Plains All American Pipeline, L.P. — 2009 Form 10-K
Business context and period. The partnership transports, stores, terminals and markets crude oil, refined products and LPG, and operates natural gas storage facilities. This annual report covers the fiscal year ended December 31, 2009; quarterly figures below are for Q4 2009. Its segments are Transportation, Facilities, and Supply and Logistics.
Financial results and liquidity
Amounts are in millions of dollars except per-unit data and where noted.
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $18,520 | $30,061 |
| Operating income | $779 | $594 |
| Net income attributable to Plains | $579 | $437 |
| Diluted earnings per unit | $3.32 | $2.64 |
| Operating cash flow | $365 | $857 |
| Investing cash flow | $(660) | $(1,339) |
| Total debt at year-end | $5,216 | $4,286 |
| Declared distributions per unit | $3.62 | $3.50 |
Revenue declined about 38%, while operating income and net income attributable to Plains increased about 31% and 32%, respectively. Revenue is heavily influenced by the high-volume, lower-margin Supply and Logistics business; lower reported revenue therefore did not correspond to lower earnings. Operating cash flow fell substantially, principally reflecting increased inventory and working-capital needs, including crude oil stored during contango conditions. The filing reports a 2009 gross margin of $990 million versus $754 million in 2008.
Q4 revenue was $6,078 million versus $4,943 million a year earlier; operating income was $173 million versus $142 million, while net income was $110 million versus $98 million. Q4 basic earnings per unit were $0.53 versus $0.56.
Year-end cash was $25 million; working capital was a deficit of approximately $124 million. Available liquidity was approximately $976 million, including $751 million available on the revolving facility and $200 million on the hedged-inventory facility. Total debt included $4,142 million of long-term debt and $1,074 million of short-term debt. The partnership reported compliance with debt covenants. Senior unsecured ratings were BBB- and Baa3, both stable, as of February 2010.
Material changes and operating drivers
- Segment profit rose to $1,030 million from $819 million: Transportation $477 million (up 7%), Facilities $208 million (up 36%), and Supply and Logistics $345 million (up 56%).
- Supply and Logistics benefited from strong crude-oil contango margins early in the year, propane demand and a $62 million net derivative gain (net of inventory valuation adjustments). Management cautioned that derivative results generally have offsetting physical positions not reflected in mark-to-market accounting.
- Facilities growth included consolidating the remaining 50% of PNGS in September for stated consideration of $215 million. The partnership also completed six other acquisitions for approximately $178 million.
- The partnership issued common units and senior notes during 2009; year-end units outstanding were approximately 136.1 million, versus 122.9 million a year earlier.
Outlook, risks and contingencies
Management described the economic outlook as cautious, citing uncertainty about recovery and lower energy demand. It expected energy demand eventually to recover but gave no specific earnings guidance in the provided filing text. Planned 2010 expansion capital was approximately $360 million. Management said it expected to fund the program primarily with revolver borrowings and cash flow above distributions.
Key risks include commodity-market structure and volatility, counterparty credit, access to financing, leverage and refinancing, acquisition and project execution, pipeline integrity, environmental exposure, regulation, declining California offshore production, and insurance availability. Pier 400 faced delays, increased estimated costs of about $445 million (potentially plus dock construction), and customer-agreement renegotiations; two of three existing agreements had been cancelled and the third was being cancelled as replacement terms were pursued.
Environmental reserves were approximately $62 million at year-end. The partnership considered penalties probable in DOJ/EPA proceedings concerning earlier oil releases; the stated maximum potential penalty was approximately $6.8 million. A proposed consent decree for a separate Line 63 release provided for a $1.3 million penalty and additional remediation work estimated at less than $6 million. SemCrude creditors challenged setoff rights involving approximately $23 million. The filing also describes other environmental claims and investigations whose ultimate costs were uncertain.
Most important facts for investors to verify
- Whether inventory growth, working-capital requirements and associated borrowing remain manageable, and how much liquidity is available under facility covenants.
- Debt maturity and refinancing exposure, especially the $700 million of stated 2012 maturities and the short-term hedged-inventory facility maturing in October 2010.
- Actual returns, cost and timing for the 2010 capital program, Pine Prairie expansion and Pier 400, including customer commitments and approvals.
- Resolution and cash impact of environmental matters, SemCrude claims, and the adequacy of environmental reserves and insurance.
- Whether distribution growth remains supported by recurring cash flow; distributions are not guaranteed and depend on available cash and reserves.