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 Earnings for Second Quarter 2006
LONG BEACH, Calif.--(BUSINESS WIRE)--Aug. 2, 2006--Pacific Energy
Partners, L.P. (NYSE:PPX) ("Pacific Energy" or the "Partnership")
announced that net income for the three months ended June 30, 2006,
was $21.4 million, or $0.54 per limited partner unit, compared to net
income of $12.2 million, or $0.40 per limited partner unit, for the
three months ended June 30, 2005. Recurring net income for the three
months ended June 30, 2006 was $20.3 million, or $0.51 per limited
partner unit compared to recurring net income of $12.2 million, or
$0.40 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 June
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 margins from the crude oil marketing activities
conducted by the Partnership's Pacific Marketing and Transportation
subsidiary ("PMT"), higher crude oil pipeline deliveries to
Bakersfield, California refineries, lower repair and maintenance costs
associated with the California pipelines, and higher margins and
increased volumes on the Rangeland pipeline system in Alberta, Canada.
Partially offsetting these increases were higher interest expense
attributable to the financing of the Valero L.P. acquisition and
increased general and administrative costs. In addition, there were
approximately 32% more units outstanding compared to the 2005 quarter.
Recurring net income for the second quarter of 2006 excludes $3.4
million of transaction costs related to the recently announced merger
with Plains All American Pipeline, L.P. ("Plains"), expected to close
later this year and a $4.6 million deferred tax benefit. Due to recent
legislation, both federal and Alberta corporate tax rates in Canada
are being reduced, and Pacific Energy's deferred tax liability balance
is required by accounting rules to be adjusted to the new rates.
For the six months ended June 30, 2006, net income was $33.1
million, or $0.83 per limited partner unit, compared to $15.6 million,
or $0.58 per limited partner unit, for the six months ended June 30,
2005. Recurring net income for the six months ended June 30, 2006, was
$31.9 million, or $0.80 per limited partner unit, compared with $22.6
million, or $0.74 per limited partner unit, for the six months ended
June 30, 2005. Recurring net income for the first six months of 2006
reflects the benefit of six months of operations in 2006 from the
assets acquired from Valero L.P., increased margins from crude oil
marketing activities, increased volumes and higher margins for the
Rangeland pipeline system, higher revenue due to increased Bakersfield
refinery deliveries, and lower pipeline repair expenses in California.
Partially offsetting these increases were increased interest and
general and administrative expenses. In addition, there were
approximately 32% more units outstanding in the first half of 2006
versus 2005.
Recurring net income for the six months ended June 30, 2006,
excludes the previously mentioned merger costs and deferred tax
benefit. Recurring net income for the six months ended June 30, 2005,
excludes a $2.0 million expense for the insurance deductible
associated with the remediation of the Pyramid Lake oil release, a
$3.1 million expense related to the 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 the Pacific
Energy's general partner by LB Pacific, LP ("LB Pacific"), and $1.8
million of expense from this general partner transaction required to
be recorded as a partnership expense, with the general partner's
payment of it recorded as a capital contribution.
"We are very pleased with our second quarter results. Our core
transportation and storage business performed well and continued to
grow. In addition the Partnership was able to realize the benefit of
favorable marketing margins for both PMT and Rangeland, which enabled
us to exceed previously announced guidance," stated Irv Toole,
President and CEO of Pacific Energy. "Organic growth projects in each
of our two business units continue to progress and remain a primary
focus of the Partnership."
On July 17, 2006, Pacific Energy announced a cash distribution of
$0.5675 per unit for the second quarter of 2006, or $2.27 per unit
annualized. This is unchanged from the first quarter 2006 distribution
level but is 10.7% higher than the second quarter 2005 distribution
level. The distribution will be paid on August 14, 2006, to holders of
record as of July 31, 2006.
Distributable cash flow available to the limited partners'
interest for the second quarter of 2006 was $25.1 million after
deducting $3.4 million in merger costs. On a diluted, weighted average
basis, there were 39,314,000 limited partner units outstanding during
the second quarter of 2006.
Earnings before interest, tax, depreciation and amortization
expenses ("EBITDA") were $38.8 million in the second quarter of 2006.
Pursuant to the terms of the partnership agreement, on August 14,
2006, 2,616,250 subordinated units owned by LB Pacific are expected to
convert on a one-for-one basis to common units. The conversion of the
subordinated units will not affect future cash distributions.
OPERATING RESULTS BY SEGMENT
WEST COAST BUSINESS UNIT
Operating income was $22.0 million for the three months ended June
30, 2006, compared to $12.4 million in the corresponding period in
2005. This increase was primarily due to the addition of the Northern
California and East Coast terminals that were acquired on September
30, 2005, from Valero L.P., improved operating income from California
pipeline operations, and increased margins from crude oil marketing
activities.
The Northern California terminals are operating at capacity, with
450,000 barrels of additional storage capacity currently under
construction at Martinez. This storage is scheduled to be operational
in the third quarter of 2006. Due to strong customer demand, Pacific
Energy has increased its capital budget to provide for the
construction of an additional 850,000 barrels of storage capacity at
Martinez. It is projected that $1.0 million of this increase will be
expended in 2006, with an additional $27.2 million expended in 2007 to
complete the project.
The East Coast terminals are also operating at capacity. East
Coast terminal income increased due to the expansion of ethanol
facilities, which began operations in the second quarter of 2006, and
are expected to be fully operational in the fourth quarter of 2006 and
the start up of ultra low sulfur diesel and jet fuel handling
facilities.
The impact of the long-haul pipeline volume decline in California
was more than offset by tariff increases on Line 2000 and Line 63,
lower repair and maintenance costs and a substantial increase in
Bakersfield delivery volumes. Volumes transported to Los Angeles for
the three months ended June 30, 2006, were approximately 10% lower
than in the second quarter of 2005. The primary reasons for the
reduction were natural production declines and a shift in some light
crude oil volumes north to the San Francisco area. Partially
offsetting this impact was a May 1, 2006 increase of $0.10 per barrel
on Line 2000, a temporary surcharge of $0.10 per barrel on Line 63
long-haul movements that was implemented on August 1, 2005, to recover
the costs of the Pyramid Lake oil release and other rain related
damages experienced in the first quarter of 2005, and the absence of
$1.4 million of rain related pipeline repair expenses incurred in the
second quarter of 2005. In addition, deliveries to Bakersfield
refineries more than doubled from the prior year's quarter as a result
of pipeline modifications in the San Joaquin Valley that were
completed on October 1, 2005, which increased delivery capacity to
those refineries.
The Partnership's crude oil marketing income in the second quarter
of 2006 was significantly higher than in the prior year quarter.
Favorable margins, crude oil contracts acquired on July 1, 2005, and
increased crude oil volumes in the 2006 quarter contributed to the
improvement.
Income for the Pacific Terminals' subsidiary remained unchanged
compared to the corresponding period in 2005. The reactivation of
300,000 barrels of storage at the Alamitos terminal, completed in July
2006, and reactivation of a second 300,000 barrel tank scheduled to be
completed in the fourth quarter of 2006, are expected to increase
revenue in the second half of the year.
The Partnership continues to advance the development of the Pier
400 deepwater import terminal in the Port of Los Angeles. During the
quarter, efforts were focused on finalizing environmental mitigation
factors with the Port of Los Angeles and the Partnership's customers.
Due to the complexity of the environmental review process, the
Partnership now expects to receive the permits necessary to begin
construction mid-year 2007, and start-up is expected in the first
quarter of 2009. As previously announced, the total investment is
estimated at $315 million and provides for 4,000,000 barrels of
storage capacity that will be constructed in two phases. Long term
volume commitments have been signed by 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 $15.4 million for the three months ended June
30, 2006, compared to $9.0 million in the corresponding period in
2005. The $6.4 million increase was primarily due to increased volumes
on the Rangeland Pipeline, Western Corridor and Salt Lake City Core
systems, income contribution from the Rocky Mountain Products Pipeline
that was part of the Valero L.P. acquisition, and favorable crude oil
marketing margins.
In March 2006, the Partnership completed construction of its
Edmonton, Alberta, initiating terminal, which provides direct access
to synthetic crude oil for delivery through the Partnership's pipeline
systems to U.S. Rocky Mountain refineries. During the second quarter
of 2006, construction was also completed on additional tankage along
this corridor to facilitate the movement of the synthetic crude oil.
However, the transportation of synthetic crude oil was significantly
lower than anticipated in the second quarter of 2006 due to
maintenance shutdowns at two major synthetic crude oil facilities in
Alberta. With these facilities now ramping up to full capacity,
synthetic crude oil movements in the third quarter of 2006 are
expected to increase.
In the Rocky Mountain Business Unit, two major profit generating
capital projects, the Salt Lake City pipeline project and the Cheyenne
pipeline project, are proceeding on schedule and on budget. The first
phase of the Salt Lake City pipeline is scheduled to be completed in
December of 2006, and the second phase is expected to be completed in
the fourth quarter of 2007. Total cost of the project is approximately
$77 million and is supported by firm, 10-year transportation
agreements with four Salt Lake City refiners. The Cheyenne pipeline 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 and Refining Company to ship 35,000 barrels
per day and lease approximately 300,000 barrels of storage capacity at
Fort Laramie.
CORPORATE ITEMS
General and administrative expenses were $5.7 million in the
second quarter of 2006, approximately $2.0 million higher than in the
second quarter of 2005. This increase was associated with support of
newly acquired assets, professional fees, and the cost of the 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 $10.1 million for the second quarter of 2006,
$4.2 million greater than in the comparable period in 2005, due to the
increase in debt for the Valero asset acquisition.
For the six months ended June 30, 2006 total capital spending was
$42.5 million: $35.0 million was spent on expansion capital, $2.6
million was spent on sustaining capital (including $1.8 million in the
second quarter), and $4.9 million was spent on transition capital.
LOOKING FORWARD
For the quarter ending September 30, 2006, Pacific Energy is
forecasting recurring net income of $0.35 to $0.41 per unit and EBITDA
of $34 million to $38 million. Sustaining capital expenditures for the
third quarter of 2006 are expected to be $3 million to $4 million.
For full year 2006, Pacific Energy is forecasting recurring net
income of $1.58 to $1.68 per unit and EBITDA of $140 million to $146
million. Total capital expenditures for the full year are projected to
be $162 million, including $148 million for expansion projects, $7
million for transition capital projects, and $7 million for sustaining
capital projects.
The guidance for recurring net income for the third 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 $1.0 million and
$6.5 million, for the third quarter and full year, respectively, of
estimated Plains merger related expenses to be incurred prior to
closing.
For more information about these 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 and Plains announced the signing
of definitive agreements that provide for the merger of the two
partnerships and Plains' acquisition of Pacific Energy's general
partner. The partnerships recently announced that the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, had expired on July 31, 2006. In addition, Plains has
received a "no issues" letter from the Canadian Competition Bureau and
notice that the accompanying waiting period under the Competition Act
has expired. The completion of the transaction remains subject to the
approval of unitholders of both partnerships as well as approvals of
certain state utility commissions and the Investment Review Division
of Industry Canada. All required filings have been submitted. This
transaction is expected to close near the end of 2006. As a result of
this pending transaction, the CEO search previously initiated by the
Board of Directors of Pacific Energy's general partner has been
terminated, and Irv Toole, President and Chief Executive Officer of
Pacific Energy, will continue to serve until management of the
Partnership is assumed by Plains following the closing of the merger
transaction.
OTHER MATTERS
Pacific Energy will host a conference call at 2:00 p.m. EDT (11:00
a.m. PDT) on Thursday, August 3, 2006, to discuss the results of the
second quarter of 2006. Please join us at www.PacificEnergy.com for
the live broadcast or dial in at 800-446-2782 or 847-413-3235 passcode
14511288. 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 Partners, L.P. is a master limited partnership
headquartered in Long Beach, California. Pacific Energy is engaged
principally in the business of gathering, transporting, storing and
distributing crude oil, refined products and other related products.
Pacific Energy 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. ("Plains")
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. Upon being
declared effective by the SEC, a definitive joint proxy
statement/prospectus will be 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, when it becomes available, 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, when it becomes available, 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
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 Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Operating revenues:
Pipeline transportation revenue $34,800 $27,747 $68,657 $55,784
Storage and distribution revenue 21,867 10,870 41,953 21,192
Pipeline buy/sell transportation
revenue 11,427 8,116 21,126 17,222
Crude oil sales, net of
purchases 10,720 6,042 17,529 7,824
-------- -------- -------- --------
Net revenues 78,814 52,775 149,265 102,022
-------- -------- -------- --------
Expenses:
Operating 31,655 25,292 65,074 47,046
Line 63 oil release costs(1) -- -- -- 2,000
General and administrative 5,714 3,700 12,587 8,872
Depreciation and amortization 10,292 6,606 20,294 13,135
Merger costs(2) 3,417 -- 3,417 --
Accelerated long-term incentive
plan compensation expense(3) -- -- -- 3,115
Reimbursed general partner
transaction costs(4) -- -- -- 1,807
-------- -------- -------- --------
Total expenses 51,078 35,598 101,372 75,975
-------- -------- -------- --------
Share of net income of Frontier 475 490 873 847
-------- -------- -------- --------
Operating income 28,211 17,667 48,766 26,894
Net interest expense (10,088) (5,844) (19,176) (11,442)
Other income 292 540 735 893
-------- -------- -------- --------
Income before income tax expense 18,415 12,363 30,325 16,345
-------- -------- -------- --------
Income tax benefit (expense):
Current (1,409) 245 (1,803) (487)
Deferred(5) 4,437 (388) 4,535 (217)
-------- -------- -------- --------
3,028 (143) 2,732 (704)
-------- -------- -------- --------
Net income $21,443 $12,220 $33,057 $15,641
======== ======== ======== ========
Net income (loss) for the general
partner interest(6) $392 $244 $373 $(1,458)
======== ======== ======== ========
Net income for the limited partner
interests(6) $21,051 $11,976 $32,684 $17,099
======== ======== ======== ========
Weighted average units
outstanding:
Basic 39,307 29,723 39,304 29,689
Diluted 39,314 29,742 39,322 29,708
Basic and Diluted net income per
limited partner unit $0.54 $0.40 $0.83 $0.58
======== ======== ======== ========
PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2006 2005
------------ ------------
Assets
Current assets $254,689 $192,115
Property and equipment, net 1,237,794 1,185,534
Intangible assets 69,354 69,180
Investment in Frontier Pipeline Company 8,322 8,156
Other assets 17,791 21,467
------------ ------------
Total assets $1,587,950 $1,476,452
============ ============
Liabilities and Partners' Capital
Current liabilities $205,138 $156,187
Long-term debt 635,368 565,632
Deferred income taxes 32,833 35,771
Environmental and other long-term
liabilities 22,578 20,623
Partners' capital 692,033 698,239
------------ ------------
Total liabilities and partners'
capital $1,587,950 $1,476,452
============ ============
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended
June 30,
-----------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income $33,057 $15,641
Depreciation, amortization, non-cash employee
compensation under long-term incentive plan,
deferred income taxes and Frontier adjustment 16,507 17,076
Working capital adjustments (7,476) 13,427
-------- --------
Net cash provided by operating activities 42,088 46,144
Cash flows from investing activities:
Acquisition (2,365) --
Net additions to property and equipment (42,524) (9,877)
Additions to pipeline linefill and minimum tank
inventory (16,419) --
Other 168 (98)
-------- --------
Net cash used in investing activities (61,140) (9,975)
Cash flows from financing activities:
Distributions to partners (45,614) (30,658)
Capital contribution from the general partner -- 2,438
Proceeds from bank credit facilities 130,409 66,283
Repayment of bank credit facilities (60,950) (64,326)
Deferred financing costs -- (600)
Related parties (141) (686)
-------- --------
Net cash provided by (used in) financing
activities 23,704 (27,549)
Effect of exchange rate changes on cash 107 74
Net increase in cash and cash equivalents 4,759 8,694
Cash and cash equivalents, beginning of period 18,064 23,383
-------- --------
Cash and cash equivalents, end of period $22,823 $32,077
======== ========
PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND OPERATING HIGHLIGHTS BY SEGMENT
Three Months Ended June 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)
West Rocky Intersegment
Coast Mountains and
Business Business Intrasegment
Unit Unit Eliminations Total
-------- ---------- ------------- --------
Three Months Ended June 30,
2006:
Revenues:
Pipeline transportation
revenue $16,696 $20,422 $(2,318) $34,800
Storage and terminaling
revenue 21,867 -- 21,867
Pipeline buy/sell
transportation revenue -- 11,427 11,427
Crude oil sales, net of
purchases 9,195 1,648 (123) 10,720
-------- ---------- --------
Net revenue 47,758 33,497 78,814
-------- ---------- --------
Expenses:
Operating expenses 20,263 13,833 (2,441) 31,655
Depreciation and
amortization 5,507 4,785 10,292
-------- ---------- --------
Total expenses 25,770 18,618 41,947
-------- ---------- --------
Share of net income of
Frontier -- 475 475
-------- ---------- --------
Operating income(7) $21,988 $15,354 $37,342
======== ========== ========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 108.2
Rangeland pipeline system:
Sundre - North 21.5
Sundre - South 44.2
Western Corridor system 27.9
Salt Lake City Core system 125.2
Frontier pipeline 45.2
Rocky Mountain Products
Pipeline(8) 60.1
Three Months Ended June 30,
2005:
Revenues:
Pipeline transportation
revenue $15,194 $14,006 $(1,453) $27,747
Storage and terminaling
revenue 10,870 -- 10,870
Pipeline buy/sell
transportation revenue -- 8,116 8,116
Crude oil sales, net of
purchases 5,866 206 (30) 6,042
-------- ---------- --------
Net revenue 31,930 22,328 52,775
-------- ---------- --------
Expenses:
Operating expenses 15,996 10,779 (1,483) 25,292
Depreciation and
amortization 3,529 3,077 6,606
-------- ---------- --------
Total expenses 19,525 13,856 31,898
-------- ---------- --------
Share of net income of
Frontier -- 490 490
-------- ---------- --------
Operating income(7) $12,405 $8,962 $21,367
======== ========== ========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 120.0
Rangeland pipeline system:
Sundre - North 23.1
Sundre - South 39.7
Western Corridor system 22.2
Salt Lake City Core system 124.4
Frontier pipeline 51.3
Rocky Mountain Products
Pipeline(8) --
PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND OPERATING HIGHLIGHTS BY SEGMENT
Six Months Ended June 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)
West Rocky Intersegment
Coast Mountain and
Business Business Intrasegment
Unit Unit Eliminations Total
-------- ---------- ------------- --------
Six Months Ended June 30,
2006:
Revenues:
Pipeline transportation
revenue $33,859 $39,290 $(4,492) $68,657
Storage and terminaling
revenue 41,953 -- 41,953
Pipeline buy/sell
transportation revenue -- 21,126 21,126
Crude oil sales, net of
purchases 16,506 1,288 (265) 17,529
-------- ---------- --------
Net revenue 92,318 61,704 149,265
-------- ---------- --------
Expenses:
Operating expenses 41,695 28,136 (4,757) 65,074
Depreciation and
amortization 11,006 9,288 20,294
-------- ---------- --------
Total expenses 52,701 37,424 85,368
-------- ---------- --------
Share of net income of
Frontier -- 873 873
-------- ---------- --------
Operating income(7) $39,617 $25,153 $64,770
======== ========== ========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 113.4
Rangeland pipeline system:
Sundre - North 23.1
Sundre - South 42.5
Western Corridor system 26.2
Salt Lake City Core system 124.5
Frontier pipeline 46.7
Rocky Mountain Products
Pipeline(8) 60.8
Six Months Ended June 30,
2005:
Revenues:
Pipeline transportation
revenue $32,638 $26,461 $(3,315) $55,784
Storage and terminaling
revenue 21,342 -- (150) 21,192
Pipeline buy/sell
transportation revenue -- 17,222 17,222
Crude oil sales, net of
purchases 7,678 206 (60) 7,824
-------- ---------- --------
Net revenue 61,658 43,889 102,022
-------- ---------- --------
Expenses:
Operating expenses 30,503 20,068 (3,525) 47,046
Line 63 oil release
costs(1) 2,000 -- 2,000
Depreciation and
amortization 7,006 6,129 13,135
-------- ---------- --------
Total expenses 39,509 26,197 62,181
-------- ---------- --------
Share of net income of
Frontier -- 847 847
-------- ---------- --------
Operating income(7) $22,149 $18,539 $40,688
======== ========== ========
Operating Data (barrels per
day, in thousands)
Line 2000 and Line 63
pipeline systems 129.2
Rangeland pipeline system:
Sundre - North 22.2
Sundre - South 43.9
Western Corridor system 22.4
Salt Lake City Core system 116.7
Frontier pipeline 44.8
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 Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Operating income by Business Unit:
West Coast Business Unit $21,988 $12,405 $39,617 $22,149
Rocky Mountain Business Unit 15,354 8,962 25,153 18,539
-------- -------- -------- --------
37,342 21,367 64,770 40,688
General expenses and other income
(expense):(7)
General and administrative
expense (5,714) (3,700) (12,587) (8,872)
Merger costs(2) (3,417) -- (3,417) --
Accelerated long-term incentive
plan compensation expense(3) -- -- -- (3,115)
Reimbursed general partner
transaction costs(4) -- -- -- (1,807)
Interest expense (10,088) (5,844) (19,176) (11,442)
Other income 292 540 735 893
Income tax benefit (expense)(5) 3,028 (143) 2,732 (704)
-------- -------- -------- --------
Net income $21,443 $12,220 $33,057 $15,641
======== ======== ======== ========
LIMITED PARTNERS AND GENERAL PARTNER ALLOCATION OF NET INCOME
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income for the limited partner
interests:
Net income $21,443 $12,220 $33,057 $15,641
Costs allocated to general
partner:
LBP Option Plan costs(9) 369 -- 880 --
Senior Notes consent
solicitation and other costs -- -- -- 893
Severance costs -- -- -- 914
-------- -------- -------- --------
Total costs allocated to
general partner 369 -- 880 1,807
-------- -------- -------- --------
Income before costs allocated to
general partner 21,812 12,220 33,937 17,448
Less: General partner incentive
distribution rights paid (331) -- (586) --
-------- -------- -------- --------
Subtotal 21,481 12,220 33,351 17,448
Less: General partner 2% ownership (430) (244) (667) (349)
-------- -------- -------- --------
Net income allocated to limited
partners $21,051 $11,976 $32,684 $17,099
======== ======== ======== ========
Net income for the general partner
interest:
General partner 2% ownership $430 $244 $667 $349
Incentive distribution payments to
general partner 331 -- 586 --
Costs allocated to general partner (369) -- (880) (1,807)
-------- -------- -------- --------
Net income (loss) allocated to
general partner $392 $244 $373 $(1,458)
======== ======== ======== ========
PACIFIC ENERGY PARTNERS, L.P.
(Unaudited)
(Amounts in thousands, except per unit amounts)
RECONCILIATION OF NET INCOME TO RECURRING NET INCOME(10)
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income $21,443 $12,220 $33,057 $15,641
Add: Line 63 oil release
costs(1) -- -- -- 2,000
Add: Merger costs(2) 3,417 -- 3,417 --
Add: Accelerated long-term
incentive plan compensation
expense(3) -- -- -- 3,115
Add: Reimbursed general partner
transaction costs(4) -- -- -- 1,807
Less: Deferred tax rate
adjustment(5) (4,560) -- (4,560) --
-------- -------- -------- --------
Recurring net income $20,300 $12,220 $31,914 $22,563
======== ======== ======== ========
Recurring net income for the
general partner interest $369 $244 $350 $451
======== ======== ======== ========
Recurring net income for the
limited partner interest $19,931 $11,976 $31,564 $22,112
======== ======== ======== ========
Basic and diluted recurring net
income per limited partner unit $0.51 $0.40 $0.80 $0.74
======== ======== ======== ========
RECONCILIATION OF NET INCOME TO EBITDA(11)
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income $21,443 $12,220 $33,057 $15,641
Interest expense 10,088 5,844 19,176 11,442
Depreciation and amortization 10,292 6,606 20,294 13,135
Income tax (benefit) expense (3,028) 143 (2,732) 704
-------- -------- -------- --------
EBITDA $38,795 $24,813 $69,795 $40,922
======== ======== ======== ========
PACIFIC ENERGY PARTNERS, L.P.
RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH FLOW(12)
(Unaudited)
(Amounts in thousands)
Three Months Six Months
Ended Ended
June 30, June 30,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Net income $21,443 $12,220 $33,057 $15,641
Depreciation and amortization 10,292 6,606 20,294 13,135
Amortization of debt issue costs
and accretion of discount on
long-term debt 616 478 1,222 937
Non-cash employee compensation
under long-term incentive plan 190 -- 496 1,429
Costs allocated to general
partner(6) 369 -- 880 1,807
Deferred income tax expense
(benefit)(5) (4,437) 388 (4,535) 217
Sustaining capital expenditures (1,829) (587) (2,646) (827)
-------- -------- -------- --------
Distributable cash flow(13) 26,644 19,105 48,768 32,339
Less: net (increase) decrease in
operating assets and liabilities 9,524 10,336 (7,476) 13,427
Less: share of income of Frontier (475) (490) (873) (847)
Add: distributions from Frontier 200 650 622 650
Less: non-cash employee
compensation under long-term
incentive plan added (deducted)
above (190) -- (496) (1,429)
Add: employee compensation under
long-term incentive plan 190 -- 546 2,886
Less: costs reimbursed by general
partner -- -- -- (1,807)
Add: other non-cash adjustments (1,649) 98 (1,649) 98
Add: sustaining capital
expenditures 1,829 587 2,646 827
-------- -------- -------- --------
Net cash provided by operating
activities $36,073 $30,286 $42,088 $46,144
======== ======== ======== ========
Total distributable cash flow $26,644 $19,105 $48,768 $32,339
General partner interest in
distributable cash flow (1,585) (936) (2,231) (1,201)
-------- -------- -------- --------
Limited partner interest in
distributable cash flow $25,059 $18,169 $46,537 $31,138
======== ======== ======== ========
PACIFIC ENERGY PARTNERS, L.P.
RECONCILIATION OF RECURRING NET INCOME GUIDANCE TO NET INCOME
GUIDANCE AND EBITDA GUIDANCE(14)
(Unaudited)
(Amounts in millions)
Three Months Year
Ended Ended
September 30, December 31,
2006 2006
------------- ---------------
Low High Low High
------ ------ ------- -------
Recurring net income guidance(15) $14.2 $16.5 $63.0 $66.8
Less: Merger costs (1.2) (0.8) (7.0) (6.0)
Add: Deferred tax rate adjustment -- -- 4.6 4.6
------ ------ ------- -------
Net income guidance(16) $13.0 $15.7 $60.6 $65.4
Add: Depreciation and amortization 10.2 10.6 41.2 41.7
Add: Interest expense 10.5 11.5 40.5 41.5
Add: Income tax expense (benefit)(17) -- 0.2 (2.5) (2.2)
------ ------ ------- -------
Earnings before interest, tax,
depreciation and amortization (EBITDA) $33.7 $38.0 $139.8 $146.4
====== ====== ======= =======
PACIFIC ENERGY PARTNERS, L.P.
NOTES TO FINANCIAL SCHEDULES
(Unaudited)
(Amounts in millions, except volume data)
(1) 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.
(2) 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 2.6 million common units and 7.8 million subordinated
units for a total of $700 million in cash. For the three and six
months ended June 30, 2006, we incurred $3.4 million in
professional fees and other costs directly related to the merger.
(3) 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.
(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 quarter ended June 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 "General Partner and Limited Partners 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 six months ended June 30, 2006,
we recorded compensation expense of $0.4 million and $0.9 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 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 six months ended June
30, 2006, EBITDA has been reduced by $3.4 million for costs
directly related to the proposed merger with Plains All American
Pipeline, L.P. For the six months ended June 30, 2005, EBITDA has
been 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 June 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)In September 2005, we changed the presentation of Distributable
Cash Flow. The previously reported amount of $36.2 million for
Distributable Cash Flow for the six months ended June 30, 2005 has
been reduced by $2.0 million of oil release costs and $1.9 million
of cash costs associated with the accelerated vesting of units.
The change in presentation had no effect on the three months ended
June 30, 2005. For the three and six months ended June 30, 2006,
Distributable Cash Flow has been reduced by $3.4 million for costs
directly related to the proposed merger with Plain All American
Pipeline, L.P.
(14)The guidance for the three months ending September 30, 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 August 1,
2006. We undertake no obligation to publicly update or revise any
forward-looking statements.
(15)Recurring net income excludes $3.4 million of merger costs and 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.
(16)Included in the net income guidance for the year ended December
31, 2006 is forecast general and administrative expense of $23
million to $24 million.
(17)Included for the year ended December 31, 2006 is forecast cash tax
expense of $2.7 million and forecast deferred tax benefit of $0.4
million.
CONTACT: Pacific Energy Partners, L.P.
Jennifer Shigei, 562-728-2871
fax: 562-728-2881
JShigei@PacificEnergy.com