Plains All American Pipeline LP (PAA) 2005 Q4 法說會逐字稿

Good morning and welcome to Plains All American Pipeline's Fourth 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 "believe," "estimate," "expect," "anticipate," and et cetera.

The law provides Safe Harbor protections to encourage companies to provide forward-looking information. The partnership intends to avail itself to 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 website, at "www.paalp.com." In particular, the section entitled "Non-GAAP Reconciliation," which presents certain commonly used non-GAAP financial measures, such as EBITDA or 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 comparably with respect to the Partnership's reported financial information. Any reference during today's call to adjusted EBITDA, adjusted net income and the like is referenced to the financial measures, including the effect of selected items impacting comparably.

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 would now like to turn the call over to Mr. Greg Armstrong. Thank you, sir. You may begin.

Thank you, Heidi. Welcome to everyone. For the first time today, we are using a slide presentation in conjunction with this call, and these slides are available for viewing or download at our website, at www.paalp.com. In addition to issuing an earnings release this morning, we also furnished an 8-K that outlines our detailed operating and financial guidance for the first quarter and full year 2006.

As the graph on Slide 3 indicates, we have delivered solid performance relative to guidance for each of the last 16 quarters. We first began providing detailed guidance, effective with the first quarter of 2002. With that as a backdrop, we'll move on to our results.

This morning, the Plains All American reported strong operating and financial results for the fourth quarter, providing an appropriate conclusion to a record-setting year for the Partnership. Including selected items that impact comparability between periods, we reported fourth-quarter EBITDA of 94.1 million and net income of 53.7 million, or $0.64 per diluted unit, representing increases of 50%, 117% and 100%, respectively, over similar results for 2004.

In last year's fourth quarter, we reported EBITDA of 62.6 million and net income of 24.7 million, or $0.32 per diluted unit. Items impacting comparability for the period negatively affected results by a total of 8.9 million, consisting of 9.3 million non-cash compensation charge, a $700,000 loss on foreign currency revaluation, and a $1.1 million mark-to-market gain associated with S-FAS 133.

Adjusting for these selected items, adjusted EBITDA, adjusted net income and adjusted income per limited partner unit for the fourth quarter of 2005 totaled 103 million, 62.6 million and $0.75 per diluted unit, respectively. These results represent increases of 53%, 114% and 92% over the corresponding metrics in last year's fourth quarter. Reported and adjusted results for the fourth quarter and full year are summarized on Slides 4 and 5, respectively.

These fourth-quarter adjustments - or fourth-quarter results recapped a very productive year, as we reported adjusted EBITDA of 407.8 million, adjusted income of 264.9 million, and adjusted net income per diluted unit of $3.47. These results represent increases of 62%, 93% and 74% over the comparative metrics for 2004, presented on the same basis. We believe the Partnership's out performance during extremely volatile market conditions, once again, highlights the countercyclical balance provided by the combination of our strategically located assets and our business model.

At the beginning of 2005, we outlined four specific goals for the year, which are summarized on Slide 6. These goals were to deliver operating and financial performance in line with guidance, optimize our field operations to eliminate inefficiencies, position the Partnership for continued growth and increase our distributions to unit holders by 5 to 7%. The partnership accomplished all four of these goals and much, much more, ending the year in a very strong capital structure and excellent liquidity and well positioned to generate strong and fundamental operating and financial results and continue its track record of growing its unit holder distribution.

I want to spend just a few minutes highlighting what I believe are some of the more notable accomplishments for 2005 -- are highlighted on Slides 7 and 8. First, our operating and financial performance greatly exceeded our initial guidance. Adjusted EBITDA and adjusted net income each exceeded the original guidance by 46% and 83%, respectively.

Second, we took a number of steps during the year to optimize our operations, which enabled us to improve our ability to service our customers and improve our competitive position. These included completing the integration of acquisitions made in previous years, moving our operations headquarters from Oklahoma City to Houston, and realigning our trucking operations and also upgrading our trucking-related computer systems.

Third, we positioned the Partnership for continued growth, as we successfully implemented our 2005 internal growth projects, where we ultimately increased our expansion capital activities by almost 50%, from 100 million at the beginning of the year to 149 million by the end of the year. I might note that's about 21 million less than the guidance we provided in October, which was primarily due to carryover cost and delays associated with back-to-back hurricanes.

We also initiated or advanced a number of other internal growth projects for implementation in 2006 and beyond. In addition, we completed seven acquisitions in 2005 for an aggregate consideration of 165 million, which generates a two-year and three-year average for acquisitions of approximately 360 million and 290 million, respectively.

Fourth, with respect to our goals, we raised our distribution in all four quarters of 2005, resulting in an aggregate increase of $0.30 per unit, or 12.5% year-over-year growth on a November-to-November comparison. During calendar year 2005, we distributed a total of $2.58 per unit, which translates into an 11.8% increase over the total distributions of $2.30 per unit paid in 2004.

These distribution increases contributed to PAA's 11.5% total return in the market for the year, which was achieved in what we think is a fairly volatile market for our peer group. Notably, our return for the year was over 900 basis points higher than the average return for the large-cap pipeline peer group. And that marks the fifth out of six years that we've actually achieved that.

In addition to the accomplishments that we made relative to our goals, we also made three notable achievements that I want to spend a few minutes on. First is, during 2005, we made significant progress in implementing our strategic initiative to grow our foreign crude oil activities. Using our assets in midland -- excuse me -- Mobile, Cushing and other locations, we increased the amount of foreign crude oil purchases by over 300%, as we averaged 59,400 barrels per day in 2005, as compared to 13,500 barrels per day in 2004. Very importantly, we also position ourselves to further expand these activities in the future by initiating construction of a 3.2-million-barrel storage facility at St. James, Louisiana.

Next, despite a year of substantial growth, we also significantly strengthened our capital structure and increased our liquidity. During 2005, we generated over $130 million of cash flow in excess of distributions and raised over $260 million of new equity. As a result, we were able to fully finance our $328 million capital program, while long-term debt increased less than $3 million.

In addition, the excess capital that we raised will be used to fund a large portion of our 2006 capital program. Through a series of proactive steps, we also increased our liquidity so that we remain fully -- remain comfortably ahead of rapidly changing business demands associated with a pronounced contango market and expanding foreign crude business and record high crude oil prices.

We also ended the year with very little direct exposure to rising short-term interest rates, as 100% of our long-term debt was fixed. As a result of these activities, we ended the year with the strongest capital structure and highest liquidity in our history, which we also believe represents one of the strongest balance sheets and most attractive credit profiles among our large-cap MLP peer group.

And then, finally, during 2005, we entered the natural gas storage business, which we believe will provide a significant source of internal and acquisition-related growth opportunities for many years to come. In summary, the Partnership produced record operating financial results and achieved all of its stated goals for 2005. As we will discuss during the remainder of the call, we are optimistic that we are positioned to make 2006 another productive year for the Partnership.

The remainder of today's call will be divided into three parts. First, Harry will review fourth-quarter operating results and provide operational guidance for 2006. He will also give you a status report on our 2005 expansion and internal growth projects as well as some of the new projects we expect to undertake in 2006. Second, Phil will discuss our capitalization liquidity and update our financial guidance for 2006, including specific guidance for the first quarter of 2006. And then, lastly, I'll wrap up the call by sharing with you our goals for 2006 and discuss our outlook for growth beyond next year.

At the conclusion of our prepared remarks, we will have a question-and-answer period, and a complete written transcript of the prepared comments will be posted on our website shortly after the completion of the call. For those in the audience that are technologically advanced, our website will also provide you with the opportunity to download an audio version of this call onto your iPod or MP3 player.

With that, I'll now turn the call over to Harry.

Thanks, Greg. During my part of the call, I'm going to provide a brief review of the performance drivers and market conditions that affected fourth quarter performance. I'm also going to provide -- I'm also going to review certain operating and capital guidance figures that are incorporated into the 2006 guidance Phil will be discussing in a few moments, and update you on the major projects in our capital program. For our segment results, I'll be comparing our actual results to the midpoint of the guidance we provided on Form 8-K on October 27th, 2005.

I'll start with the pipeline segment. Our volumes for the quarter were in line with our guidance at just over 1.8 million barrels per day. And as you'll see on Slide 9, actual fourth quarter volumes on some of our major pipelines include 50,000 barrels per day on our All American Pipeline System; 309,000 barrels per day on our share of the Basin Pipeline System; 97,000 barrels per day on our share of the Capline Pipeline System; and 64,000 barrels per day on the Manito Pipeline System in Canada.

Even though total volumes were in line with our guidance, there were some significant variances in the details. For instance, Basin Pipeline volumes were about 29,000 barrels per day higher than our guidance, while the Capline volumes were about 23,000 barrels per day below our guidance, which is primarily due to the lingering effects of the hurricanes. Excluding the LTIP charge, segment profit of $40.3 million, or approximately $0.24 per barrel, was slightly below the low end of our guidance.

A couple of factors impacted our segment performance for the quarter. First, our results reflect a $2.6 million reserve that we established for third party tariff claims we received in January 2006 relating to prior years' activities at one of our Canadian pipelines. The other factor is that our operating expenses for our pipeline segment were higher than forecasted. Our aggregate operating expenses for both segments were $72.5 million, or $1.8 million higher than the midpoint of our guidance, but expenses in our pipeline segment were $4.9 million higher, while expenses in our Gathering, Marketing, Terminalling and Storage segment were $3.1 million lower than the midpoint of our guidance. And reallocations of expenses in prior quarters accounted for a significant amount of the variance between the segments.

The 2006 guidance Phil will walk you through in a few moments incorporates forecasted volumes on the All American Pipeline system of approximately 47,000 barrels per day and forecasted volumes on the Basin system of 273,000 barrels per day. Volumes on the Capline system are forecast to be 122,000 barrels per day. And that incorporates the assumption that volumes average around 100,000 barrels a day in the first six months of the year of 2006 and then approximately 145,000 barrels per day the second half of the year. The reduction in the first half of 2006 is related to ongoing repairs to production facilities in the Gulf of Mexico as a result of Hurricanes Katrina and Rita, which we anticipate will be completed in mid-2006.

As shown on Slide 10, segment profit in our Gathering, Marketing, Terminalling and Storage segment, excluding the selected items impacting comparability, was about $61 million or roughly $17 million above the midpoint of our guidance, and approximately $36 million above last year's fourth quarter. On the same basis, our profit was approximately $1 per barrel. Volumes of 664,000 barrels per day in this segment were in line with the guidance. The strong performance in this segment was primarily due to the favorable market conditions in the quarter coupled with the successful execution of our risk management strategies.

Our 2006 guidance incorporates crude oil lease gathering volumes of approximately 605,000 barrels per day and LPG volumes of approximately 75,000 barrels per day. And although our 2006 guidance reflects lease volumes that are consistent with 2005 volumes, we are not expecting market conditions to be as favorable in 2006, and therefore segment profit is expected to be lower in 2006 than it was in 2005.

Maintenance capital expenditures for 2005 came in at approximately $14 million, just below the original guidance of $19 million. The majority of this difference is due to timing differences. In addition, the fourth quarter includes a $2.7 million reclassification from maintenance capital to expansion capital. These costs, which were incurred in the first and second quarters, were associated with upgrades to assets that we acquired and for that reason were more appropriately classified as expansion capital.

Our acquisition activities in 2003 and 2004 provided us with a significant number of internal growth opportunities. And you can see a listing of our major projects on Slide 7 along with the associated costs incurred in 2005 and expected to be incurred in 2006. And I don't intend to go through all these projects, as many of them have been discussed in prior calls. But I will spend a few moments highlighting some of the major projects.

First, in late February, we completed the construction of the 90,000 barrel per day Cushing to Broome Pipeline system. And this pipeline was supported by a long-term commitment from our refinery customer. In the second quarter, we completed Phase I expansion of our Trenton Pipeline system in the Rocky Mountain Region and expect to finish the Phase II expansion during 2006. These expansions will increase our mainline capacity from 24,000 barrels a day to approximately 50,000 barrels a day and was supported by long-term reserve dedications from producers.

In October, we completed the construction of a 4,000 barrel per day fractionator in Northwest Alberta. And in November, we completed and put in service our 1.1 million barrel Phase V expansion of our Cushing Terminal.

We're in the process of expanding our Kerrobert Terminal in Canada. This expansion will add 900,000 barrels a day of new tankage and will expand our pumping capacity into the Enbridge system, thereby avoiding third party costs. Total costs for this project are estimated to be $39 million, of which $35 million is expected to be spent in 2006.

Next, our construction of our crude oil terminal at St. James, Louisiana is underway. The facility will have 3.2 million barrels of capacity and is expected to cost approximately $85 million, of which $15 million was incurred in 2005. This project is one of the areas we suffered some delays, in part due to the hurricanes, as we originally forecasted to incur approximately $21 million in 2005. Despite these delays, we continue to believe this facility should be operational in mid-2007.

Finally, in addition to the projects I just mentioned, we have budgeted a number of other projects that brings our total expected expansion capital program to $230 million for 2006.

And while I'm on the topic of growth projects, let me spend a few moments to give you a status report on our 50% ownership of the PAA/Vulcan Gas Storage venture, which completed the acquisition of Energy Center Investments from Sempra in 2005 -- actually in December 2005. While not without the typical early stage challenges, overall, we are very pleased with this. Since we closed the transaction, seasonal spreads in natural gas futures markets have widened considerably. These spreads are generally considered a proxy for the indicated value of natural gas storage. As a result, we now expect our Bluewater facility in Michigan to perform slightly ahead of the previous guidance we provide in 2006 -- for 2006.

On our August 22nd, 2005 conference call, we provided EBITDA guidance for this facility of approximately $14 million for 2006, with a ramp-up to our projected EBITDA run rate of $16 million to $18 million in 2007 and beyond. Our 2006 guidance is based on EBITDA for Bluewater of approximately $15 million. We have not changed our projected EBITDA range for 2007 and beyond.

We have also made substantial progress with respect to advancing the construction of the Pine Prairie Energy Center gas storage project. Over the last several months, we replaced the scoping estimates used to model the project with detailed engineering and construction plans. We have also drilled three raw water supply wells and four brine disposal wells to support the project's salt leaching activities and have begun construction of the leaching facilities under an engineering, procurement and construction contract. In addition, we have signed a drilling contract for the first of three cavern wells. And drilling rig is expected to be on location in March.

I should also note that as a result of a general rise in service costs, added by pressures by hurricane Katrina and Rita specifically and certain scope changes and design refinements, the overall construction costs for Pine Prairie have increased. We anticipated some of this increase and shared that view when we discussed our investment sensitivity analysis on the acquisition conference call and also on our third quarter results conference call. That said, there is no question that Katrina and Rita have increased the pressure on service costs more than anticipated.

Our original cost estimates for PAA/Vulcan includes cost to purchase ECI and complete the construction of the Pine Prairie project and the purchase of base gas was approximately $510 million, with Plains All American share totaling approximately $255 million. We currently estimate that the aggregate cost will be approximately $590 million, or approximately 16% higher, with Plains All American share totaling approximately $295 million. Despite this increase, the expected unlevered rate of return still falls within the expected range we provided on the August 22nd call of 12% to 15%, which translated into levered returns ranging from 16% to 21%.

In addition, we continue to expect the aggregate investment-to-EBITDA multiple to come in around a 7.5 multiple. We believe that these returns are particularly attractive, especially when considering the risk profile of the assets, the favorable long-term outlook for natural gas storage and our weighted average cost of capital of around 6% to 7%. Moreover, this project provides some very visible growth in our future distributable cash flow and a platform for further development and expansion.

The current forecast is for the Pine Prairie facility to be in a position to begin receiving and storing gas in mid-2007, with about 15% of the projected working capacity projected to come on stream in 2007. The remaining 85% of the working capacity will come on line in stages throughout 2008 and 2009. And as discussed in our previous conference calls, our 50% ownership interest will be accounted for under the equity method of accounting. In addition, the cash flow from Bluewater and the early cash flow from the Pine Prairie facility will be directly re-invested in completing the construction of Pine Prairie or reducing PAA/Vulcan's debt balances. Accordingly, the guidance provided in this call does not anticipate distributions from our share of PAA/Vulcan for 2006 or 2007.

Finally, before I turn the call over to Phil, I want to share with you general market outlook that we have incorporated into our 2006 operating and financial guidance. Overall market conditions in 2005 were very favorable for our business model and the execution of our risk management strategies was optimal. The market structure included prolonged periods of contango and shifted between backwardation and contango a few times throughout the year. Additionally, price differentials were wider than normal for most of the year.

Accordingly, while our 2006 guidance incorporates favorable market conditions relative to years prior to 2005, our assumptions regarding 2006 market conditions are not nearly as favorable as those we experienced in 2005. In addition, our forecast for 2006 incorporates meaningfully higher assumptions with respect to utility, power, fuel and pipeline integrity costs. If the market conditions we experienced in 2005 continue throughout 2006, it is fair to say that there is likely an upward bias in our 2006 forecast, but we believe it is prudent to assume and plan for more moderate conditions in the latter three quarters of 2006.

And with that, I'll now turn the call over to Phil.

Thanks Harry. One note before I begin, and that's that we're in the process of finalizing our 2005 Form 10-K and expect to file it within the next month. Accordingly, the 2005 financial information should be considered preliminary until such time as we receive our audit report from PricewaterhouseCoopers and then actually file our Form 10-K for the year.

2005 was a year of significant strengthening of our capital structure and liquidity as is evident from the data shown on Slide 12. We were very proactive in our financing activities as we sought to remain comfortably ahead of rapidly changing business demands. During the year, we raised over 260 million in two equity transactions, completed a $150 million bond issue, expanded our revolving credit facility from 750 million to 1 billion, and also expanded our contango facility from 425 million to 800 million and extended the maturities for both of these credit facilities.

As Greg mentioned earlier, we funded the Partnership's entire 328 million of capital expenditures with cash flow in excess of distributions and equity raised throughout the year. As a result, our long-term debt balance at December 31st of '05 of 952 million is substantially unchanged from the long-term debt balance at the end of 2004. Our book equity at December 31st, 2005, however, is up approximately 24%, increasing to 1.3 billion, providing us with a strong long-term debt-to-total cap ratio of 42% at year-end.

Our adjusted EBITDA-to-interest coverage ratio for the fourth quarter was approximately 6.9 times and on the same basis, our long-term debt-to-fourth quarter annualized EBITDA was approximately 2.3 times. At year-end, all of our outstanding long-term debt had a fixed rate of interest and had an average life of approximately 7.6 years. In short, we ended the year with what we believed to be one of the strongest balance sheets and most favorable credit metrics among our large cap MLP peer group.

The foregoing metrics exclude our short-term debt and contango-related interest costs. Debt classified as short-term primarily reflects borrowings under our contango facility and revolver for hedged crude oil and LPG, as well as NYMEX margin requirements. All the debt classified as short-term is essentially self-liquidating debt, [because] when the physical product is sold, the debt is repaid.

At December 31st 2005, the balance of short-term debt was approximately $378 million, that's down significantly from the $774 million at September 30th of '05, and that’s a result of the market shifting out of contango for a portion of the fourth quarter of last year. The market has since flipped back into contango, and if it maintains that relationship, we would expect short-term borrowings to increase at the end of the first quarter of 2006, again, in conjunction with a corresponding increase in the hedged inventory balances.

While on the subject of contango inventory, I want to point out that the largest portion of the tankage used for these transactions is at Cushing and the vast majority of the remaining tankage is located at [very liquid trading] locations such as Midland. Accordingly, these locations minimize the execution risk and provide us with strong hedge correlations.

The inventory noted above that is carried as a current asset on our books does not include approximately 7.8 million barrels of crude oil linefill that's carried as a long-term asset in our balance sheet. We view the linefill as a favorable credit attribute of PAA that is fairly unique among our peer group. The linefill has a book value of approximately 252 million, which is $32 per barrel, yet it has a market value of approximately $390 million at a net price of $50 per barrel. As a credit attribute, the linefill is very liquid and represents value equivalent to 26% of our $952 million long-term debt based on book value and that's approximately 41% of the long-term debt based on the $50 market value.

I'll also note that as we liquidated inventory in the fourth quarter in connection with the market structure shift to backwardation, cash flow from operating activities increased significantly for the quarter as we collected cash on the sale of crude and applied the proceeds to our short-term debt. As a result, cash flow from operating activities in the fourth quarter was up significantly to $474 million, effectively reversing the cash flow effect when the oil was purchased. This reversal was expected and we had discussed the rationale behind the quarterly fluctuations in our 2005 first quarter conference call and then periodically we did the same throughout the year.

As a result of our financial growth and discipline over the past several years, we entered 2006 well positioned for future growth. Our plan is to continue with our stated financial growth strategy and we expect to be within the metrics in our target credit profile throughout 2006.

One further note before I move on to guidance. Our results for the full year of 2005 were reduced by $0.10 per limited partner unit due to the required accounting for earnings per unit under EITF 03-06, which in periods where net income exceeds distributions, it requires us to calculate earnings per unit as if all of our earnings for that period were distributed. This EITF did not affect fourth quarter results. When applicable, it will not impact our overall net income or other financial results, but it will reduce our reported earnings per limited partner unit.

I'll now shift to a discussion of the Partnership's financial guidance for 2006. Our guidance is based on the market outlook that Harry discussed earlier, reasonable expectations of volumes and expense levels, as well as our judgments and assumptions about potential associated with business development activities where the outcome is less than certain. As a reminder, we would caution you that typically there is a higher degree of variability associated with forecasting performance for the first and fourth quarters of each year due to the impact that weather can have on our seasonal LPG business.

In addition, keep in mind that the guidance I'll be providing excludes non-cash items that we believe affect comparability between periods. A summary of our guidance for both the year of 2006 and the first quarter of 2006 can be found on Slide 13.

We'd guide you to EBITDA range for 2006 of 350 million to 380 million. The mid-point of $365 million is approximately 11% below our 2005 adjusted EBITDA. There is no question that market conditions in 2005 were great and represent the very top of the market that we have positioned our asset base and business model to benefit from. So far during this year market conditions have remained favorable and our first quarter guidance reflects this. However, we believe it's too early to attempt to project these market conditions as routinely sustainable. Accordingly, our forecast for the remainder of this year assumes a less robust market.

I would also point out that 2006 projection shows meaningful improvement over the base line trend that existed prior to 2005's performance. As a point of reference, the 2006 midpoint of EBITDA guidance is roughly 30% higher than the midpoint of our original 2005 guidance, which was issued about this time last year, and it’s approximately 45% higher than similar results for 2004. We expect segment profit for the year to be between 348 million and 377 million, with roughly an equal amount coming from both our Gathering, Marketing, Terminalling and Storage segment and our pipeline segment. If we do experience more favorable market conditions than are incorporated into the base level guidance, the increase will likely be attributable to the Gathering, Marketing, Terminalling and Storage segment.

We expect G&A, excluding LTIP charges, for 2006 to range between $87 million and $89 million. Annual depreciation and amortization expense is expected to range from $88 million to $89 million. Interest expense should range from 62 million to 65 million and is based on a weighted average debt balance for the year of approximately $1.1 billion and a weighted average interest rate of approximately 6.2%. Our weighted average interest rate is fully loaded and 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.

We are forecasting our incremental borrowing rate at approximately 5.4%. Approximately $1.3 million of the projected interest expense is expected to be non-cash as it relates to the amortization of deferred amounts associated with terminated interest rate hedges. Also, we do not forecast interest expense on contango-related borrowings. As discussed before, we view the interest on these borrowings as part of the inventory cost, and therefore, include it in the cost of sales. As a reference point, contango-related interest including cost of sales for 2005's fourth quarter and the year were $7.3 million and $23.7 million, respectively. Based on these estimates, we forecast net income of 196 million to 231 million for the year, and that equates to approximately 2.26 to 2.70 per diluted unit.

You should note that while total net income for the Partnership is not impacted by a change in our annualized distribution level, a $0.05 increase in annualized distribution per unit roughly equates to a $0.05 annualized decrease in net income per LP unit, excluding the impact of the EITF 03-06 that I discussed earlier. We expect to end 2006 with the strong capitalization and credit metrics. Excluding acquisition activity, we currently expect to spend approximately $253 million in capital during the year, which Harry covered in detail on Slide 11.

Based on our current forecasted cash flow and our current working capital and capitalization, we expect a fair portion of the 2006 capital program to be funded from existing capital sources, while remaining well within our targeted credit metrics. For the first quarter of 2006, we would guide you to an EBITDA range of $95 million to $105 million, or a midpoint of $100 million. We estimate that first quarter G&A, excluding LTIP charges, should come in approximately $22 million to $22.5 million.

For interest expense purposes, we anticipate an average quarterly debt balance of approximately $1 billion, that results in interest expense of 14.8 million to 15.5 million using a weighted average interest rate of approximately 6.0%, again that 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.

And then once again, as I mentioned earlier, these amounts do not include contango related interest, but instead those costs are included in cost of sales. We estimate depreciation and amortization to be approximately $21.0 million to $21.4 million for the quarter. And based on these estimates, forecast net income of 58.1 million to 69.2 million and that equates approximately to $0.68 to $0.83 per diluted unit.

And finally, consistent with 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 year and the first quarter excludes any potential gains or losses associated with this accounting statement as well as other non-cash items that affect comparability between periods.

As in prior periods, 2006 financial results will be impacted by accruals associated with our long-term incentive plan based on service period amortization, but no material vesting events are expected to occur prior to 2007. For more detail on these projections as well as some other assumptions, I would direct you to the 8-K that we furnished this morning.

I have one tax related item before I'll turn the call back over to Greg. As we anticipate mailing our K-1s around March 3rd, unit holders will be able to access their K-1s and their T-5013 Canadian reporting forms online at our website, which is www.paalp.com around the same date of around March 3rd. To access K-1s and the T-5013s, click on the red K-1, button located on the left hand side of the Home Page, below our logo and that will take you to the tax website where you can access your account. And with that, I'll now turn the call back over to Greg.

Thanks Phil. During 2005, the partnership met or exceeded each of its stated goals and the overperformance relative to our initial guidance for 2005 is a function of two factors. First is related to a fundamental increase in our sustainable performance level. And second is related to very favorable market conditions that complement our asset base and our business model.

As you can see on Slide 14, although the midpoint of our EBITDA guidance for 2006 is approximately $43 million lower than the actual performance for 2005, because of the fundamental increase in sustainable performance, it is approximately 30% higher than the original 2005 base level guidance and approximately 44% higher than 2004 actual results, despite incorporating meaningfully higher assumptions with respect to utility, power, fuel costs and also pipeline integrity management. As Harry noted earlier, if the market conditions we experienced in 2005 continue throughout 2006, we believe there is an upward bias to our 2006 forecast, but believe it is prudent to assume and plan for more moderate conditions.

Our goals for 2006 are similar in many respects to those we established in 2005. The similarity of our goals over the last several years is a reflection of management's focus on fundamentals and sustainable long-term performance. Specifically, we have five goals for 2006 which are to deliver operating and financial performance in line with guidance; maintain and improve our present credit rating and further expand our liquidity and financial flexibility to accommodate anticipated future growth; optimize our existing asset base and operations and expand our inventory of internal expansion projects; fourth item is to pursue our target of averaging $200 to $300 million of accretive and strategic acquisitions; and then fifth and finally is to increase our distributions paid to unit holders by 10% over 2005 payments. A recap of these goals is provided on Slide 15.

Let me add that we will also continue to pursue our initiative to expand our foreign crude activities. We are optimistic that we are well positioned to achieve all of these goals, and we are dedicated to delivering solid results to our unit holders as we navigate through the future challenges and also pursue additional opportunities. Before I open the call up for questions, I want to spend a few minutes to address our outlook beyond 2006 and what we believe is excellent visibility with respect to our growth prospects.

Acquisitions have played a meaningful role in our growth over the past several years. However, as is evident from the operating and financing information we provided in our 10-Qs and 10-Ks with respect to our pipeline acquisitions by year of purchase, our pipeline volumes and revenues are stable to growing for assets we acquired in each year. This information is presented graphically on Slide 16. And we refer to this as our same-store sales information and we believe that it illustrates that our acquisition activity is generally incremental to the baseline performance from our existing asset base.

We believe that our proven business model, market knowledge and integration capabilities as well as access to low-cost capital allow us to be highly competitive in the acquisition market and we fully intend to continue to evaluate and pursue strategic and complementary acquisitions. However, there are certain cycles with -- during which aggressive competition makes some desirable assets too expensive. And we feel that it is important to be able to maintain discipline and even walk away from deals, rather than chase growth indiscriminately.

In that regard, irrespective of whether we are successful in completing large acquisitions over the next few years, we believe our growing backlog of internal growth projects will enable the partnership to generate continued improvement in our operating and financial results and growth in our distributions.

As the information on Slide 17 illustrates, as our scale and scope have expanded, we have seen the annual level of our internal growth capital expenditures increase from around $40 million in 2002 to $100 million at the beginning of 2005; $149 million during 2005, and we are forecasting approximately $230 million, now at the beginning of 2006. In addition, our backlog of internal growth projects under various stages of development has expanded to over $300 million. And that does not include the $230 million of projects already slated for 2006. These amounts do not include our share of amounts to be spent over the next several years as we develop the initial phase of our Pine Prairie gas storage facility. And what we believe could develop into a much larger business platform, similar in many respects to that which we currently posses in crude oil and LPG.

Certainly, not all of the projects being advanced in our backlog inventory will pan out, but we believe there is a good chance that others will take their place. We also believe that some of these projects will mature during 2006 and perhaps enable us to once again expand our capital program in mid-year. As many of you are aware, internal growth projects tend to generate higher rates of return than acquisitions and when combined with the strong foundation provided by our existing business activities, these expansion projects provide the partnership with the ability to continue to generate attractive operating and financial results and provide what we believe is clear visibility for continued distribution growth over the next several years.

Thank you all for your continued support of the Partnership during 2005 and we look forward to updating you on our progress throughout the year. On behalf of the management team, I also want to publicly thank all of our employees for their accomplishments, contributions and sacrifices during 2005.

That wraps up the items on our agenda today. And we'd like to thank you all for your participation in today's call. For those who joined us late, a complete written transcript of prepared comments for this call will be posted on our website at www.paalp.com very shortly, as well as the option to download an audio version of the call onto your iPod or MP3 player. Heidi, with that we'll open the call up for questions.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Robert Lane of Sanders Morris Harris. Mr. Lane, please state your question.

Thank you. First off, gentlemen, congratulations on a great quarter and certainly, a great year. I wanted to know if I could get a -- just a little bit more detail on a few of the numbers.

Sure.

First was, if you all could give me a breakout of the tariff revenue versus the margin revenue on the Pipelines? And the, second, I don't know if you all have mentioned this or not -- a very long prepared comments, I had to step off once or twice -- if you all could give me what the balance sheet cash number is.

The balance sheet cash number is just under 10. I think it's 9.6 million.

Okay.

And it's in the current assets -- I mean it's included -- part of that current assets number that's in the schedule, but not broken out. So 9.6 million.

Right.

Robert, on to the pipeline margin activities were 772 million, and the pipeline tariff activities were 219 million -- round numbers.

Okay, that's for the year?

Correct.

Okay. And the second is just a sort of general follow-up is everything all right then with the hurricane issues? As we're going forward, for 2006, are we expecting the Capline and everything to be back up to full levels?

Well, I think, there are still production facilities that aren't back in service. We're expecting those production facilities to be back in service by mid-2006. And with that, we think, we'll see increased volumes on Capline.

Robert, as far as our physical assets, everything is back where it's supposed to be. So we're -- but our forecast, for instance, on Capline, there's a couple of platforms that we used to transport crude from, that we started seeing a decrease overall since the hurricane.

As Harry mentioned, we're forecasting, I think, 100,000 barrels a day average for the first six months of the year on Capline, increasing to 145,000, and that's what drives the 122,000 barrel a day average. So effectively, as long as they get those platforms back up by June 30, then we think we're in good shape.

Okay. Thank you, gentlemen.

Thank you, Robert.

Thank you, sir. Our next question comes from the line of Ross Payne of Wachovia Securities. Mr. Payne, please state your question.

How are you doing, guys? First question is on the forward crude initiative. I mean how big can that get? And just kind of share with us how you're growing that.

I guess, as far as how big it can get, the U.S. continues to experience generally declines, although they've certainly flattened some, since we've seen higher prices. And then you get a little bit of chatter because of the hurricanes, as it affects Gulf of Mexico. But the foreign imports number's about 10 million barrels a day.

Our volumes for this last year were close to 60,000 barrels a day. So from a pure market share growth, we've got some potential running room. In addition, there's going to be increased volume of foreign crude coming in as demand continues to go up and production either stays flat or goes down. So you’ve got to fill that gap.

Once we get the St. James terminal up and running in 2007, obviously, we set it up to be able to take large tankers of crude in there. So we think it has a lot of running room. We certainly think, at a minimum, it provides a hedge against domestic depletion. But Ross, going forward, we think this is a strategic initiative for a reason that we think it can have a meaningful impact as we go forward.

Okay.

But right now, 60,000 barrels a day is the equivalent of 1 VLCC, 2 million barrels or a couple of 1 million barrel cargoes. So with the St. James terminal, we should be able to handle -- it wouldn't be a stress to double that at all.

Okay. I was just curious if there were any kind of facility constraints right now, but I guess it's just a matter of getting the ships in there on existing facilities plus your expansion.

Correct. Once we get the St. James, we're in a much better position to compete for barrels and have better margins.

Okay, great. Second question is what is the total storage number now, for you guys, and how much of that is dedicated for your own book versus leased out?

Total storage is about 39 million barrels. And of that, 24 million is associated with the pipeline and 15 is associated with the Gathering, Marketing, Terminalling and Storage activities.

Okay.

Obviously, that number will move, as we -- for instance, as we finish St. James, that number is going to move up. Then, we've also got the situation where we're going to be losing some tanks over in the short term, as we take some out for API 6.53, but then we'll be replacing some of those. So generally the trend is going to be stable to up on terms of the amount of tanks associated with that.

Okay. And is most of that available to you guys or are you leasing it -- some of that obviously to third parties?

Right now, the amount we lease to third parties is around 3 million barrels.

Okay. So you've got plenty for yourself. Okay. All right, guys. Thank you.

Thank you, Ross.

Thank you, sir. Our next question comes from the line of Ron Londe of AG Edwards. Please state your question. Our next question comes from the line of Mark Easterbrook of RBC Capital Markets. Please state your question.

Hey good morning. I just wanted to thank you guys for the iPod capability. I can't wait to use that. Further, I just got two questions. In your guidance for the first quarter, you do have some declines on the All American Basin Pipelines along with the declines on the Capline. Any reason for the decline relative to the fourth quarter?

Well, All American, there's some maintenance work that's going on in the first quarter. The latter part of the first quarter will be higher than the first part of the first quarter. But that's every year we see a little bit of decline on the All American system. Capline is -- on the Capline, it's really -- the volumes are consistent with what we had fourth quarter versus first quarter of 2006. Those first quarter numbers are going to be down from the 2005 average, mainly, because of the hurricanes.

And then in -- on the Basin system, we had higher volume on the Basin system in the fourth quarter, mainly because the market flipped from contango into backwardation. And we saw higher than normal movements, because crude moved out of storage in the fourth quarter. So I think first quarter numbers are more in line with what we'd expect to see on an annual basis.

Okay. And then you mentioned -- you assume some higher power costs in your '06 guidance. Can you sort of go through the '04 to '05 and then the guidance number for just the power costs? I mean how much of that really increased over the last two years?

The '06 versus the '05 power costs are probably going to be on the magnitude of $10 million to $13 million. We had -- they started to increase, obviously, Mark, as the price of the commodities went up -- as gas spiked. And certainly, after the hurricanes, we had to look at it and say, we've got to expect they're going to flow those costs through to us. So we're making clearly some projections on what we think are going to happen.

We also had one contract that -- where we had some power costs locked in that expired in -- I think it was the end of September, 1st of October so -- of last year. So we got part of the partial year increase in the fourth quarter, but it's not insignificant. It's at least in the 10 to 12 range here. Harry, would you say it's higher?

2005 to 2006?

Yes.

Yes, it’s 13 million higher in 2006.

Okay, I stand corrected -- 13.

Okay. Thanks guys.

Thank you, sir. Our next question comes from the line of Ron Londe of AG Edwards. Please state your question.

Thanks. I was looking at Slide 11 and on the key expansions for '06, the other category is certainly big, at 53 million. Does that include integrity costs? And can you break that out a little bit?

Those are all expansion activities, Ron. And it's just - boy, a number of smaller projects. Again, we've tried to limit it to the bigger ones that were 9 or 10 million and higher.

We have some pipeline reversals, some pipeline expansion, some smaller terminals and other terminals that we'll be building, some of the Trenton Pipeline expansion numbers that will occur in 2006 are in that number. And unfortunately, like Greg said, it ended up being a lot of small things.

But if your question is is the big chunk of that integrity management or anything like that, no, it's not really -- most of that gets -- a lot of that gets expensed.

Okay. From a standpoint of the hurricanes, are you going to have some insurance reimbursements in '06?

We hope to. We filed claims. The numbers that we've given you are net of what we filed in claims, but I think we actually have probably booked a gross receivable of about $11 million that offsets obviously the payable associated with -- or the estimated cost to repair that. It was -- from us, it was big on a relative scale compared to what we're hearing it's relatively small overall, but like I said, it's $11 million.

Okay. Thank you.

Thank you, Ron.

Our next question comes from the line of John Tysseland of Citigroup. Please state your question.

Good morning. Real quick, how do you expect the large amount of refining turnarounds scheduled in the first quarter of this year to really impact your operations either positively or negatively?

Well, probably part of the reason why the market's in such a steep contango and it's like you see some of the large grade differentials on the sour in heavy crudes. And that's reflected in the higher guidance numbers that we have for the first quarter of 2006 versus the remaining part of 2006.

Yes, I would say, John that extended – effectively it is causing volatility in terms of, as Harry mentioned, the market structure and then also on differentials. And our assets really benefit from, as you recall, volatility. So it's hard to say how it would hurt us. And it probably helped us. That's part of the reason why our guidance for 2006 we're anticipating a continuation, if you will, of what we call strong marketing positions in 2005 and that's strong relative to our asset base.

And then we kind of assumed that they are less robust in the latter three quarters. As we say, we've prepared for this kind of volatility and we hope it's sustainable. It's just it's better for us to guide you to numbers that may be not as robust and if they happen it's upside and if they don't, we're still generating extremely attractive numbers.

So when looking at your, I guess, your 12-month numbers and more specifically, the segment or the profit per barrel in your GMT business that declined from first quarter to 12 month is just predominantly due to a less profitable, I guess, overall market environment for the assets for the remaining three quarters. Is that right?

That's correct. I mean -- and I -- when you say less profitable with certainty, I just say less robust. It's very profitable. It's just even more profitable. I mean, again, if you look back at the slides that we had where we showed our trend line, 2005 was just a great, great year. And we're certainly not saying that that can't repeat. We're just saying that we're not in control of the factors that would cause it to repeat. And that baseline that you see -- this is on Slide 14 -- kind of as you move up to from 253 to 280 to 365, it's that kind of baseline that we're very comfortable saying that we believe we should be able to achieve the excess above that in 2005. That potential is still there in 2006 and in the future. It's just early in the cycle to say this is really the norm.

And if you compared the 12 months for 2006 before selected items, it's about $0.725 and that -- if you see on Slide 10, in that segment we have about $0.39 in 2004. 2004 was a good year too. So like Greg said, our margins are still extremely strong in 2006.

Would it be fair to say if we continued to see significant spread differentials between sweet and sour and light and heavy that your margins would more or less continue? I mean if we were to take that assumption, your margins would continue to look fairly robust the rest of the year? Is that one driving factor behind that?

That's a driving factor, but volatility is probably the larger of the two. Any market conditions stay stagnant. Things correct, people make adjustments and would tend to lower the opportunities that we have to capture margin. Same thing with the front to back spread, that's a large driver, whether the market's contango or backwardated and if it stays in a -- stays at a level position or differential, it tends to take away some of the opportunities we have also. I mean, John, probably the thing to keep your eye inn the short term, I think you're absolutely correct. In the long-term, what's not built into that kind of analysis is what are - is the market or the refiners going to do.

If you see extremely wide sweet-sour differentials the way we're seeing right now -- and they stay there for very long, I mean people are going to start changing their refineries to be able to run more heavy in sour crude. And that's going to change the market again. So it's just -- it's an evolutionary kind of approach and it does take a few years to do it. We're probably biased by trying to be a little conservative on our own guidance only because we can't control when Nigeria wants to rattle their sword or when Iran wants to do something. But if that's your outlook and that's going to continue in your mind, we're setup as well as anybody could be set to benefit from that.

Fair enough. Thanks a lot, guys.

Thank you, John.

Thank you, sir. Our next question comes once again from the line of Ron Londe of AG Edwards. Sir, please state your question.

Yes. To come back to your expansion projects for '06, 230 million total, can you give us a feel for what kind of EBITDA that could throw off in '06 and into '07?

Ron, in '06, it's fairly nominal. For instance, let me just run down the list real quick -- St. James is not projected to be completed until 2007 -- mid '07. So we won't see any contribution there. On Kerrobert, we'll start to see some partial contribution in '06, but you won't see the full benefit. I would probably tell you that of our mid-point of 365 of guidance, you're probably in the 10 million to 15 million range as far as EBITDA contribution from those.

So excluding some of the discussion we've just had with John about market conditions, what you -- we're not giving 2007 guidance yet. But clearly, some of the confidence with which we speak about visibility for future distribution growth in the future beyond 2006, which is kind of where I was heading in my conference call comment, is bolstered by the fact that we've already built in some good EBITDA growth above baseline performance in 2007 and then really into 2008, because if we think about it, St. James won't even have a full year until 2008.

And then -- and I'm kind of a little bit of a excitement mode here, it's just about 2009 is when our gas storage facility comes on. So we've got real good visibility and EBITDA growth, we think, for the next several years. And that's without ever making any acquisitions. And I got to tell you, we're not out of the acquisition game, we're just going to continue to be very disciplined.

Of the 230 million, do you think a significant amount of that can be financed with debt?

Well, the perfect way is we have a great year and we'll finance a bunch with excess cash flow the way we did this last year. I was saying we're not -- we've got our balance sheet in position. We're not forced to go to market for equity, and if we continue to generate excess cash flow, we'll have -- in effect, the best way to raise equity is to earn it. So between the debt capacity we have, the excess cash flow capacity that we think we're generating, we're in a real good shape.

I will say this -- we are committed to our financial growth strategy to maintain a very disciplined balance sheet. We think ultimately that's going to cause huge rewards when people can't raise capital as easily and we'll have that liquidity on our balance sheet. So I won't tell you that we're not going to market in 2006. I will tell you that we don't have to go to market and we certainly don't need to raise very much money at all.

Given those comments, what's your outlook for the distribution growth over the next couple of years? Do you have a goal in sight?

We're only speaking to distribution growth in '06. But, we're targeting 10% growth in distributions made in '06 versus '07 -- excuse me -- '06 versus '05. And if you just do the math on that, we distributed 258 in '05. That puts you at about 282 distributions made -- excuse me, 284, I'm corrected -- in distributions made in '06. And given our idea, we like to do consecutive smaller distributions as opposed to big jumps, I mean you're looking for good growth quarter-to-quarter throughout the year within an exit rate that's pretty attractive.

And then, if you look at the coverage ratios just quickly, our -- based on our midpoint of the guidance, we, at our current distribution level, will throw off about 121% coverage for this year. We spoke in the past of our goal of being somewhere between 105% and 110% coverage. And based upon the midpoint and all the numbers that we've got here in front of us today that we put out there in our guidance, you could be at 295 and -- with a 107 coverage; 290, you're at 110 coverage. So you do that math and you say how likely is it that Plains can achieve their 10% growth in '06 versus '05? And the answer is all we've got to do right now is execute on what we've put on the table.

And then, as you say earlier, these projects that we're spending in 2006 will generate growth in '07. And I don't want to get too far ahead of ourselves because things do change. I mean, it's good a visibility as we have. We also know that the world is not constant. So I don't want to get too far out there. But we're feeling very good about our ability to generate meaningful distribution growth in '06, '07 and '08 without having to make acquisitions. And that's -- I think that's what every MLP aspires to put themselves in a position of being and it's just a tribute to the management staff and the employees that we've gotten ourselves there.

Okay. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]. Gentlemen, at this time, it appears that we have no further questions. I'll turn the floor back to you.

First, thanks to everybody for attending. We apologize for the length of the call. But it was a lot of information to cover, and we certainly wanted to give you an update as Harry did also on our natural gas storage activities. We look forward to giving you updated results at the end of the first quarter, and we'll endeavor to keep the call shorter. Phil, you have something to say?

Let me say one thing. I was -- I think I misspoke when I said that our 10-K would be filed over the next month. For those of you that are looking for it, it should be filed over the next week to 10 days or so.

That's all, Heidi.

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