Plains All American Pipeline LP (PAA) 2005 Q3 法說會逐字稿

Welcome to Plains All American Pipeline's third-quarter 2005 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 believes, estimates, expects, anticipates, etc. 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-K, 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 website at www.PAA.com, in particular, the section entitled Non-GAAP Reconciliation, which presents certain commonly used non-GAAP financial measures such as EBITDA and EBIT, which may be used here today in the prepared remarks or in the Q&A 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. Any reference during today's call to the adjusted EBITDA, adjusted net income, and the like is a reference to the financial measure excluding the effect of selected items impacting comparability.

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, operator, and welcome to everyone. This morning, the Partnership reported another quarter of strong operating and financial results, despite the adverse impacts of Hurricanes Katrina and Rita. These results continued our year-to-date record financial performance, and were primarily driven by solid results from both our pipeline and our gathering, marketing, terminal ling and storage segments.

EBITDA, net income, and net income per LP unit were each above, at or above, the top end of the guidance range that we provided on July 28, despite the negative influences from the hurricanes. Including selected items that impact comparability between periods, this morning we reported third-quarter EBITDA of 104.6 million and net income of 69 million, or roughly $0.79 per diluted limited partner unit, as compared to third-quarter 2004 EBITDA of 71.2 million and net income of 41.7 million, or $0.59 per diluted limited partner unit.

In addition to the estimated impact of Hurricanes Katrina and Rita, three items impacted comparability between the periods. These items included a 6.7 million non-cash compensation expense charge; an approximate 1.6 million loss on foreign currency re-evaluation; and a $6.3 million mark-to-market gain associated with FAS 133. In the aggregate, the three selected items impacting comparability reduced our net income by 2.1 million.

In addition, the application of EITF 03-06 resulted in a reduction to reported net income per diluted limited partner unit of approximately $0.13 per unit, but had no impact on aggregate income or EBITDA, as it is simply an allocation of income between the GP and LP. In the aggregate, the selected item impacting comparability and EITF 03-06 reduced our net income per LP unit by $0.16 per unit for the third quarter.

We believe that the estimated adverse impact of the hurricanes is approximately $5 million. However, given the influences on the crude markets and the fact that Rita occurred very near the end of the quarter, it is very difficult for us to ascribe a precise number to the impact on the third quarter. Accordingly, we have not included any estimate for hurricane-related matters in our estimates of selected items impacting comparability. They are included in the reported numbers.

The selected items impacting comparability increased last year's third-quarter results by a total of 3.6 million. That included a $900,000 FAS 133 gain; a 2.9 million gain on foreign currency revaluation; and a $0.6 million gain on the sale of assets; and a loss on refinancing of debt of about 700,000. Adjusting for those selected items impacted comparability, and again excluding any calculated impact from hurricane, the adjusted EBITDA, net income, and adjusted net income per limited partner unit for the third quarter totaled 106.6 million, 71.1 million, and $0.95 per limited diluted units respectively. These results represent increases of 58%, 86%, and 78%, respectively, over the corresponding metrics for the prior quarter. Overall, this quarter continued our excellent performance for the year.

The remainder of today's call will break into three parts. First, Harry is going to provide an overview of our operations and a status report on our expansion and organic capital growth projects, as well as some recent acquisition activity. He will also provide a few more comments on the impacts of Hurricanes Katrina and Rita. Phil is going to then discuss our capitalization, liquidity, and recent financing transactions. Phil will also provide an overview of financial guidance for the fourth quarter of 2005 and our preliminary guidance for the full year of 2006. Then lastly, I will wrap up with some thoughts on our positioning for the future and a few other closing comments.

We will have a question-and-answer period following the prepared remarks; and a complete written transcript of the prepared comments will be posted on our website at www.PAALP.com shortly after the completion of this call. With that introduction, I will turn the call over to Harry.

Thanks, Greg. Since our last conference call, market conditions have remained favorable for our terminal ling and storage activities and account for a significant portion of our strong performance. Specifically, during the third quarter, the average market structure was a contango of $0.69 a barrel, with a peak of $1.30 contango in the quarter. Although these spreads were lower than the corresponding spreads in the second quarter, they remained extremely high on a historical basis.

Also contributing to the performance was the fact that our margins from our gathering and marketing activities, which are typically weaker in a contango market, have normalized.

For our segment results, I will be comparing our actual result to the guidance that we provided on Form 8-K on July 28, 2005. In our pipeline segment, segment profit excluding the LTIP charge was slightly above our guidance at $49.4 million. Volumes in this segment were approximately 1.8 million barrels per day, and on a per-barrel basis our segment profit was approximately $0.30 per barrel in the third quarter.

Also note a couple of items that need to be taken into consideration when comparing third-quarter 2005 results to third-quarter 2004 results. First, the volume increase included approximately 79,000 barrels per day from our Cushing to Broome pipeline. Second, approximately 31,000 barrels per day from acquisitions. Then thirdly, approximately 63,000 barrels per day from pipelines that were reclassified from our gathering, marketing, terminal ling, and storage segment to our pipeline segment.

However, tariff revenues did not increase proportionally, as we also voluntarily lowered tariffs on several of the legacy Link pipelines, which had the impact of lowering tariff revenues by approximately $3 million on a comparative quarter basis. As we noted in our last quarterly conference call, because we are the primary shipper on many of these pipelines, segment profit in our gathering, marketing, terminal ling, and storage segment increased by a similar amount also on a comparative quarter basis.

Actual volume of some of our major pipelines during the quarter include 51,000 barrels per day on our All American Pipeline System; 290,000 barrels per day on the Basin Pipeline system; 129,000 barrels per day on our share of the Capline Pipeline system; 60,000 barrels a day on the Manito Pipeline system in Canada. The lower volume on the Capline system compared to the guidance is predominantly due to the fact of both hurricanes. Capline was actually shut down for about three days during this period because of a lack of power.

The fourth-quarter guidance that Phil will walk you through in a minutes incorporates volumes of approximately 51,000 barrels a day on the All-American system; 120,000 barrels per day on the Capline system; 280,000 barrels a day on the Basin Pipeline system; and approximately 60,000 barrels a day on the Manito system.

During the quarter, Capline will continue to be negatively impacted by Gulf of Mexico production curtailment and a refinery turnaround. In addition, operating expenses for the fourth quarter and for 2006 are expected to be higher than historical levels due to increasing energy prices.

Segment profit in our gathering, marketing, terminal ling, and storage segment for the third quarter, again excluding selected items impacting comparability, was approximately $57.5 million or roughly 6.1 million higher than the midpoint of our guidance range. On the same basis our segment profit was approximately $0.98 per barrel. Volumes in this segment were approximately 31,000 barrels a day lower than the guidance, at approximately 639,000 barrels per day. We estimate that approximately 6,000 barrels per day of this shortfall for the quarter was due to the hurricanes. In addition, we had approximately 68,000 barrels a day of foreign crude that received into our Gulf Coast facilities during the quarter.

Our fourth-quarter guidance incorporates gathering, marketing, terminal ling, and storage volumes of approximately 665,000 barrels a day at an average segment profit of approximately $0.72 per barrel at the midpoint. The crude oil lease gathering volumes are forecasted to be approximately 595,000 barrels a day, which is down a little bit from the first nine months of this year, as we still expect to have some production curtailments due to the hurricanes.

LPG volumes, which are seasonal, are expected to be approximately 70,000 barrels a day, compared to approximately 50,000 barrels a day in the first nine months of the year.

Our guidance for the fourth quarter of 2005 and for the full year of 2006 incorporates an assumption that market conditions in the fourth quarter will be less favorable than they were in the third quarter, and that market conditions for next year will reflect market conditions that are a little closer to normal.

Lastly, maintenance capital expenditures for the third quarter were approximately $4.2 million. Thus far this year, our maintenance capital expenditures have been slightly below our expectations at the beginning of the year.

During the third quarter, we made solid progress towards completing our organic growth projects for the year, spending approximately $34 million during the quarter. We had some minor delays in the timing of some of our projects, so we now expect to spend about $170 million for the entire year, of which $107 million had been incurred as of September 30.

Although we expect to see service costs and material costs increase on some of our projects, due to the increased demand from the hurricanes, we do not expect the increase to materially impact our 2005 capital projects. We have not finalized our organic growth capital budget for 2006, but it will be a significant amount again, as it will include about $70 million of capital for projects that were started in 2005. In addition, we are optimistic that our expanded asset base will continue to provide additional attractive organic projects.

I’d now like to take a few minutes to briefly review some of the more significant projects with you. The Phase II expansion of the Trenton Pipeline System will add an additional 70 miles of 6-inch and 4-inch gathering lines and 20 miles of a new 10-inch loop to the mainline of the system and the systems in the Rocky Mountains. The gathering system expansion will connect an additional 44 wells to the system and will add about 12 to 15,000 barrels a day of gathered volume. It is expected to be completed in December 2005.

We expect to complete the mainline loop in the first quarter of 2006, which will increase capacity by about 26,000 barrels a day from the current capacity of approximately 24,000 barrels a day. Thus our total will be about 50,000 barrels per day. The project is expected to cost a total of $21.5 million.

Our Phase V expansion of our Cushing Terminal will be operational in November. The expansion added about 1.1 million barrels of tankage to our facility, bringing total storage capacity to approximately 7.4 million barrels. The total cost of this project was about $13 million.

The fractionator we built in Northwest Alberta was recently completed. The facility will have the ability to process about 4,000 barrels a day of natural gas liquids and will also include about 14,000 barrels a day of storage capacity.

In the second quarter, we announced our intent to expand our Kerrobert Terminal in Canada by building 300,000 barrels of new tankage. The total cost of the project is estimated at approximately $9 million, of which approximately $6 million will be spent in 2005. We are also expanding our pumping capacity at Kerrobert. We still anticipate that these tanks will be available for service in the first quarter of 2006. In addition, we expect to add another 300,000 barrels of storage at Kerrobert in 2006 for a similar cost.

Finally, site preparation has begun on our crude oil and terminal ling facility at St. James interchange in Louisiana, and we expect the facility construction to begin in the next month. The facility will be comprised of seven crude oil storage tanks with an aggregate capacity of 3.2 million barrels and is expected to cost approximately $85 million, of which roughly $18 million will be spent in 2005.

We recently executed contracts with the construction and engineering firms, and anticipate the facility to be operational sometime in mid-2007. This is a little later than originally anticipated, as we expect delays related to significant demand on the service companies due to the hurricanes.

On the acquisition front, since our last conference call we closed a small acquisition of the Canadian trucking assets from Flint Hills Resources, and with Vulcan Capital jointly closed the acquisition of natural gas storage facilities from an indirect subsidiary of Sempra Energy. Because we had a conference call relating to the acquisition on August 22, I am only going to quickly recap some highlights of this acquisition.

The Plains/Vulcan Storage, which is owned 50% by PAA and 50% by Vulcan Capital, acquired all the equity of Energy Center Investments -- and I will refer to that as ECI -- which develops and operates underground natural gas storage facilities. ECI’s principal assets consist of the Bluewater Storage facility, which is a 24.5 Bcf operating natural gas storage facility in Michigan; the Pine Prairie Energy Center, a 24 Bcf natural gas storage facility under development in Louisiana; and other similar projects and opportunities under various stages of review and evaluation. The total purchase price, excluding transaction costs, was approximately $250 million; and the transaction closed on September 14.

When we announced the transaction, we estimated that an additional $260 million would be spent over the next several years to develop the Louisiana facility, including approximately $54 million for base operating gas. That would bring the estimated total investment to roughly $510 million, of which Plains will fund its 50% share through Plains/Vulcan joint venture.

We are in the process of reviewing our cost estimates in light of the increased cost of services, materials, and base gas resulting from the hurricanes. We think it will be a few weeks before we have updated cost information, but at this time we would not be surprised to see the overall development costs increase by about 10% over the current estimate of $260 million.

The Bluewater facility will be the only facility generating revenue in 2006. We expect this facility to produce about $14 million of EBITDA in 2006. The Pine Prairie facility will have some construction-related overhead in 2006, but will not start generating revenue until 2007. By 2010, the first full year of operations for Pine Prairie, we expect the assets to generate between 70 and $75 million of EBITDA.

With respect to the integration of ECI, we will be moving the headquarters to Houston in the first quarter of 2006, and we expect to have the transition completed by that time. We were also pleased to report that we were successful in retaining over 75% of ECI’s workforce, including field personnel. We are excited to add these capable and experienced members to our team and believe that they will play an important role in helping to manage our existing facilities and grow this business line.

I’d also like to reiterate that while the Partnership currently holds a 50% ownership interest in Plains/Vulcan, PAA has the right to invest a disproportionate amount of the capital on future growth opportunities within PAA/Vulcan, until the total equity invested by PAA and Vulcan is 70% and 30%, respectively.

We believe this acquisition will serve as a platform for future growth in this line of business. This opportunity expands the scale and scope of our operations, and we believe it will be favorable for our business profile and credit rating objectives. For more details on the assets, strategic rationale, and financial implications of the acquisition, please reference our conference call script on August 22, which is posted on our website.

Before I conclude my portion of the call, I want to provide a few additional comments on the impact of the recent hurricanes on our assets and our operations. As we mentioned in a press release on August 31, our most significant damage from Hurricane Katrina occurred at our Mobile Bay facility. Construction to rebuild our ship-docking facility at this location is underway, and it is expected to be completed in the fourth quarter. Since barge facilities at this location were not damaged, we were able to conduct some business by offloading barged crude oil into the storage facility. We expect the majority of the repair costs to be covered through our insurance policy.

Although Hurricane Rita caused more widespread disruption and flooding at our Western Louisiana and East Texas facilities than Hurricane Katrina, the damage did not have a significant impact on our revenue-generating capacity. Like Hurricane Katrina, we believe that most of the physical damage caused by Hurricane Rita will be covered by our insurance.

Finally, I can’t say thank you enough to our employees, who worked tirelessly throughout both of these storms to help restore our facilities and to assist their colleagues that bore the brunt of these hurricanes. Their efforts are very much appreciated. With that, I will turn the call over to Phil.

Thanks, Harry, and good morning. I am going to review our capitalization and liquidity at the end of the third quarter and discuss our recent equity financing activities. In addition, I will walk you through our updated financial guidance for the fourth quarter and give preliminary guidance for next year.

At September 30, PAA had long-term debt outstanding of approximately $952 million; book equity of $1.3 billion; and a long-term debt-to-total cap ratio of approximately 42%. Adjusting for the impact of selected items impacting comparability, our adjusted EBITDA to interest coverage ratio for the third quarter was approximately 6.8 times. This excludes interest of $7.2 million on contango-related borrowings that is reflected as a direct cost and, therefore, deducted in determining EBITDA.

Based on the midpoint of our fourth-quarter guidance and our projected year-end long-term debt balance, we believe we will end the year with a long-term debt to adjusted EBITDA ratio of approximately 2.4 times. At September 30, all of our outstanding long-term debt was subject to fixed rates of interest, as we have chosen to lock-in what we believe to be very attractive long-term rates. Our long-term debt has an average maturity of nearly eight years and has a weighted average interest rate of approximately 6.0%.

The debt under our contango inventory facility is short term and, similar to last quarter, comprised the vast majority of our short-term debt at September 30. Borrowings for crude oil stored are self-liquidating, which means that the borrowings are repaid when the proceeds are received from the sale of the hedged crude oil. Because of this, our banks and we do not include these short-term borrowings in our credit metrics, whether they are borrowed under our long-term revolver or the contango facility.

Along those lines, because of a shift in the curve to backwardation, a significant portion of our stored inventory will be sold in the month of November. We will receive proceeds from the sale of the crude oil in December. Unless something changes in the next few days, I would expect a significant reduction in contango-related borrowings at the end of this year.

During the first-quarter 2005 conference call, we discussed certain aspects of the contango facility and the effect that purchasing inventory for storage has on our cash flow statement. In short, the receipt of the proceeds projected for December will result in significant operating cash flow and will offset the negative operating cash flow in the cash flow statement that was as a result of the purchase of the inventory earlier this year. I would direct you to the first-quarter conference call on our website for more information.

On our August 22 conference call discussing our acquisition of ECI, we pledged to finance our portion of the acquisition with at least 50% equity. Funding our acquisition growth with a balance of debt and equity has consistently been a major part of our financial growth strategy.

We recently completed raising net proceeds aggregating approximately $242 million from equity issuances, primarily done through the public markets. Including the over-allotment, which closed in early October, we issued a total of 5.9 million common units. The total net proceeds were used to repay indebtedness outstanding under our credit facility, a portion of which was incurred as a result of the ECI acquisition. Except for proceeds from the exercise of the over-allotment option, which amounted to approximately $28 million, the issuance of the equity is fully reflected in our September 30 balance sheet.

Based on the capital requirements of the acquisition, we raised substantially more equity than needed to fund the transaction with 50% equity. As Greg will touch on in a few minutes, this additional equity raised in excess of those requirements further strengthened our balance sheet and, we believe, allows us significant financial flexibility in regards to pursuing future commercial projects and growth opportunities. Overall, we believe this acquisition and its subsequent funding reinforce our commitment to maintain and improve upon our investment-grade capital structure and associated credit metrics.

In connection with the ECI acquisition, we funded approximately $112.5 million of the purchase price with cash, as did our joint venture partner. Additionally, a subsidiary of ECI, Bluewater Gas Storage, LLC, put in place a credit facility totaling $90 million. As was noted in the acquisition conference call, our investment in Plains/Vulcan will be accounted for using the equity method of accounting. Accordingly, our share of the Bluewater debt is not reflected on our financial statements. Likewise, ECI results are not consolidated into PAA; and our income statement will only reflect our proportionate results of ECI.

I would point out that because we financed Plains/Vulcan very conservatively, even if our investment were consolidated our debt to total cap ratio at the end of the third quarter would have been approximately 44%, after giving effect to the exercise of the underwriters’ over-allotment option that was exercised after the end of the quarter.

Before I move on to guidance, I would like to remind you that our third-quarter results were reduced by $0.13 per limited partner unit due to EITF 03-06. This accounting treatment requires the Partnership to present earnings per unit as if all of the earnings for the period were distributed, regardless of the pro forma nature of that allocation and whether those earnings would actually be distributed during a particular period from an economical or practical perspective. EITF 03-06 will not impact our overall net income or other financial results. However, when applicable, it does reduce our reported earnings per limited partner unit.

I will now shift to a discussion of our financial guidance. Our guidance is based on the current state of and our outlook for the crude oil market, reasonable expectations of volumes and expense levels, as well as our judgments and assumptions about our business development activities, where the outcome is less than certain at this point, including estimated contributions from recent acquisitions.

In the 8-K that we furnished this morning, we updated our guidance for the fourth quarter, amended our full-year 2005 guidance to reflect the fourth quarter, and provided preliminary guidance for the full year of 2006. I will be pretty brief in my discussion, but for details behind all of the guidance I would direct you to the 8-K.

For the fourth quarter of this year, we would guide you to an adjusted EBITDA range of 82 to $98 million, which is a midpoint of $90 million. We estimate that fourth-quarter G&A should be approximately $24.7 million to $25.5 million.

For interest expense purposes, we anticipate average long-term debt balances of approximately $950 million, resulting in interest expense of 15.5 to $15.9 million using a fully loaded weighted average interest rate of approximately 6.5%. Approximately $400,000 of fourth-quarter projected interest expense is non-cash, as it relates to the amortization of deferred amounts associated with terminated interest rate hedges.

I would also remind you that interest associated with contango storage activities is not included in the interest forecast, again, as such expenditures are included in cost of sales as a direct cost of our contango market storage activities. During the first nine months of 2005, contango interest was $16.4 million; and for all of 2004 and 2003 it was 2 and $1 million, respectively.

Finally, we estimate depreciation and amortization to be approximately 20.3 million to 20.8 million. Based on these estimates, we forecast adjusted net income of 45.7 to 61.8 million, or approximately $0.54 to $0.75 per diluted unit. Overall, our fourth-quarter estimates are slightly higher than our previous forecast for the fourth quarter.

The fourth-quarter guidance, when added to our actual results for the first nine months of the year, equates to an adjusted EBITDA range for the full year of approximately 387 million to 403 million, with a mid-point of approximately 395 million, and an adjusted net income range of approximately 248 to 264 million, which equates to $3.30 to $3.53 per diluted unit. These estimates exclude the selected items impacting comparability that were included in our results for the first nine months of the year; but they do include the expected effects of EITF 03-06 on net income per diluted unit.

Let me spend just a few moments to review our preliminary guidance for next year, which is subject to all of the caveats we mentioned earlier with respect to our fourth-quarter guidance, and is less precise since we have less visibility for periods that extend further into the future. We will provide more detailed guidance in February of '06 on our year-end conference call, once we have completed our formal planning process.

With that being said, we currently expect adjusted EBITDA for next year to range between 320 million to 345 million, with a midpoint of 332.5 million. The forecast is slightly higher, but still fairly consistent with our previous outlook regarding results in a more normalized market. As we have discussed frequently throughout 2005, market conditions have been optimal; and we are not forecasting the same market conditions to exist in 2006. Although a continuation of these market conditions is a possibility, it is not something we are prepared to forecast at this time.

The other two items that I would like to highlight for next year are interest expense and maintenance capital. We are very well positioned with respect to rising interest rates, as nearly all of our projected year-end debt is locked in at fixed rates. Based on the forward LIBOR curve for 2006 of 4.6%, our credit spread and our average projected balances on our revolver for working capital and future capital expansion, we anticipate interest expense for next year will range between 60 and $63 million. Approximately $1.4 million that amount is expected to be non-cash, as it relates to the amortization of deferred amounts associated with terminated interest rate hedges.

Maintenance capital is expected to be around $23 million for next year. This figure reflects our view that recurring maintenance capital is approximately $20 million, and also takes into consideration an additional $3 million of carryover maintenance capital from 2005. Additional information on 2006 is included in the guidance-related 8-K that we furnished earlier today.

Moving on, I want to emphasize that while total net income for the Partnership is not impacted by a change in our cash distribution level, the relative allocation of net income between the limited partners and the general partner -- and therefore the net income per unit -- is impacted by such a change. As a rule of thumb, from this point forward, when the aggregate distribution is greater than net income, and EITF 03-06 does not apply, a $0.05 increase in annualized distribution per unit equates to a $0.05 annualized decrease in net income per LP unit.

I will also briefly remind everyone that we have excluded charges associated with our Long-Term Incentive Plan from our adjusted financial metrics, as the vast majority of the incremental units that would be issued upon vesting are already included in the determination of diluted units. These equity incentives have acceleration provisions tied to performance thresholds and continued employment. But, regardless, the majority will vest over a six-year period of time.

Finally, consistent with our past practice, we do not attempt to forecast any potential impact related to SFAS 133, as we have no way to control or forecast crude oil prices on the last day of each quarterly period. Accordingly, the guidance I provided for the fourth quarter and the full-year 2006 excludes any potential gains or losses associated with this accounting statement, as well as other minor items that affect comparability between periods.

Again, in summary, I want to emphasize that you can find the detailed assumptions behind our projections in the 8-K that we furnished this morning. With that, I'll now turn the call back over to Greg.

Thanks, Phil. PAA’s third-quarter results were strong and once again illustrate the complementary strengths of our asset base and our business model. During the first nine months of the year, we demonstrated the ability of our business model and asset base to not only withstand changes in market structure, but also to capture upside profits in volatile markets. We believe that combining the optionality of our assets with our ever-growing inventory of organic projects places us in a position to generate sustainable and significant distribution growth.

The ECI acquisition highlights our ability to augment growth from our existing asset base by pursuing strategic acquisitions and moving into complementary business activities. As we head into the homestretch of 2005, we are very confident in the financial strength and the growth potential of the Partnership.

An integral part of the execution of our business model and our growth strategy revolves around our ability to consistently access capital in a timely manner. In order to preserve and increase our liquidity and financial flexibility, we outlined in the first-quarter conference call several actions that we may take during the year. Those actions included increasing the size of our hedged inventory facility; accessing the long-term debt capital markets; expanding our capacity under our corporate revolver; and placing strategic levels of equity.

As of today we have executed our plans with respect to each of these actions. As a result, we have an extremely strong capital structure and excellent liquidity, and we believe we are on course with respect to achieving our credit ratings objectives. Overall, these proactive steps have positioned us to optimize our asset base and actively pursue acquisition opportunities, while mitigating the adverse impacts from rising interest rates.

Our credit statistics are exceptional. All of them are -- fall well within our targeted credit profile. We believe we have one of the strongest balance sheets and highest liquidity among the large-cap MLP group. Although we are proud of the growth of the Partnership over the last several years, during which we have grown our asset base by almost 250% since the beginning of 2002, we are equally proud of our ability to maintain financial discipline throughout the time period.

S&P and Moody’s upgraded PAA’s credit rating to investment grade in 2003 and 2004, respectively. We believe the Partnership has subsequently made significant strides toward ratings improvements and our ultimate goal of achieving ratings of BBB+ and Baa1.

We are also very pleased that we have been able to simultaneously grow the Partnership’s business and maintain a conservative capitalization and financing discipline, while at the same time consistently and meaningfully growing our distribution to our unitholders. Based on our recently announced distribution increase to $0.675 per quarter, or $2.70 per year, we achieved growth during 2005 of approximately 12.5% based on a November-to-November comparison.

In addition, based on the midpoint of the preliminary guidance for 2006, our coverage ratio for our current distribution level is approximately 112%; and we have a positive outlook for future growth, both in our well-established crude oil business and our recently acquired natural gas storage business.

The third quarter was clearly a successful quarter for the Partnership. We were able to achieve very strong results, make a significant acquisition that allowed us to enter a new and complementary business line, and improve our overall financial strength and flexibility. At Plains we continue to believe that our track record, growth prospects, and financial position make us one of the top names in the large-cap growth MLP sector.

We look forward to providing a recap of our performance against the goals that we set at the beginning of the year, and also sharing with you our new goals for 2006, as well as more details regarding the operation and financial guidance for the coming year in our year-end results conference call that will be held in February.

Before I open up the call up to questions, on behalf of management, the Board, and our equity holders, I would like to express my gratitude to all of our dedicated employees who aggressively responded to the needs of those affected by the recent hurricanes. In the aftermath of the storms, several employees valiantly braved perilous conditions to secure and preserve the integrity of our facilities, thereby protecting our Company, the environment, and the communities in which they operate.

Countless other employees worked tirelessly behind the scenes to restore service to our customers, direct employee relief efforts, and establish command and control centers for repair and clean-up efforts. Our employees mobilized water, food, generators, fuel, and other supplies and provided shelter for our employees and their families in the affected area.

In order to continue to support our employees and their families affected by the storms, the Partnership set up a fund to provide additional aid and support to those hardest hit. Over the past two months, we have been overwhelmed by the generosity shown by our employees, our directors, and several of our general partner owners. As a result of their generosity, total commitments to the fund are now over $1 million.

These funds will be used to minimize the hardships and losses experienced by our employees as a result of these two back-to-back hurricanes. A recent tally indicates that we have already deployed approximately 20% to 25% of these funds to approximately 60 families impacted by the storms. This management team is proud to work with such a compassionate and dedicated group of people. Our employees are the backbone of our Company, and we greatly appreciate their dedication to the Partnership and its stockholders. To all of our employees, we thank you.

That wraps up our portion of the call. We’d like to thank you for your participation. For those who joined us late, a complete written transcript of the prepared comments for this call will be posted on our website at www.paalp.com very shortly after the conclusion of the call. Operator, we are ready for questions.

(OPERATOR INSTRUCTIONS) Ross Payne with Wachovia Securities.

Greg, I appreciate you making comments about your investment-grade ratings. Can you -- are you having customary conversations with them? Any kind of expectations you may have on any kind of changes in the way they look at your business? And if you can maybe talk about how they view the working capital line; I assume they are stripping that out. But any kind of ramifications to the swings you guys have in the working capital line, and how they look at your credit metrics relative to that?

I would say your earlier comment, that they are customary conversations, it is probably safe to assume, Ross. We obviously have a far greater comfort level with our business and where we think the Company should be rated versus the ratings agencies. We are committed to doing whatever it takes to educate them and try to get them as comfortable as we are that we have more than adequate liquidity in their extreme scenarios that they run, appropriately, from time to time. We are in pretty constant contact with them.

I would say our business is complex enough where it is a longer education process than some that are presumably simple fee-based. I think as far as trying to give you an indication as to what their crystal ball says for us, boy, that would be a brave move on our part; and probably foolish, just because trying to predict something else's opinion of our ratings is challenging. I think the market has recognized what we think is the underlying strength of the business and the countercyclical balance, probably a little bit faster than the ratings agencies.

What I think you should take away from this call is that if you look at every one of our steps and our actions -- to be proactive; to raise equity in advance; to stay out of tight squeezes where, when we're doing significant capital programs or acquisitions, that we don't assume the market will always be there for us. We are very disciplined about discharging that.

We think ultimately that, combined with the building confidence, because we now have been through several fairly severe cycles in the commodity markets; and our assets and our business model has performed exactly as anticipated, if not better. We think ultimately it is going to help us on our track to reach BBB+, Baa1 rating.

Right now, we're stable at both agencies with a BBB- and Baa3. Clearly we think, as management, we probably deserve at least one click if not two up from there, and our charge is to convince them of that.

Thanks very much, Greg. One other final question. Is there much seasonality at all quarter-to-quarter throughout the year? In your -- I know you have a lot of changes obviously with the swings in markets from contango to backwardation, but just from an overall seasonality standpoint, is there much?

Historically there has not been as much as perhaps what we think can be going forward. When you say seasonality, I would say it is probably a spreading of continuity. What we're seeing is that, we believe, in the crude oil markets, that because of increasing reliance on foreign imports, increasing competition among fuels, and what appears to be -- at least, because of API 653 -- probably a reduction in the amount of tankage that is available out there, we think you may see a situation where you actually need to store in the off-peak needs to meet peak needs.

So you are going to see probably that seasonality create more stable demand for the assets year-round. That is still going to leave volatility in the market structure. But on the crude oil side, I think it is playing into our strength.

Great, all right, thanks.

(OPERATOR INSTRUCTIONS) Dale Alexander (ph) with Darfal (ph) Associates.

Could you give us some idea of how you hope to capitalize on the movement of liquefied natural gas towards the end of the decade?

Certainly what we're seeing in the long-term trends -- and end of the decade is probably the right time period to look at -- is we're seeing an increased reliance on foreign imports of natural gas. You have got a tremendous number of LNG facilities that have been permitted throughout the United States. But a lot of concentration in the Gulf Coast area, which is where our Pine Prairie asset is optimally positioned.

What we think you're going to see is basically more of a lumpiness, if you will, to the gas supply as they bring these LNG in on ships. Roughly the size of a shipload is in the 2.5 to 3 Bcf range. Most of these facilities are designed only to have 2 to 3 days of storage capacity, when I'm talking about the regasification facility. That is going to push more gas into the pipeline system in lumps so that there is not a need for it on that day. So what it's going to have to have is more storage. That is where we are position ourselves in the infrastructure part of it, to be able to receive that gas and then redeploy it as the demands warrant.

Thank you.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference back over to your host to conclude.

Just want to thank everybody for attending this morning. Again we're very pleased with the results and pleased with the outlook. We look forward to updating you in February, not only on our 2005 year results but also talking more about 2006. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.