In addition, during 2003 and the first quarter of 2004, RMPS’s trucking operation hauled water for a TAC subsidiary at rates equivalent to those charged to third parties.

        RMPS also receives a management fee from Frontier Pipeline Company (“Frontier”) in connection with time spent by RMPS management and for other services related to Frontier’s pipeline’s activities. RMPS received $0.3 million and $0.1 million for the three months ended September 30, 2004 and 2003 and $0.6 million and $0.4 million for the nine months ended September 30, 2004 and 2003, respectively.

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Expenses Paid to Related Parties

        General and Administrative Expense:  In 2002, the Partnership began utilizing the financial accounting system owned and provided by TAC under a shared services arrangement. In addition, the Partnership from time to time utilized the services of TAC’s risk management personnel for acquiring the Partnership’s insurance, and the Partnership’s surety bonds are issued under TAC’s bonding line. Beginning January 2003, TAC began charging the Partnership a fee of $0.1 million per year for these services and continues to charge the Partnership for any out-of-pocket costs it incurs. The fixed annual fee includes all license, maintenance and employee costs associated with the Partnership’s use of the financial accounting system.

        Beginning January 2003, and as amended in May 2004, the Partnership leases approximately 5,400 square feet of office space from an affiliate of TAC, for a term of five years at an annual cost of $0.1 million.

        Cost Reimbursements:  The Partnership’s general partner, Pacific Energy GP, Inc. (“General Partner”), employs all U.S. based employees. All employee expenses incurred by the General Partner on behalf of the Partnership are charged back to the Partnership.

        The operating and general and administrative cost reimbursement amounts above exclude reimbursements for property, casualty and directors and officers’ insurance premiums paid by TAC on behalf of the Partnership, until mid-2003. Beginning with the 2003-2004 insurance policy period, the Partnership incurred these costs directly. In addition, out-of-pocket costs incurred by TAC for the benefit of the Partnership for computer consultants and surety bonds are also reimbursed by the Partnership.

        Other:  The Partnership also reimburses TAC for transportation services, based on a cost-based formula. For the nine months ended September 30, 2004, the Partnership reimbursed TAC $0.1 million. An insignificant amount was incurred for the nine months ended September 30, 2003.

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7.  SEGMENT INFORMATION

        The Partnership’s business and operations are organized into two regional operating units: West Coast operations and Rocky Mountain operations. The West Coast operations include: (i) Pacific Pipeline System LLC, owner of Line 2000 and Line 63, (ii) Pacific Marketing and Transportation LLC, owner of the PMT gathering and blending system, and (iii) Pacific Terminals LLC, owner of the Pacific Terminals storage and distribution system (for the period from July 31, 2003 to September 30, 2004). Rocky Mountain operations include: (i) Rocky Mountain Pipeline System LLC, (ii) Ranch Pipeline LLC, and (iii) PEG Canada, L.P. and its Canadian subsidiaries, which own and operate all of the Partnership’s Canadian assets (for the period from May 11, 2004 to September 30, 2004). The reporting units comprising each segment have been aggregated to reflect how the assets are operated and managed. General and administrative costs, which consist of executive management, accounting and finance, human resources, information technology, investor relations, legal, and marketing and business development, are not allocated to the individual segments. Information regarding these two operating units is summarized below:

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