Plains All American Pipeline LP (PAA) 2004 Q4 法說會逐字稿

Welcome to the Plains All American Pipeline fourth quarter and year-end 2004 results conference call. During today's call, the participants will provide comments on the partnership's outlook for the future, as well as review the results of the prior period. Accordingly, in doing so, they will use words such as believe, estimate, expect, anticipate, et cetera. The law provides Safe Harbor protection to encourage companies to provide forward-looking information.

The partnership intends to avail itself of those Safe Harbor provisions and directs you to the risks and warnings set forth in Plains All American Pipeline's most recently filed 10-KA, 10-Q, 8-K, and other current and future filings with the Securities and Exchange Commission.

In addition, the partnership encourages you to visit Plains All American's Web site at www.paalp.com, in particular, the section entitled non-GAAP reconciliation, which presents certainly commonly used non-GAAP financial measures, such as EBITDA and EBIT, which may be used here today in the prepared remarks or in the question and answer session. This section also presents a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures, and includes a table of selected items that impact comparability with respect to the partnership's reported financial information.

The participants should be aware that the partnership is in the process of finalizing its 2004 Form 10-K, and it expects to file the Form 10-K in the near future. As a result, the financial information discussed today should be considered preliminary until such time as the partnership receives its financial audit and internal control audit reports from its external auditors and files its Form 10-K for the year ended December 31, 2004.

Today's conference call will be chaired by Greg L. Armstrong, Chairman and CEO of Plains All American Pipeline. Also participating in the call are Harry Pefanis, Plains All American's President and COO, and Phil Kramer, Plains All American's EVP and Chief Financial Officer.

I will now turn the call over to Mr. Greg Armstrong.

Thank you, Jackie, and welcome to everyone. This morning, we reported fourth quarter net income of $24.7 million, or $0.32 per basic and diluted limited partner unit on EBITDA of 60.5 million.

There was a lot of noise in the details of these results as we experienced several non-operating items, as well as a couple of notable operating items during the quarter. A few of these notable items were identified in the previous guidance numbers or in the accompanying narrative, and while there were some items that were not addressed in the forward-looking guidance, as we review these items, I believe you will find that despite the chatter in the numbers, our fundamental operating performance during the quarter was very much in line with the range of the guidance that we provided on November 3rd during our third quarter results conference call.

The items that I reference generally fall into two categories. The first is accounting items impacting comparability between periods, such as the non-cash portion of FAS 133, and then the second element is items related to operations, such as the pipeline release that we experienced in the fourth quarter. In order to enable you to evaluate our performance relative to our previous guidance, I intend to take a few moments to briefly highlight these items.

And I'll apologize in advance. I'm going to go rather rapidly. I understand we've got some competing conference calls coming up, and I know you want to listen to it, and quite honestly we wouldn't mind hearing it ourselves.

Going into the six items I mentioned, on a somewhat simplified basis, we experienced first a $400,000 non-cash mark-to-market loss associated with FAS 133. As you may recall, consistent with past practice, that was not included in our guidance, as we do not forecast future commodity prices at the end of the succeeding quarter. Second, we took a $3.7 million compensation expense charge at December 31, 2004, associated with the probability that we will achieve an annualized distribution level of $2.50 per unit sometime during 2005.

The achievement of that distribution level will cause performance-related equity grants under our long-term incentive plan to vest. This item was not included in the tabular guidance we provided on November 3rd, since we had not made the determination regarding probability, but if you look, we did disclose it in our assumptions in the 8-K that if the probability standard were met, the charge would be very close to this amount.

Third, we experienced a net loss of 500,000 related to foreign exchange, which was really comprised of two related items. The first is a $2 million non-cash loss from inventory evaluation adjustment on a portion of our LPG inventory. This was included in our guidance and represents the anticipated partial reversal of a non-cash third quarter gain that we excluded from EBITDA previously.

The second item within that category was a 1.5 million non-cash gain from foreign currency translation, and that gain is indeed similar to the gain realized in the third quarter that I just mentioned. The gain results really from the strengthening of the Canadian dollar versus the U.S. dollar above and beyond the FX rate that we applied at the end of the third quarter period when we did our projections, and it really relates to the fact that our Canadian subsidiary, which conducts its business using the Canadian dollar as its functional currency, and these are U.S. dollar denominated, so it causes a write-up that then is translated into our write-down when we sell it.

I will say that during 2005, we intend to significantly reduce these fluctuations with respect to inventory by conducting this business in a subsidiary that has a U.S. dollar functional currency, so it's a chatter that we think we can eliminate going forward.

Fourth item, just a note, during the fourth quarter is we made an approximate $13 million adjustment to our PP&E accounts to capitalize those capital leases obligations previously accounted for as operating leases.

This change did not impact net income and represented really only a seven-tenths of 1% adjustment to our property and equipment account, but I mentioned it because it did impact our non-GAAP measure of EBITDA as approximately 4.7 million of expenses were shifted from operating expense to DD&A, which of course we add back to come up with EBITDA.

Fifth, we incurred a $2 million non-cash asset impairment charge associated with taking several of our pipelines in the Illinois basin out of service. These were underutilized pipelines that really did not support spending the capital necessary to keep them in service. We were able to shift the majority of the gathering and transport activities to our trucks, and as a result we were able to maintain most of the margin.

Finally, in late December, we experienced a pipeline release in west Texas, which resulted in an aggregate charge of about 1.7 million. Obviously, this was not included in our fourth quarter guidance. The net impact of all these items is an approximate $3.6 million reduction to EBITDA and an approximate $8.3 million reduction to net income. Accordingly, if you exclude these items, EBITDA would have been 64.2 million and net income would have been 33 million, or about $0.44 per unit, which are near the middle of the range of the forecasted guidance.

Including the adverse impact of the $1.7 million expense associated with the pipeline release, which was clearly an unusual event, but admittedly it was nonetheless an operating item, we came in at the lower end of the guidance range, including the spill. And as I assess the overall performance of the fourth quarter, volumes and margins were generally right on target with our guidance, and I would characterize the quarterly results as a very solid fundamental performance, matched somewhat by the pipeline release and the noise of the accounting items that we just discussed.

As we looked back over the prior year -- this is our year-end conference call -- we believe 2004 was the most productive year in the history of the partnership. Excluding selected items impacting comparability from both 2004 and 2003, adjusted EBITDA, adjusted net income, and adjusted net income per basic unit increased by 46%, 53% and 27%, respectively.

At the beginning of 2004, we shared with you four specific goals for the year. These goals were to, one, deliver operating financial performance in line with our guidance, two, improve our credit rating and preserve the strength of our balance sheet and credit profile. Three was to position the partnership for continued growth by executing organic expansion projects and pursuing our target of averaging $200 to $300 million per year of accretive and strategic acquisitions, and fourth and finally was to increase our distribution to unit-holders by approximately 5%.

We are pleased to report that we not only exceeded each of these goals, but we did so while simultaneously closing and integrating the second-largest and most complex acquisition in our history. The partnership met these challenges and entered 2005 positioned to continue its multiyear track record of improving its operating and financial results and growing its distribution to unit-holders.

I want to take a few moments to highlight what I believe are eight of the more notable accomplishments achieved by the partnership in 2004. The first item is that our operating results for 2004 exceeded the operating financial guidance that we provided at the beginning of the year. Excluding the selected items impacting comparability, our overall EBITDA exceeded our original guidance by approximately 28%. If you exclude from that calculation the estimated impact of acquisitions that were not included in the original guidance, so we get an apples and apples comparison, our 2004 adjusted EBITDA still surpassed our original guidance by approximately 10%.

The second item is that we completed five acquisitions, totaling approximately $550 million. The most notable of these acquisitions is the $332 million Link acquisition, which is the second largest in the partnership's history. Rivaling the Link acquisition in terms of strategic importance is the $159 million Capline acquisition. In addition to being an accretive acquisition in its own right, the Capline acquisition was also very strategic in that it provides a hedge against onshore depletion and serves as a critical component of our foreign crude oil market activities.

The third item is that we successfully integrated all acquisitions on or ahead of schedule, most notably the Link acquisition, which was the most difficult integration challenge since our acquisition of Scurlock Permian in 1999.

With regard to organic growth projects, we successfully completed the phase four expansion of the Cushing Terminal and initiated two material of new projects.

The fifth item is we continued to execute our financial growth strategy. Very specifically, during 2004, we achieved a credit rating upgrade from Moody's, which provided us with an investment-grade rating at both agencies; all that at the same time while managing through a variety of rating agency concerns regarding the uncertainties of the PLX, Vulcan, Leucadia transaction. Significant acquisition activities and a routine, but nonetheless very thorough, SEC review.

We successfully syndicated $750 million of unsecured credit facility and renewed and doubled the size of our secured credit hedged inventory facility and we accessed on attractive terms both the debt and equity markets - capital markets. As a result of these financing activities, we significantly reduced our incremental borrowing cost, extended our average maturities, reduced our exposure to rising interest rates, expanded our flexibility, maintained excellent liquidity and strengthened the partnership's overall capital structure. As a result, we entered 2005 in a favorable position relative to each of the metrics in our targeted credit profile.

The sixth item is that we increased the annual distribution to our unit-holders by 8.9%, as we went from $2.25 per unit on an annualized basis for the February 2004 distribution to $2.45 per unit on an annualized basis for the February 2005 distribution. On a calendar year basis, we've paid out approximately $2.30 per unit in distributions during 2004, which was an increase of 5% over the approximately $2.19 per unit that we paid out in 2003.

Primarily as a result of those returns and just overall strong performance, the seventh item is that we generated a total annual return to our unit-holders for 2004 of approximately 25%. This is notable in that it marks the fifth consecutive year that PAA's total return has outperformed the S&P 500 index and the Dow Jones Industrials index. Additionally, PAA's total return has exceeded the large-cap pipeline MLP index for four out of the last five years and was in line with the index in the fifth year.

The eighth item is that in the midst of all these foregoing activities, we devoted substantial internal and external resources to preparing for Sarbanes-Oxley 404 certification on internal controls and complying with the increased regulatory requirements in the areas of pipeline integrity and aboveground storage tanks.

Additionally, we successfully managed through an in-depth SEC review of our public filings. Given the nature of these activities, the outcome in all of these areas is consistent with what unit-holders should expect and demand. However, what is notable is that these activities consumed a significant amount of financial and human resources during an otherwise extremely busy year, and for that I want to express our appreciation to all of the Plains All American employees for their patience and perseverance amidst all the other demands placed on their time during 2004.

In summary, the partnership achieved all of its stated goals for 2004, and much more. Perhaps more importantly, as we'll discuss during the remainder of the call, we're optimistic that 2005 will be another active and productive year for the partnership. The remainder of today's call will be divided into four primary topics. First, we'll review -- briefly touch on the fourth quarter operating results and provide you a status report on our expansion and organic growth projects, as well as recent acquisition activity.

Second, we'll discuss our capitalization and liquidity. Third, we'll update our financial and operational guidance for 2005, including specific guidance for the first quarter of 2005, and then lastly we'll wrap up by giving you a status report on one of our strategic initiatives and sharing with you our goals for 2005.

For those listeners that are unfamiliar with our conference call procedures, we will have a question and answer period following our prepared remarks, and a complete written transcript of the prepared comments will be posted on our Web site shortly after the completion of this call.

I'll now turn the call over to Harry to give you an operational update.

Thanks, Greg. During my part of the call, I am going to provide a brief review of performance drivers and market conditions that affected our fourth quarter performance. I will also update you on our recent acquisition activities and on the major projects in our capital program. Let me begin by pointing out that our strong performance in the fourth quarter of 2004 versus the fourth quarter of 2003 was due to the significant acquisitions we completed in 2004.

These acquisitions include the Link system, the Capline, Capwood and Cal Ven pipelines, and the Schaefferstown propane storage facility. My comments regarding the fourth quarter performance will be as compared to our guidance.

In our Pipeline segment, our volumes for the quarter were slightly ahead of the guidance at just over 1.6 million barrels per day. Excluding the LTIP charge, segment profit was on the low end of guidance at $42.1 million, or approximately 28 cents per barrel, and that was due to the $1.7 million charge for the pipeline release in west Texas.

Actual volumes on some of our major pipelines include 51,000 barrels a day on our All American Pipeline System, 234,000 barrels a day on our share of the Basin Pipeline System, 145,000 barrels per day on our share of the Capline System and 73,000 barrels a day on the Manito Pipeline System in Canada.

I should note that volumes on the Basin system were lower than guidance due to contango storage opportunities existing in west Texas during the quarter. The 2005 guidance Phil will walk you through in a few minutes incorporates volumes on the All American system of approximately 54,000 barrels per day. This is relatively flat versus 2004 and it assumes that successful Rocky Point drilling by PXP will, in the aggregate, offset natural production declines in OCS volumes.

Volumes on the Capline system are forecasted to be 140,000 barrels a day and volumes on the Basin system are forecasted to be 270,000 barrels per day. Also, Phil's first quarter guidance includes the negative impact of approximately $1.4 million of expenses related to a crude oil release that we experienced in east Texas during January. I'll note that this is unrelated to the fourth quarter pipeline release in west Texas.

In our Gathering, Marketing, Terminaling and Storage segment, volumes were in line with expectation of approximately 702,000 barrels per day. Excluding the selected items impacting comparability, our Gathering, Marketing, Terminaling and Storage segment profit for the fourth quarter was approximately $25.2 million, or approximately $0.39 per barrel, which was slightly above the guidance range. Segment profit in the quarter benefited from the reclassification of certain lease obligations that Greg referred to earlier, but this was partially offset by lower than expected LPG sales.

The warmer weather in December pushed some LPG sales into the first quarter of 2005, which has been incorporated into our 2005 guidance. Our 2005 guidance also incorporates crude oil lease gathering volumes of approximately 640,000 barrels per day and LPG volumes of approximately 50,000 barrels per day. I'll point out that maintenance capital expenditures for 2004 came in below our original expectations, which included the Link assets for the year, as approximately $5.5 million of projects were shifted over into 2005.

We do have several expansion capital projects in progress and I'd like to briefly review them with you.

In April 2004, we announced a pipeline construction and transportation agreement with Coffeyville Resources and Refining, in which PAA will construct and operate a 100-mile, 16-inch pipeline that will transport crude oil from Cushing, Oklahoma to Broome, Kansas. We expect this project to begin generating revenue during March of 2005. Total costs for this project should approximate $45 million. I would also point out that in connection with this project, we also entered into a long-term terminaling arrangement at Cushing..

In October, we began an expansion of the Trenton Pipeline System in the Rocky Mountain region. We acquired the Trenton system in the Link transaction. PAA will construct and operate approximately 32 miles of 8-inch mainline and 70 miles of 6-inch and 4-inch gathering pipelines that will connect to over 75 leases to our existing pipeline and gathering system.

We estimate that this project will add approximately 15,000 to 20,000 bpd of crude oil to our pipeline system. And in exchange for the capital commitment, PAA has received long-term reserve dedications from producers whose leases are being connected. We continue to expect the pipelines to be operational during the second half of 2005 and the total cost of this project is approximately $28 to $30 million.

Earlier this month, we announced the start of the Phase V expansion of our Cushing Terminal, which involves the construction of approximately 1.1 million barrels of additional tankage. This project is supported by the overall growth of our business, including the long-term terminaling arrangement entered into in connection with the construction of the Cushing to Broome pipeline system.

The Phase V expansion project will expand the total capacity of the facility to approximately 7.4 million barrels and is expected to cost about $13 million. The project is proceeding as planned and we currently estimate the project will be operational during the fourth quarter of 2005.

In April 2005, we expect to begin construction of a fractionator in Northwest Alberta that complements some of our existing assets in that area. Once completed, this facility will have the ability to process about 4,000 barrels a day of natural gas liquids. The facility will also contain about 14,000 barrels of storage capacity. We expect this facility will be operational in late 2005 and will be a total cost of right at $18 million.

Since our last conference call, we've also made a few acquisitions: the Claremont Rail Terminal in New Hampshire; the Joarcam Pipeline System in Alberta; and several small pipeline systems in south Louisiana from Shell. The Claremont Rail Terminal was acquired in December 2004 and has the capacity to store 70,000 barrels of LPGs. The Joarcam Pipeline System was acquired in January and is a 36 mile system in Alberta that has the capacity to deliver approximately 7,500 barrels a day of crude oil into the Enbridge system at Edmonton.

The Shell pipelines were acquired in January 2005 and include several small systems that transport about 20,000 barrels a day. These assets are complementary to our existing assets in south Louisiana. The total purchase price was $12 million. And we also expect to spend an additional $8 million in 2005 to make modifications and improvements to these acquired assets.

While it has been discussed in prior conference calls, I want to reiterate that our 2005 capital plan includes a fair amount of capital associated with acquisitions that we made in 2003 and 2004. Specifically, these expenditures include approximately $18 million associated with the Link acquisition and about $6 million associated with the El Paso and BP acquisitions that we completed in 2003.

As we have indicated previously, a fair amount of this capital was deemed necessary to bring the acquired assets up to industry standards or to make modifications in order to integrate them into Plains All American's operations. I should point out that these expenditures were contemplated at the time of the acquisitions and they were factored into our original economics.

Finally, before I turn the call over to Phil, I want to share with you our market outlook that we have incorporated into our 2005 operating and financial guidance. Overall market conditions in 2004 were strong for our business model as crude oil markets experienced significant volatility.

The price of crude oil varied by $23.45 per barrel during the year. That was with a high of $55.65 per barrel and a low of $32.20 per barrel. The average for the year was right at $41.29. The market shifted between backwardation and contango several times throughout the year.

Additionally, price differentials between grades were wider than normal for most of the year. As we enter 2005, we are cautiously optimistic that market conditions will continue to be favorable to our business model. Our 2005 guidance has been developed assuming favorable market conditions, although not quite as favorable as 2004 market conditions.

We are forecasting crude oil prices to remain somewhat high relative to historical levels with an average NYMEX WTI price of $40, which is about $6 per barrel less than the $46 average price experienced during the second half of 2004. With that, I will turn the call over to Phil.

Thanks Harry. During my part of the call, I'm going to review our capitalization and liquidity at the end of the year. Additionally, I'm going to walk through our updated financial guidance for 2005, including our guidance for the first quarter.

Before I begin, let me remind you that we are in the process of finalizing our 2004 Form 10-K and we expect to file it within the next week or so. The financial information regarding 2004 should be considered preliminary until such time as we receive our financial audit and internal control audit report from PricewaterhouseCoopers and actually file our Form 10-K for the year ended December 31 of 2004.

At the end of last year, PAA had long-term debt outstanding of approximately $949 million, book equity of approximately $1.1 billion and a long-term debt to cap ratio of approximately 47%. Excluding the impact of selected items impacting comparability, our adjusted EBITDA to Interest coverage ratio for the fourth quarter was approximately 4.6 times and, on that same basis, our long-term debt to fourth quarter annualized EBITDA was approximately 3.5 times.

As Greg mentioned earlier in the call, during 2004, we took several steps to strengthen our capital structure and reduce our exposure to rising interest rates. As a result, as of year end, our outstanding long-term debt had an average life of approximately 8 years and a fixed to floating ratio of 85% fixed and 15% floating.

And also, during the fourth quarter, we made several changes to our bank credit facilities. In November, we closed a new, $750 million, five-year senior credit facility, which contains a dual currency sub-facility for Canadian borrowings of up to $300 million. The new facility extends our maturities, lowers our all-in cost of credit and provides an additional $125 million of liquidity over our previous facility. The facility is also designed to accommodate additional growth as it contains a $250 million accordion feature that allows us to increase it to $1 billion.

We also renewed and increased the capacity of our uncommitted contango facility to $425 million. As you may know, the contango facility is used to finance the purchase of hedged crude oil inventory for storage when market conditions warrant. This expansion was driven by three principal factors.

First, our tank capacity has increased as a result of recent acquisitions and our ongoing expansion at Cushing. Second, the absolute price level of a barrel of crude oil has increased. And thirdly, the last factor is our entry into the foreign crude oil markets and the anticipated expansion of that activity. This facility can be further expanded to $500 million if conditions warrant.

As a result of our 2004 financial growth activities that Greg recapped earlier, the partnership entered 2005 well positioned for future growth. Our balance sheet is strong and flexible and we have significant liquidity. Our credit ratings are investment grade at BAA3 and BBB- and our outlook at each agency is stable.

Our credit momentum continues to be positive as the amount of open credit continues to increase with our primary counter parties. In 2005, we will continue to be disciplined about financing our growth and we will adhere to the metrics in our target credit profile.

While I believe you will find our overall capital structure and credit metrics to be very strong and favorably positioned at or near the top of the ranks of the large cap pipeline MLPs, there is an additional favorable aspect of our credit profile that is sometimes overlooked.

Our $949 million of long-term debt at December 31, 2004 is more than amply supported by our projected EBITDA midpoint of $280 million and underpinned by a $1.7 billion net book value of fixed assets comprised of pipelines, terminals, land and rolling stock.

However, in addition to those fixed assets, PAA also owns a substantial amount of crude oil and LPG linefill and long-term inventory associated with minimum linefill requirements in our operated and non-operated pipelines and terminals that is reported under other long-term assets in our balance sheet.

Specifically, at December 31, we owned an aggregate of 7.6 million barrels of crude oil and LPG that were included in other long-term assets. These are very liquid assets that have a weighted average book value at year-end of $227 million, or just under $30 per barrel. Moreover, the market value as of the end of the year was approximately $300 million. Those amounts equate to approximately 24% and 32% of our outstanding long-term debt, respectively.

Before moving on to guidance for 2005, I want to recap our total capital spending for 2004. In total, we spent $680 million. As Greg mentioned earlier, approximately $550 million of that was for acquisitions. Of the remainder, approximately $117 million was for expansion capital, $11 million was for maintenance capital and $2 million was for linefill purchases.

The vast majority of expansion capital was for the Link and Capline acquisitions as well as our major capital projects, such as the Cushing Terminal Phase IV expansion, the Cushing to Broome pipeline and the Trenton Pipeline expansion.

As Harry previously noted, due to some shifting of work into this year, 2005, maintenance capital came in below our original estimate for 2004. And then, as Greg mentioned earlier, we made an adjustment to our property account at the end of the year to capitalize approximately $13 million of obligations previously accounted for as operating leases. The net impact of this to net income on the income statement was zero.

Let me now shift to a discussion of the partnership's guidance for 2005. This guidance is based on the current state of and our outlook for, the market, reasonable expectations of volumes and expense levels, as well as our judgments and assumptions about the potential associated with our business development activities where the outcome is less than certain at this point, including estimated contributions from some recent acquisitions.

As we did last year at this time, we would also caution you that there is a higher degree of variability associated with forecasting performance for the first quarter and fourth quarters of each year due to the impact that weather can have on our seasonal LPG business. We would guide you to an EBITDA range for 2005 of 272 million to 288 million. The midpoint of 280 million represents an increase of approximately 11% above our 2004 EBITDA excluding the selected items impacting comparability.

We expect segment profit for the year to be between 282 million and 298 million, with approximately 60% to 65% of that coming from our pipeline segment and the remaining 35 to 40% coming from our gathering, marketing, terminaling and storage segment.

We expect G&A for 2005 to be in the range of $78 million to $80 million. I should point out that we have included in that range approximately 3.2 million for Sarbanes-Oxley compliance costs, and that compares to approximately 4.5 to 5 million of Sarbanes-Oxley costs during 2004.

Annual depreciation and amortization expense is expected to range from $74 million to $76 million. Interest expense is expected to range from 60 million to 61 million and it's based on a weighted average debt balance for 2005 of approximately $1 billion and a weighted average interest rate of approximately 6.1%.

The weighted average interest rate includes our fixed-rate debt, revolver commitment fees, amortization of long-term debt premiums and discounts, and deferred amounts associated with terminated interest rate hedges. Approximately 1.6 million of 2005's projected interest expense is expected to be non-cash as it relates to the amortization of deferred amounts associated with terminated interest rate hedges. Based on these estimates, we forecast net income of $135 million to $154 million for the year, and that equates to $1.76 to $2.03 per diluted unit.

You should note that while total net income for the partnership is not impacted by a change in our annualized cash distribution level, the relative allocation of net income between the limited partners and the general partner, and therefore the net income per unit to the limited partners is impacted by such a change. For as long as the partnership is in the 25% incentive split level, a $0.05 increase in annualized distribution per unit roughly equates to a $0.02 annualized decrease in net income per LP unit.

We currently expect to spend approximately 119 million in capital during 2005. Of that amount, approximately 100 million will be expansion capital and 19 million will be maintenance capital. Approximately $18 million of the expansion capital is related to the Link assets. Other major projects include the Trenton pipeline expansion projects for approximately 16 million, the Cushing Phase V expansion for approximately 13 million, the Cal Ven fractionator project for approximately 16 million, and the upgrade to the Shell South Louisiana assets for approximately $8 million.

In addition to these capital expenditures, we currently anticipate that we'll add approximately 500,000 barrels of crude oil linefill throughout 2005 at market prices. Based on our current guidance and our current distribution level, we would expect to end 2005 with very strong credit metrics.

For the first quarter of 2005, we would guide you to an EBITDA range of 66 million to 73 million, that equates to a midpoint of $69.5 million. This range is based on estimated segment profit of approximately $69 million to $76 million. We also estimate that first quarter G&A should come in at approximately $21.1 million to $21.7 million.

For interest expense purposes, we anticipate average debt balances of approximately $1 billion during the quarter, resulting in interest expense of 13.9 to 14.3 million using a weighted average interest rate of approximately 5.7, which again includes our fixed-rate debt, revolver commitment fees, amortization of long-term debt premiums and discounts and deferred amounts associated with terminated interest rate hedges.

Approximately 400,000 of the first quarter projected interest expense will be non-cash as it relates to the amortization of deferred amounts associated with the terminated interest rate hedges previously mentioned in the discussion of the year. Finally, we estimate depreciation and amortization to be approximately 17.8 to 18.3 million. And then based on these estimates, we'll forecast net income of 33.4 to 41.3 million and that equates to approximately $0.44 to $0.55 per diluted unit. The guidance that I just provided does not include the impact of any financial or accounting items that impact the comparability of results between periods such as SFAS 133, but does include our estimate of costs associated with the pipeline releases that Harry mentioned earlier. In the 8-K filed this morning, we detailed two such potential items.

The first item deals with our long-term incentive plan. The majority of phantom unit grants outstanding under our 1998 and 2005 long-term incentive plans contain vesting criteria that are based on a combination of performance benchmarks and service period, which are more generally detailed in the 8-K that we filed.

Based upon a six-year service period, we project an accrual for 2005 of approximately $10.4 million, with 2.8 million being in the first quarter. I will tell you that we have forecast 2005's accrual based on straight-line amortization without providing a probability assessment of any certain distribution thresholds. The effect of that would be to accelerate vesting and therefore could increase the charge within certain of the early years within that period.

The second item relates to foreign exchange. As Greg discussed earlier, we anticipate that a portion of the third and fourth quarter foreign currency translation gains will reverse in the first quarter. We estimate that the reversal will range from $2 million to $2.5 million. I would caution that this item is dependent upon actual exchange rates, so it can vary relative to our estimate.

Finally, again, consistent with past practice, we do not attempt to forecast any potential impact related to SFAS 133, again, as we have no way to control or forecast commodity prices on the last day of each quarterly period. Accordingly, the guidance I provided for 2005, including the first quarter, excludes any potential gains or losses associated with this accounting statement as well as other minor items that I went through that affect comparability between periods. Again, for more detail on the projections, I would refer you to the 8-K that we filed this morning.

One last item to which I want to call your attention is the result of our January 20, 2005 unit-holder meeting. At the meeting, our unit-holders approved the conversion of our Class B and Class C common units into common units. There was no change in the aggregate number of units outstanding as a result of the vote.

The Class B and Class C units have either been converted or are in the process of being converted and an equal number of new common units are being issued. The Class B and C units were already participating in cash distributions on a pari passu basis with the common units, so there is no dilution in cash distributions caused by the conversion of these units.

And finally, before I turn it back to Greg, I'd like to alert you to something that I know is important to all of you. We will begin mailing our K-1s to our unit-holders on or around the first of March. Unit-holders will also be able to access their K-1s online by going to our home page at www.paalp.com.

This year, for the first time, our unit-holders will also be able to access their T-5013 Canadian reporting forms online as well. To access the K-1s and the T-5013s, click on the red K-1 button located on the left hand side of our home page below our logo and that will take you to the Tax Web site where you can access your account. With that, I'll now turn the call back over to Greg.

Thanks, Phil and we're now in the home stretch. Without a doubt, 2004 was an exceptional year for Plains All American. We have powage (ph) for 2005 as well. But before I move on to discuss our 2005 goals I want to spend a few minutes highlighting the strategic initiatives that we've been pursuing at the partnership.

Since our initial public offering our asset base has grown by over 400 percent and we now have a presence in almost every major crude oil producing region and many of the primary transportation corridors of the United States and Canada. This asset base has been intentionally configured to benefit from long term trends of the crude oil industry. One of those trends is the continued decline of U.S. crude oil production and the related increase in imports of foreign crude oil.

Our Cushing terminal has always been well positioned relative to imports. To complement this position in 2000 we expanded our efforts to benefit from this trend. The primary sources for incremental foreign barrels into the U.S. are Canada and imports received along the Gulf Coast. Of course as you know, in 2001, we established a meaningful position in the Canadian market and we've continued to grow our business in Canada.

As a result of our initial investment in Canada and several follow-up acquisitions and expansions we now operate a suite of pipeline assets that aggregate and transport crude oil bound for the U.S. market. Moreover we continue to evaluate ways to expand our presence in Canada and enhance our ability to capture profits derived from the market conditions that we believe those imports will influence.

The more dynamic area for foreign imports is the Gulf Coast which offers several locations for the delivery of water borne cargoes transported via tanker and provides access to numerous sources and varieties of crude oil -- excuse me, of foreign crude oil.

In 2003, we determined that the next logical step in our efforts to provide supply alternatives to our refinery customers was to build a meaningful asset position that enabled us to receive foreign crude via the Gulf Coast and we established it as a strategic initiative.

In addition, we believe it also provides an excellent hedge against domestic depletion. The assets that we acquired from El Paso in mid-2003 provided us with tankage along the Gulf Coast that supports our ability to deliver foreign crude oil to refiners in the Gulf Coast area or to refiners that access crude oil through our Cushing Terminal.

As a result of our March 2004 acquisition of Shell's interest in the Capline Pipeline System, we position ourselves to be able to supply our refinery customers in the eastern half of path two with foreign crude oil sourced through the Gulf Coast. And then in April 2004, we acquire Link Energy's assets, which include approximately 3 million barrels of tankage in the Mobile Bay area. These Mobile Bay facilities fit perfectly with our foreign crude oil initiative and complement our existing asset base as they are capable of receiving tanker loads of foreign crude oil and can deliver into the Capline system or to local refiners that source crude oil from the Mobile Bay terminal.

In order to further implement this strategic initiative, we have also added additional human resources to augment the experience already possessed by certain members of our management team, and as Phil discussed earlier, expanded and modified our credit facilities to accommodate these activities.

The results of our efforts to-date have been promising. Although a relative newcomer to this market, PAA has been embraced as a viable participant in this arena. In 2004, we purchased approximately 13,500 barrels per day of foreign crude oil sourced through our Gulf Coast assets. We intend to continue building out our foreign crude oil capabilities by acquiring and/or building strategically located Gulf Coast crude oil infrastructure assets including a terminal at St. James, Louisiana where Capline originates as well as expanding our global network of industry relationships.

In sum, we are very pleased with our current position and with respect to this strategic initiative as it provides new organic growth opportunities while simultaneously serving as a hedge against domestic onshore production declines. We believe we can at a minimum sustain our current activity level and are optimistic that the expansion opportunities we've seen in this area as well.

Let me now shift gears and focus solely on 2005. As has become our custom each year in our year end conference call we share with you are goals for the coming year. As opposed to the strategic initiative discussed a moment ago, these goals are more of the tactical variety and motivate us in our everyday actions. As those of you who have been following us for awhile know, we are a management team that believes in fundamentals and we are focused in on the long-term value creation for our stakeholders. Therefore our annual goals are relatively consistent from year to year and generally represent the next steps in the growth of our partnership.

With that introduction specifically our goals for 2004 are to:

1. Deliver operating financial performance in line with guidance.

2. To optimize our field operations to eliminate inefficiencies and improve our ability to service our customers and therefore our competitive position.

3. Is to position the partnership for continued growth by executing our organic expansion projects and pursuing our target of averaging $200-$300 million per year of accretive and strategic acquisition; and then

4. Is to increase our distribution to unit-holders for 2005 by 5 to 7% without regard to future acquisitions.

To be sure we will also be pursuing the strategic initiative I just discussed as well as focusing on maintaining the strength of our balance sheet and our credit rating. I should note that in the past we've set our distribution growth targets on a February to February basis as the February distribution payment represents available cash generated from the fourth quarter period.

However, we've observed that most of the research analysts tend to track MLPs distribution rates as of year end which are represented by the November distribution payments. Based on that industry practice, we are changing our methodology to track our distribution growth targets on a November to November basis. Since our November 2004 annualized distribution was $2.40 per unit our target distribution growth of 5% to 7% implies that our November 2005 annualized distribution should be somewhere in the range of $2.52 to $2.57 per unit if we are successful in achieving our target.

We believe that all of these goals are achievable and we pledge to do our best to deliver these results to our unit-holders. Although every year brings its own set of unforeseen challenges we have confidence in our ability to overcome these obstacles and not only to survive but to thrive.

We'd like to thank you all for your continued support of the partnership during 2004 and we look forward to updating you on our progress throughout the year. On behalf of the management team I want to publicly thank all of our employees for their sacrifices, contributions and accomplishments during 2004.

That wraps up the items on our agenda and we'd like to thank all of you for your participation in today's call. For those who've joined us late a complete written transcript of the prepared comments for this call will be posted on our Web site at www.paalp.com very shortly after the completion of this call.

Jackie, at this time we would like to open the call up for questions.

Thank you. The floor is now open for questions. If you do have a question, please press star one on your touchtone telephone. If at any point your question has been answered you may remove yourself from the queue by using the pound key. We do ask that if your on a speaker phone, please pickup your handset to provide optimum sound quality. Once again for any questions at this time please press star one on your touchtone telephone. Please hold as we poll for questions. Once again if you do have a question at this time you may press star then one on your touchtone telephone. Your first question is coming from Amir Arif of Friedman Billings.

Good morning guys. A couple of quick questions for you. One in terms of your expansion of your crude oil storage assets where we still have a significant backwardation in the crude oil market and I was curious what is your generalization rate of your existing storage assets out there? And just your thought process in terms of growth of your storage assets going forward?

You know, Amir, good question. The market structure is clearly one that has been evolving over the last several years. While certainly the long term trend for storage right now is in fact in backwardation as you look out many months. If you look at the first couple of months, you'll actually see it's in contango in the front part of the curve. You know even without that we have a lot of uses for our crude oil storage facilities that we'll use to service our customers and we also have many, many tools as we've grown the scale and scope of the partnership that we have to use in various markets.

So as Perry mentioned earlier, we've entered into some terminal agreements. We've built some pipelines out of Cushing so we have a need for just more physical assets there to be able to support the volume that we see coming. But we also have a lot of opportunities in the current market because it is in contango in the front part of that. And I will tell you that our tanks - let's put it this way. If I go to our commercial guys and try and free up any of the tanks for other activities we'd have a fist fight because they really like using them at this point in time. So you know I'd say utilization is very high right now.

And the second question is in terms of your initiative to build more of your foreign crude oil market activities which is focused more on the Canadian side or more on the Gulf Coast side? I know you've been doing activities on both sides?

Well I think the message that we were willing to convey today is we certainly have been focused for the last several years on the Canadian .You know we're never totally satisfied where we're at and we're always trying to get better but I would say that the Canadian part at this point in time is a little bit on autopilot and subject to individual asset opportunities we may see until more of these projects in Canada get more fully developed.

I think our primary focus right now is in the Gulf Coast area. And what we've been able to do over the last really two to two and a half years is to acquire and knit together a complex of assets that give us the ability to actually take it all the way from the freighters into our facilities and put it throughout our distribution system right now. And so we're anxious to continue to build upon that. You know we shared with you that last year we did an average of about 13,500 barrels a day of foreign crude. That's just coming in from the Gulf Coast area and again we feel good that we can at least sustain that number on a go forward basis. And but quite honestly, we think we can build upon it rather significantly as well.

Sounds great. Thanks, guys.

Thank you, Amir.

Thank you. Your next question is from Ross Payne of Wachovia Securities.

How you doing, guys. Just one quick question. Can you speak to what kind of insurance you guys have for potential spills and is this just the deductible and that kind of thing?

You talking about on the pipeline releases. Our deductibles are generally in the million, little over area. As we've gotten larger one of the things we've had to do is increase our retention, especially after 9/11. The insurance companies re-priced most of their services across the board, not really just related to terrorism. And so we have about $1 million deductible. But there are some costs that are in the cleanup and re-vegetation that aren't always covered by the policies. So, you know, last year I will tell you in total we spent on leaks and spills incurred in 2004 was about 7.6 million. You're going to normally have some costs. But these two spills that happened at the very end of last year and the first part of this year stand out as being notable and so we wanted to bring them to your attention. I would say normally you'd be in the 3 to 5 million range.

Okay very good. And Greg also, if you can just comment. Last year at this time you felt that a lot of MLP's would be a little more focused on organic growth than they have been in the past. Is that still the same going into '05? And just any comments you might have on what the horizon looks like in the acquisition market. Obviously some news coming out this morning. But any comments there would be appreciated.

You're right. We do kind of get on a soap box and kind of talk about where we think the industry's going. I think what you're already seeing over the last l8 months is a significant emphasis on organic growth. Part of that Ross is quite honestly is the scale and scope of the partnerships has increased; I certainly know it's the case for us. Those opportunities start to materialize quicker because you've got the ability to as you put assets together to extract aggregate values that support the expending of capital. And I think that's going to continue to be the case for us.

I think this is the largest year going into the year we've had an organic growth. Part of that simply is we've increased our size. And then part of that is because of the size increase we generate more organic growth. So it's kind of a little bit of a circular issue. I think MLP's because asset valuations have trended up when you're looking at to generate returns on capital and while our costs of capital's gone down both because of interest rates and the favorable equity markets, you're still looking to not only make your costs of capital but exceed the cost of capital and of a return standpoint on top of that. So I think organic growth becomes critical to sometimes making an acquisition so that when you blend those economics together you generate the returns.

So I'd say going forward, I think organic is going to become more important. I think it will be interesting to watch to see how long asset values continue to trade at what appears to be elevated levels in the absence of synergies that somebody brings to the table. But there certainly appears to be a lot of assets on the market. I think we're also seeing some of those assets come to market via IPOs of MLP's. And so whether that actually decreases the overall deal flow for the existing MLPs or not is yet to be determined.

Very good. Thank you, Greg.

Thanks, Ross.

If there are any further questions, please press star one at this time. I'm currently showing no further questions and I would like to hand the floor back over to management for any further comments.

Thanks, Jackie. I suspected as we got closer to the 11:00 hour here that we would have another conference call compete. We thank you for your attendance. We appreciate your support throughout the year and we look forward to updating you on our progress throughout 2005. Thanks, Jackie.

You're welcome. Thank you. This does conclude today's teleconference. You may now disconnect your lines and have a wonderful day.