Plains All American Pipeline LP (PAA) 2007 Q1 法說會逐字稿

Welcome to Plains All American Pipeline's First Quarter 2007 Results Conference Call. During today's call, the participants will provide forward-looking comments on the partnership's outlook, as well as review the results of the prior period. Accordingly, in doing so, they will use such words as believe, estimate, expect, anticipate, et cetera. The partnership intends to avail itself of Safe Harbor Provisions that encourage companies to provide this information and directs you to the risks and warnings set forth in Plains All American Pipelines 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 its 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 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 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 Executive Vice President and CFO.

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

Thank you, Diego, and welcome to everyone. As a reminder, the slide presentation and--accompanying this call is available on our website at www.paalp.com.

PAA generated strong operating and financial results for the first quarter of 2007. Highlights for the quarter are summarized on slide three. The partnership reported net income--EBITDA net income per diluted unit of 84.7 million, 165.8 million, and $0.61 per unit, compared to respective first quarter 2006 results of 63.4 million, 100.3 million, and $0.71 per unit.

Excluding selected items impacting comparability, which in the aggregate negatively affected results by a total of 34.9 million, first quarter adjusted EBITDA was 200.7 million, and adjusted net income was 119.6 million or $0.92 per diluted unit. These adjusted results represent increases of approximately 89%, 73% and 12% compared with corresponding results for the first quarter of 2006, and exceed the upper end of the guidance range we've provided in our February 2007 conference call.

As shown on slide four, this marks the 21st quarter that Plains All American has delivered results in line with or exceeding our guidance. I should also mention that included in these results is an approximate $4 million gain on the sale of 30,000 shares of our NYMEX holdings. We still own 150,000 NYMEX shares, which is the minimum amount required to qualify for member fees on our NYMEX transactions.

Before I turn the call over to Harry to get into the details of the quarter, I wanted to provide you a status report on the various milestones associated with the Pacific Energy Acquisition. Believe it or not, it has now been approximately 11 months since we announced the acquisition. We were able to use the first five months between announcement on June 11, 2006 and the consummation of the transaction on November 15, 2006 to prepare a comprehensive plan to integrate Pacific's operations and activities into PAA's business functions and processes.

Since closing the transaction in November, we have aggressively implemented these plans and have now operated the assets and businesses for over five months. Overall, as shown on slide five, we have achieved each of the four major milestones we discussed in our last conference call. First, Pacific's business functions and its operations and compliance activities, which historically were conducted under a regional profit center based business model, have now been converted to the function based model used by Plains All American.

Second, we have completed the integration of Pacific's accounting and information systems into Plains All American systems. I would point out that although we were able to accomplish these two objectives in the allotted time period, I must admit it was a bit more challenging than we originally anticipated. We met substantially all the deadlines, but only by committing more hours per day than were originally estimated. The success of this effort is directly attributable to the fact that we were able to leverage off of our prior experiences in integrating more than 40 other acquisitions and also to the hard work and ingenuity of our integration team and the various departments within PA involved in this process.

We are also on track to achieve the third milestone, which is to fully realize the $30 million of synergies we targeted for 2007. These projected synergies have been incorporated into our 2007 guidance, and as noted today, we are performing in line with to slightly ahead of the original 2007 guidance.

Finally, we have incorporated the former Pacific capital projects into our 2007 expansion capital program. Harry will provide details on the significant capital projects in a few moments, but overall, the 2007 capital program is also on track.

As noted in the June 11 conference call, there are a few longer lead time activities that will continue to the first part of 2008. These items primarily deal with integrating the SCADA systems that enable us to remotely monitor and control the flow of crude oil and refined products on our pipelines and our certain terminals. This extended transition period is typical of all acquisitions and we will continue to run PPX's SCADA system until we have completed programming on Plains' SCADA system to incorporate Pacific's activities.

Once that is completed, we'll also run parallel systems for a period of time to make triple sure that everything is functioning properly. These longer lead time issues are also on track, but by and large the integration of Pacific was completed in early--in the second quarter as per our targeted milestones.

Overall, operationally and financially the businesses are performing in line with expectations. As is often the case in any acquisition, we have had to invest some time putting out a few unexpected fires. Pacific had completed a number of acquisitions that had not been fully integrated before we completed the merger. Accordingly, many of the unexpected hot spots involved recently acquired assets, including issues with respect to compliance and environment and safety rules and regulations, as well as some reconciling issues with respect to customer inventory balances. Although these type of issues do present headaches, most of them are very short term in nature and are not material in the aggregate, but the resolution does absorb some management time and thus my comments earlier about we had to work a little bit harder to get here.

With respect to the compliance matters, our 2007 capital budget includes approximately 22 million of capital associated with upgrading and bringing the Pacific assets into compliance with regulatory requirements. And for that reason, we do not believe the issues will change the acquisition economics, but may result in some one-time operating costs and perhaps even some fines or penalties for operations prior to the merger date. But more likely it's just simply going to take some additional investment of management time to resolve.

On the very positive side, we have identified additional potential commercial synergies that are incremental to those we identified at the time we announced the transaction in June 2006. At a minimum we believe these additional synergies more than offset the minor disappointments. Perhaps more importantly, no matter how you measure it, we are right on track with respect to integration and realizing our targeted synergies. And we are also optimistic that there will be realizable synergies beyond those originally forecast.

Again, on behalf of the Board and the senior management team, I would like to express our appreciation to all of our employees that helped make this transition and integration a success.

The remainder of the call will be divided into three main parts. First, Harry is going to review first quarter operating results, address major operational assumptions for second quarter guidance, and provide an update of our expansion capital projects and recent acquisitions.

Next, Phil will discuss our capitalization, liquidity, and recent financing activities, and then also review updated financial guidance. And then, lastly, I'll wrap up the call with a few closing comments on our current performance versus 2007 goals and provide some insight into our outlook for the future.

At the conclusion of our prepared remarks, we will have a question and answer period. And shortly after the completion of the call, we will post a complete written transcript of the prepared comments, as well as a downloadable audio version of the call. With that, I'll now turn the call over to Harry Pefanis.

Thanks Greg. Each of our segments performed in line with or above the first quarter guidance we provided on February 22. And as shown on slide 6, adjusted segment profit for our transportation segment was $82.3 million or $0.35 per barrel, and that was approximately $3.3 million above the midpoint of our guidance range.

Transportation volumes were approximately 2.6 million barrels per day, which was in line with our guidance. And the over performance was primarily related to the timing of API 653 costs. Our adjusted segment profit for the facilities segment was substantially in line with the midpoint of our guidance range at $23.9 million or $0.21 per barrel with volumes of 37.8 million barrels per month.

Adjusted segment profit for the marketing segment was $89.7 million or $1.13 per barrel, which exceeded the mid-point of our guidance range by about $11.7 million. Volumes were 883,000 barrels per day, which exceeded our guidance by approximately 18,000 barrels a day. And that included crude oil lease gathering volumes, which were approximately 10,000 barrels a day higher than guidance and our LPG sales which were approximately 8,000 barrels per day higher than our guidance. Our marketing results benefited from these higher volumes and favorable market conditions, including a contango market that existed throughout the quarter.

In a moment, Phil will discuss our 2007 guidance. This guidance assumes second quarter volumes in the transportation segment of approximately 2.7 million barrels per day. Volumes on our larger systems are shown on slide 7 and include 47,000 barrels per day on the All American system; 335,000 barrels per day on the Basin pipeline; 215,000 barrels per day for the Capline pipeline; 175,000 barrels per day on the combined Line 63/Line 2000 volumes; 60,000 barrels per day on our Salt Lake City pipeline; and 75,000 barrels a day for Manito system.

Second-quarter guidance for our facilities segment is based on average capacity of 36.3 million barrels per month of crude oil, refined products and LPG storage, 12.9 Bcf per month of Natural Gas storage and 17,000 barrels per day of LPG processing throughput. Second-quarter guidance for our marketing segment incorporates lease gathering volumes of approximately 675,000 barrels per day, LPG sales of 85,000 barrels per day, foreign crude volumes of 83,000 barrels per day and refined products volumes of 10,000 barrels per day, for an estimated total volume of 853,000 barrels per day.

Second quarter guidance reflects an expected continuation of the favorable market conditions although not as strong as the conditions experienced in the first quarter of 2007. And second quarter guidance also reflects a seasonal decrease in the LPG contribution. We have assumed a moderately strong market structure for the remaining two quarters of 2007, also.

Maintenance capital expenditures for the quarter were $10.7 million, and that's in line with our expected full-year 2007 costs of about $45 million. As seen on slide 8, we are proceeding according to plan on our $500 million capital expansion program. And as expected, we've had the usual shift of capital between projects; however, this has not affected our overall 2007 capital plan.

An update on a couple of the projects. At St. James, we have placed 2.5 million barrels of the 3.5 million barrels of Phase I into service. The remaining portion of Phase I should be operational by the first of July, and we are proceeding according to plan on the 2.7 million barrel Phase II expansion. The Salt Lake City expansion, the Cushing Phase VI expansion, Cheyenne Pipeline and Martinez terminal expansions are all on schedule. And we will be starting the construction of our Patoka terminal in the next few weeks.

And also, we have increased the size of our Ft. Laramie terminal from a shell capacity of 300,000 barrels to 750,000 barrels, which increased the estimated costs for this terminal from approximately $12 million to approximately $30 million. And then, lastly, we are still waiting on the release of the draft environmental impact review for Pier 400.

Before I move on to acquisitions, I wanted to note that the Plains All American/Vulcan joint venture continues to make progress on the Pine Prairie gas storage development project. All three cavern wells have been drilled and leaching is underway on Cavern Well Number 1. In prior calls, we have stated that we planned to bring Cavern Well into partial service in the latter half of 2007. However, due to some mechanical related delays, it will probably be early 2008.

This project is--this is a project we are very excited about. We are nearly 100% contracted for the storage volumes and we are projecting--that we're projecting to bring on-stream over the next few years. And demand for storage continues to remain high. As a result, we are positioned to significantly expand the storage facility beyond the original 24 Bcf. And we're in the process of filing applications to permit two additional storage caverns.

As for acquisitions, so far this year, we have announced or closed three acquisitions for a total of over $65 million, including the $52 million Bumstead LPG storage facility that we expect to close early in the second half of this year. And this facility has approximately 133 million gallons of working capacity and provides a nice complement to the Andrews LPG assets we acquired last year.

We continue to pursue our annual goal of averaging $200 to $300 million in strategic Acquisitions. And in addition to our ongoing efforts to acquire complementary assets to our existing crude oil and LPG systems, we are actively evaluating opportunities for refined products and natural gas storage assets. Our overall acquisition activity remains high this year.

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

Thanks, Harry. Good morning, everyone. As Greg mentioned earlier, during my portion of the call, I'm going to review our capitalization and liquidity at the end of the first quarter and then walk through our guidance for the second quarter of this year, and then the updated full year.

As summarized on slide 9, we ended the first quarter with a strong credit profile and capital structure. At March 31, 2007, PAA's long-term debt outstanding was approximately $2.6 billion, while book equity was approximately $2.9 billion. As a result, our long-term debt-to-total cap ratio was approximately 47%, and our first-quarter adjusted EBITDA-to-interest coverage ratio was approximately 4.9 times.

Using the mid-point of our 2007 adjusted EBITDA range, our long-term debt-to-adjusted EBITDA ratio is approximately 3.7 times. As shown on slide 10, even with approximately $5 billion in cumulative acquisitions and expansion capital investment over the last five and a half years, we have been within our targeted 50% of long-term debt-to-total cap ratio in 21 of the past 22 quarters.

You should keep in mind that the foregoing metrics exclude our short-term debt and contango-related interest costs. This is because our short-term debt primarily reflects borrowings under our contango facility and revolver for hedged crude oil and LPG, as well as NYMEX and ICE margin requirements, and the vast majority of these borrowings are essentially self-liquidating.

At March 31, the balance in short-term debt was approximately $900 million, approximately $100 million lower than the balance on December 31, 2006. Our financial growth strategy targets funding 50% of our growth capital with equity and excess cash flow. Consistent with our history of proactively financing our capital needs, we entered 2007 with approximately $200 million of equity and excess cash flow over and above our 50% target. When combined with our projected 2007 cash flow in excess of distributions, we have largely pre-funded the equity portion of this year's $500 million of expansion capital projects.

We will, however, continue to monitor the potential need for additional equity to keep pace with our acquisition activity, as well as additional equity necessary to maintain credit metrics consistent with our targeted credit ratings should the inventory and liquidity requirements associated with our merchant activities in crude oil, LPG, and refined products increase meaningfully.

Prior to discussing our guidance, I wanted to mention that in spite of the increase in the number of units outstanding due to the Pacific transaction and a 16.4% year-over-year increase in the distribution rate, our distribution coverage ratio for the first-quarter of this year is a very healthy 1.33 times the $3.20 annualized distribution that was paid during the first quarter of this year.

Let me now move on to financial guidance. You should note that this guidance excludes selected items that affect comparability between periods, namely the impact of SFAS 133 and LTIP expense. I think it is important to note that we add back the LTIP expense because the awards that are eligible to be settled with the issuance of units are already included in the fully diluted unit count. Excluding this expense from our adjusted results avoids double dipping the impact of these awards. We do not exclude the portion of expense that is associated with awards that by their very terms will be settled in cash. That amount is forecast at approximately 700,000 for the second quarter and approximately 2.8 million for the full year.

I will also note that our projected LTIP expense for each of the remaining quarters is forecast to be less than the first quarter's expense. The first quarter's charge included approximately 8.4 million of catch-up expense associated with the increase in the price of the units during the first quarter.

This catch-up expense reflects the cumulative impact of a higher unit price on the LTIP liability accrued during prior service periods. For more information, please see our detailed guidance that was furnished via 8-K yesterday morning and is available on our website. Since that 8-K is on our website, I'm only going to touch on the high points of guidance and that's included on slide 11.

For the second quarter of 2007, we guide you to an adjusted EBITDA range of between 165 million and 180 million, with a midpoint of 172.5 million. We estimate second quarter adjusted net income will range from 81.1 million to 98.3 million. That equates to $0.57 to $0.73 per diluted unit. For the full year, we have increased our adjusted EBITDA guidance range to approximately 696 million to 736 million with a midpoint of 716 million. This midpoint is approximately 26 million higher than the initial guidance that we provided for 2007. As described earlier, this adjusted EBITDA guidance includes the 30 million of synergies we expect from the Pacific transaction. Again, for additional details and assumptions, I would refer you to the 8-K that we furnished yesterday evening.

And finally, before I turn the call back to Greg, I just wanted to give an update for those investors that are interested in our gross receipts. As we have described in our prior calls, EITF 04-13 requires that inventory purchases and sales under buy/sell transactions with the same counterparty be treated as exchanges and netted for financial statement presentation. For the first quarter of 2007 this EITF lowered our reported revenues by approximately $6.3 billion. This accounting treatment lowers the net revenues for financial reporting purposes, but does not affect overall margins, profits or the amount of gross receipts our unit holders are allocated for tax purposes. And then, with that, I will turn the call over to Greg.

Thanks, Phil. As our first quarter results and our activity update indicate, we are off to a strong start in 2007 and are well positioned to achieve or exceed our goals for 2007. These goals are recapped on slide 12, along with a few comments on our progress for each of the goals. The first thing I'd note is we delivered first quarter financial results that exceeded our guidance, and have increased the midpoint of our guidance for 2007 by $26 million. We achieved the Pacific Energy transition and integration milestones. Our 2007 capital program is on track and we also continue to develop additional projects for potential implementation in 2007 and also extending into 2008.

We have closed or committed to three acquisitions so far in 2007 totaling over 65 million and, as Harry pointed out, we continue to be active--very active in evaluating acquisition candidates that are consistent with our business model and also complement our current asset base. And then, lastly, we raised the May 2007 distribution to $3.25 per unit on an annualized basis and we remain on track to achieve our goal of increasing the distributions paid in 2007 by at least 14% over those paid in 2006.

While not listed as a specific goal, I would be remiss not to point out Phil's earlier comments that we have a very solid balance sheet and capital structure and we continue to maintain our conservative credit metrics, and we are committed to adhering to our established financial growth strategy.

Before we conclude the prepared remarks, I also wanted to highlight that our first quarter results once again reinforced the strategic location and functionality of our assets, the diversification of these assets, and the attractiveness of our business model in volatile markets.

We monitor and analyze the same macro energy supply and demand metrics that are generally available to everyone in the industry. However, our management team devotes a greater focus than many to the changing supply and demand profiles of the United States and Canada on a region-by-region basis.

In addition to absolute volume metrics, our analysis also focuses on quality issues with respect to refinery feedstocks and refinery outputs as well as intra and inter-regional transportation logistics. A meaningful portion of our team's focus and attention is devoted to forward-thinking scenario analysis. And by that I mean, essentially, trying to assess the need for modifications in existing transportation and storage logistics within each region, the impact of trends, as well as logistical bottlenecks, and the impact on spread and basis differentials, as well as the impact of supply or demand interruptions on both a macro and micro market basis.

Although certainly not flawless, I believe our team is one of the best at properly analyzing regional trends and conditions and acting on those assumptions--or assessments earlier than other industry players, thus positioning our business and our asset base to optimize returns.

Some of you may recall that we used the closing comments portion of Plains All American's October 2003 conference call as a platform - and some might even refer to it as a soapbox - to explain that--what we believed the future held with respect to macro and micro supply and demand balances and the potential impact of our assessment on markets in general and PAA in particular.

I won't burden you today by repeating or updating the detailed explanations we shared in our October 2003 conference call, but I will say that our assessment today is consistent with the conclusions we shared with you nearly four years ago, and these conclusions can be summarized in the following three points, which are also listed on slide 13.

First, the energy markets will likely continue to be very dynamic, increasingly volatile and subject to frequent inter and intra-month swings in outright price, market structure and basis differentials. Second, the North American pipeline and storage infrastructure requires significant modifications to address changes in energy supply and demand and related inventory requirements. And then, third, although PAA is not immune to some of the negative consequences of these conditions, we believe Plains All American is as well positioned in this environment as, if not better positioned than, other public midstream entities to generate a solid baseline of attractive returns with potential for performance above that baseline for many years to come.

Although our current outlook for future industry conditions is very similar to that which we shared in October 2003, PAA's crude oil asset base is even better situated today than it was four years ago to capitalize on those opportunities. We have also meaningfully expanded into refined products, LPG and natural gas storage infrastructure, which we believe are all complementary to our existing business lines and well-positioned to benefit from industry trends and conditions. We also believe that this expanded growth platform has lowered our overall risk profile while substantially increasing our exposure to upside growth in earnings, cash flow, and distributions.

We believe Plains All American is well positioned for our future. That was the motto on the front of our Annual Report this year. In addition to having a diversified asset base that is well positioned for current energy trends, we also have an attractive inventory of internal growth projects.

Our capital program in 2003 was approximately $56 million. In 2007, it totals approximately $500 million. Combining our inventory of organic growth projects with our outlook on future market conditions, we believe we are well positioned to meet our target of generating 7 to9% distribution growth over the next several years.

With those comments as background, before we open the call up to questions, I want to spend a few minutes talking about our approach to providing operating and financial guidance. Although we certainly believe PAA's assets and business model position it to benefit from dynamic and volatile markets, there are a number of challenges associated with trying to fine tune the guidance we provide you in those circumstances.

Accordingly, the approach we have taken to use--is to use the most current information we have available regarding market conditions and to provide a--project a reasonable range of performance with a slight bias for being conservative. In essence, we attempt to forecast a baseline that can withstand one or two negative developments and still remain at or very near the bottom of our forecast range. If market conditions remain stable we would expect to be at or slightly above the midpoint of our guidance range and if a few things go our way without any offsetting negative events, we would hope to be at the high end of the range.

Should the market be favorable for our asset base and the business model throughout the guidance period, we have the ability to exceed the highpoint of our guidance range. This was certainly the case in the first quarter of 2007, as a pronounced contango market structure combined with several instances of volatility in both market structure and basis differentials enabled PAA to generate operating and financial results beyond the high point of our guidance range.

Having now performed above the midpoint and in many cases near or above the high point of our guidance range for a number of quarters since 2003, this begs the obvious question - are we being too conservative with our guidance? Although I assure you we continually monitor and refine our guidance processes, we continue to believe that the best and most prudent approach is provide guidance based on what we believe we can deliver with reasonable certainty rather than take a more aggressive view on future events.

I should point out that when management prepares our recommendation to the Board each quarter and also sets the outlook for future distribution growth, we are focused on this baseline performance concept and not a mathematical extrapolation of recent favorable market conditions. This approach to providing guidance is directionally illustrated on slide 14, which appears immediately below a comparison of our actual performance relative to guidance over the last 21 quarters.

I would also point out that there is a favorable side effect to this approach in that we are able to use the cash flow generated by excess performance during favorable market conditions to either reduce debt or to reduce our reliance on outside equity capital to fund our growth projects, which ultimately enhances the future accretion of these projects on a per unit basis.

That wraps up the items on our agenda. We want to thank you all for your participation in today's call. Once again, a complete written transcript of the prepared comments for this call will be posted on our website at www.paalp.com very shortly. You will also have the option to download an audio version of the call.

And, Diego, at this time we're ready to open it up for questions.

Thank you. (Operator Instructions.) Our first question comes from Gabe Moreen with Merrill Lynch. Please state your question.

Hi. Good morning, everyone. I had a couple of operational questions. One, I was wondering if I can get your comments on the sale of the BP pipeline coming out of the Permian going to Cushing to Oxy. I noticed you raised your guidance in terms of volumes on the Basin for 2007, so I've got to think it's not impacting you that much. But do you see anything changing with that pipeline changing hands?

Harry, you want to try and take that?

Sure. The pipeline really gathers out of a different area than we gather crude out of the Permian Basin. Obviously, it can flow [finds] back into the BP system from our system or vice versa. But for the balance of 2007, we are not expecting any meaningful impact by that movement. It's pretty much the refiners that take crude out of Cushing [that] will dictate where those volumes come from.

Got it. Okay. And then, another quasi BP pipeline related question. I also noticed you raised your guidance for volumes on Capline. With the operational issues that BP is having at Whiting, I know that Capline's a big source for crude for that refinery. Is that having any impact on your business at all as BP's got curtailed volumes that are waiting?

Well, BP has their own space on Capline. So what they do on their space doesn't affect our space.

Okay, got it. And just one final question. In terms of ballpark--if you could give me a ballpark figure in terms of how much of your business nowadays you're getting paid in Canadian dollars. If you had that figure off the top of your head just ballpark.

In Canadian dollars or from--?

--In Canadian dollars.

Oh, gosh. It would probably be--well, when we hedge anything of our oil business we hedge that on a daily basis on a ratable basis.

Okay.

So very little FX fluctuation, if that's what you're trying to get to.

Okay, great. Thanks.

I hope I answered that.

Yes. Gabe, just to reiterate, we don't take a view on where the Canadian dollar is going to go, so when we buy and sell we immediately back to back it with day to day hedges.

Understood. Okay.

Our next question comes from Sam Arnold with Credit Suisse. Please state your question.

Hi. Good morning, guys. Could you talk a little bit about your effective capacity at Cushing, given basically the problems that they're having there--kind of what the overall kind of nameplate capacity is and then the--kind of the effective working capacity?

Sam, are you talking about for the entire complex or for our tanks in particular?

For yours.

Well, we're right now in the process of increasing the facility to about 10.4 million barrels I believe it is, Harry.

Yes.

And the current expansion is--was it 3.1 million barrels?

Yes.

And, Sam, we had announced that--when we built those--most of that expansion is basically 100% contracted.

Right. But what I'm wondering is we were talking with another company on the call and there's been some talk about what the overall true capacity is at Cushing. And another company is stating that only about 80% of their nameplate capacity is actually working because you have to have so much in the tanks. And they're going through rotations of products and things of that nature. And I was just wondering what yours--if your number was similar to that.

No, our number would be a lot higher working capacity per shell barrel--and shell--not Shell Oil, but shell--.

--Right, yes, I know what you're talking about.

And the reason for that is ours is probably one of the newest and then we sort of think the best design facility. So for instance, we have the ability to pull our volumes down basically to two or three inches, if we needed to change products. And also, we have lower maintenance levels with respect to the--what they call the heels you always refer to. It's kind of the head and heels - the part of the tank you can't use at the top and the bottom.

Right.

So I'd probably say, Harry, from an efficiency standpoint, we may be 30 to 40% more efficient on that incremental part of the tank.

Okay. So would you--.

--Well, probably--I mean, we're going to be more efficient. But if we're keeping crude in the same service, we don't typically take it all the way down to the bottom. We'll take it down to the amount that it takes to [indiscernible] and then--throughput it. So--and we have a combination of tanks utilized in throughput service, tanks--some of the tanks are in contango service. So it's hard to say what the efficiency is. There are--.

--Sure.

--[Inaudible] I can assure you are full.

Yes, that's what I was wondering. And say you drew every one of your barrels down to the two-inch minimum capacity, how much could you put in before you would have to say stop? Is that nine million barrels?

Oh, no. Of the--if you take--you're saying that here we've got the next--and Sam, I want to apologize. Harry and I are in different locations today. But if you take the 10.4 million barrels, probably the effective working capacity on that, Harry, is probably about 85%, maybe a little higher?

Yes, about 85%.

Okay, that makes sense.

Yes. And the other thing, Sam, that I might point out that will be a phenomenon for the next really two years is API 653. I think the date is May of 2009 when you have to have taken every existing tank and have tested it and upgraded it to an API 653 standard. And so there's, as you might expect, a little bit of a hockey stick impact going on right now because some of that got put off early for a lot of people.

Right.

And then, in Cushing, in particular, if you'll let me swag a number that says there's probably nominally around 28 to 30 million barrels of total capacity up there, which compares, by the way--when we started building the 22 million barrels. There's been a lot built, but a lot taken out of service. There's probably still 5 to 7 million barrels of capacity that may be in those numbers that's over 80 years of age.

Right.

So you may have to come up with your own numbers as to what you think will actually be left in service or what will just be taken out of service. And part of this construction that's going on in Cushing today is anticipated replacement tankage for some of that.

Right. Okay. And just one quick housekeeping item. On your GP take, that actually involved removing the--I guess, the incentive to this distribution, right, reduction that you had. Is that correct?

The dollar amounts that we show in the quarter? Yes, that was net of what today is a $5 million a quarter reduction.

Okay. Okay, that's what I thought. All right, thanks.

Thank you.

Our next question comes from George Green with Richfield Capital. Please state your question.

Yes, hi. I was actually wanting to piggyback a bit on what Sam asked. You just mentioned that you had 3.1 million barrels coming online you thought. Is that for this year alone--your storage in Cushing?

It will be in service by the end of 2007, yes.

Okay. By the end of 2007. Okay, great. And then, also, do you guys have any plans for bursting any of your pipelines? You talking about it at all?

I'd say there's no definitive plans to do anything. I think in today's environment, everybody's looking at several alternatives to try and adjust to the changing dynamics in the market. But certainly, we have not announced anything or advanced anything to a stage where it was probably worth speaking of.

Okay, fair enough. Actually, I think that's it. Thanks, guys. Appreciate it.

Our next question comes from Yves Siegel with Wachovia Securities. Please state your question.

Thanks. Greg, just curious, is there anything out there that you think could upset the apple cart in terms of looking at industry fundamentals?

Yves, the issues that could affect it would be certainly you can't ever rule out China. I mean, just the sheer numbers issue--if they increase demand or decrease demand off pattern, if you will, from what people are expecting, it will either cause a tightness in the market or a weakness in the market. Other issues that would be global effect would be certainly something like a bird flu. The last time that you saw the market take a deep intake and just go stagnant for a while was September 11, 2001. And so, those are the geopolitical issues.

I think from our perspective, and I apologize for those that have heard it back in 2003 and hear it a little bit again today. But we think all the conditions point to continued volatility. Overall supply/demand is tight. And so, any geopolitical issues are going to cause a ripple across that. At the same time, on a macro basis that it's that tight, if you look in the U.S., you've Canadian volumes trying to fight their way down deeper into the U.S. to find markets for crude that really is saturated.

On a quality basis, the upper portion of the United States today, you've got offshore Gulf of Mexico volumes coming back on that were inhibited by the hurricane. And then, you've always got the fact that all the foreign countries in the world are always looking at the U.S. as the safe haven, if you will, for sending crude. So they're fighting to maintain that market share.

So in a world that's very tight on oil and supply--oil supply versus demand, you've also got a surplus of crude on a regional basis. If you stand back and say how are Plains situated for that and the answer is we couldn't be happier about the ability to help the market solve its problems.

Thanks, Greg. I just have two quick ones just to follow-up. The [second] is do you have an update in terms of when you think you'll get permitting for Pier 400--if that timetable has changed at all? And the second is you're out there with a $200 or $300 million gulf or annual acquisitions. Beyond the next year and a half, do you have a goal for organic growth projects, how much growth capital you think is sustainable looking out over the next three to five years?

I'll take it in reverse order. I would say as a target or a goal, no. As a guidance kind of outlook, the combined portfolio--and we've integrated all of Pacific's into ours now. We're probably in the 300 to 500 million range visibility wise for 2008. A fairly big swing factor in that would be Pier 400. And that's a permit timing issue. But at the same time, we're generating new projects every day that to some extent we may run into a people capacity issue.

So if one slides off the table, that opens up a slot for something else to slide in. So when we run our extended vision model that allows us to kind of set with reasonable expectation, but certainly not without risk, that 79% growth in distributions, it's on the back or the strength of, if you will, that outlook for organic growth and the fact that there's already a delayed benefit built in. The capital we spent last year is starting to benefit 2007 and part of 2008. The capital we're spending this year is affecting 2008 and will affect 2009.

So that's a very comforting feeling for management and I think it should to our unit holders that that pipeline, no pun intended, of capital projects continues to be full and be extended out there. So probably, not necessarily a target, but an indication of comfort says we've got we think for the next several years 300 to 500 million of project opportunities that we could bring into play in any given year. I think we've got 500 obviously for 2007. I think there's a couple of hundred million of that actually carries over into '08. And we've got separate from that about 500 to 700 million of projects that we have in the hopper, which includes Pier 400, which is roughly a 300 million incremental plus or minus number in any one given year.

So as far as an update on Pier 400, all I can tell you is we're diligently working through the California political process. And we're persistent. But we've got a lot of things to keep us busy if they keep delaying us there. So we're not too worried about having one project affect our future really. It certainly helps it, benefits it, but if it slid a full year, we've got other things we can put in its place.

Thanks, Greg.

Thank you.

The next question comes from John Edwards with Morgan Keegan. Please state your question.

Yes. Hi, guys. Just following up Yves question. You were talking about 300 to 500 million in capital projects for '08. Are you also saying in effect you've got--you figure you're going to have about 400 million in '09 and '10? Or maybe you can clarify that.

Yes. If you just--if you total up what I just mentioned and you assume that's got 2.5 years worth of visibility into it, you're in that range of 400 million on average, based on what we think we know right now for '08 and '09. How that actually gets spread, John, whether that's 500 in '08 and 300 in '09, or whether it's 300 in '08 and 500 in '09, is somewhat dependent upon some of the permit issues. But as we sit here today, I can tell you that there are projects that we're working on that we haven't put into that category of calling them an inventory project that we think are going to come to pass.

I think we're going to have excellent visibility to continue to grow in the crude oil refined products, natural gas, and LPG arenas for the next four or five years. And it wouldn't surprise me, if we could roll the clock forward five years, if we looked back and find out we didn't average $500 million a year for four out of those five years.

So again, some of that has yet to be defined, but that's where we think the business has gotten to. We think we have a regenerative ability on these projects because of the footprint we have, the business model. And then, the--our call on what we think the market's needs are and the needs--the market needs are high.

Okay. So in other words, you're saying it's a reasonable expectation to have say a billion and a half - 1.5 billion - of organic growth opportunities over the next say four years. Is that a reasonable way to say it?

Four to five years.

Four to five years, okay.

Yes. And realizing that if you're trying to say, okay, how much of that can I support today with specific projects, excluding the '07 activity, but including what carries over into '08, you're probably in the 500 to 700 million of that. So you're almost 50% of the way there based on what we currently have working in our portfolio. And that didn't exist in our portfolio two years ago. So it's not unrealistic to think we can replace it over the next two or three years, so that we keep that pace.

Okay, great. And then, the other question, stepping back on the Pacific merger, can you talk a little about what you have seen as being say your positive surprises and negative surprises that have come from that?

The positives are certainly that we think the assets have as much or more potential to generate revenue opportunities, certainly in some areas we think there's some expense savings. In other areas, it may be offset a little bit of expense savings because we need to spend a little more money on a routine basis in certain areas than maybe we think Pacific was. So on a net positive basis I would say, one, we're achieving the synergies that we thought at a minimum, we've already identified those that are incremental that we think are going to benefit the future period.

So we're really comfortable with the forecast we gave of generating the EBITDA increases that we had on the phone call on June 11. And I think we went pretty far. I think we went out five years and said we're going to take what's currently $140 million EBITDA base and we're going to take it all the way up to about 340 million over about a five-year period. We're there and feeling very good about that. There may be a little bit of timing issue - one slips to one year or another. But the run rate at the beginning and end of that are still pretty well locked in. And we think there's upside to that.

The disappointments - or maybe frustrations is a better term - is again, I think what we discovered, that there was--Pacific had its own acquisition track record before we got a hold of them. And they hadn't integrated all of those. And so, in the conversion of a regional profit center basis to a centralized functional basis, the way we operate, it was a little more work. There's certainly some--as I mentioned, some attendance to compliance and safety issues that are short-term headaches.

As I mentioned, we may even end up with some of their operation resulting in a fine or two that we just wanted to alert you to, not because we've created something, but that we inherited it. And we've just got to work our way through it. So I would tell you that if we had planned on originally working six days a week, 12 hours a day to get to the point that we wanted to get to, we had to work seven days a week and sometimes 14 to 16 hours a day. But our--the commitment was there for [everybody] to get there and so we got what we needed to.

We still have probably three to six months of fine tuning their operations. They're integrated. They are now functional based, but we've still got people moving around. So it--we share that. We're about as transparent a company as we think you can get. We share that with you just because we want you to know that it's--we're working hard for the unit holders. It's not always as easy as it appears on a worksheet.

Okay, great. Thanks a whole lot.

Our next question comes from Barret Blaschke with RBC Capital Markets. Please state your question.

Hey, guys. Just a quick question. When I'm looking at the guidance going out ahead--going out forward, the FS--excuse me--SFAS 133 mark-to-market was 17 million the first quarter. And then, are we just assuming no more for the rest of the year, or it's just not something you're giving guidance on?

We exclude that because it's largely based off of what the oil--what prices are at the end of the quarter. And we stated in the conference call that we exclude that. But the fact is what we can't--there is--it requires us to mark-to-market in some cases half of our hedges. And when I say half, I mean, we're actually putting hedges on against a physical position. And they don't let us recognize the physical, but they make us recognize the financial.

And from our standpoint, we exclude it each time because it's non-cash, and second, it always reverses. In other words, the gain is there to offset the loss. They just don't let us recognize it at the same time.

Right.

That's why, if you go back and you look at that on a quarter basis, you'll see in some cases a $15 million gain that we eliminate, the next quarter we eliminate a $17 million loss. Embedded in each one of those numbers are offsetting gains and losses. So we take it out completely and look at--what I think you care about most is what's the cash number.

Yes.

And so, trying to project what at June 30 the oil price would be, so we can come up with a FAS 133, we've told people over and over again, your guess is as good as ours. We're--on absolute price.

All right. Thanks, guys.

Thank you.

(Operator Instructions.) Our next question comes from John Tysseland with Citigroup. Please state your question.

Hi, guys. Real quick. I was wondering if you could talk about some of the recent refinery disruptions and the amount of storage that has actually backed up in the Cushing as a result. And kind of what that dynamic meant to your margins during the quarter and how you might see that issue correct itself as these refineries come online and things kind of get a little bit back to normal.

Yes. Before you get off the phone, I may ask you to define what's normal because we haven't found it in the dictionary lately. Harry, you want to take a shot at that?

Well, the Cushing was--has been full of storage for a while. So we haven't--it's caused the differential to increase and the contango to widen. So it definitely--some of the events of the first quarter helped our--were favorable to our assets and our position for the quarter. You would expect to see increasing refining runs going forward. I mean, that typically happens in the summer. And typically, you would see the most [indiscernible] draw downs. And that's part of the reason why we're--we think we'll see favorable conditions in the rest of 2007, but not quite as strong as they were in the first quarter.

Yes. I would say, John, too, one of the things--a couple of things just operationally what we did that may give you a flavor for that. When the McKee refinery went down, we certainly worked with Valero to--well, they reversed their pipeline to make space available at Wichita Falls, so that they actually had a place to store the crude because you had a lot of captive production on a regional basis that naturally flowed crude to the McKee refinery.

When you take that consumption away, then your [indiscernible] is going to have to shut in or alternatively you need to make an adjustment in the infrastructure. So they reversed their pipeline. The tanks at Wichita Falls quickly filled up. Our guys on the commercial side, in order to service our customers, and we're certainly a for profit entity--but at the end of the day, we also want to make sure we make our customers long-term happy. So we actually emptied some tanks in Cushing and gave up the commercial opportunities to be able to handle some of the backup that you're referring to that pushed crude into Cushing.

Ultimately, when you build those tanks up though, then you're back to what Harry said. You're going to get a more pronounced contango. And it didn't take long to fill up several million barrels of tankage we made available. So I would summarize it back to saying it was certainly a very dynamic quarter. Our assets and our business model and our commercial execution skills certainly have the ability to take advantage of that. And that's why we would tell you that it was a big part of the over performance in the first quarter was a result of that volatile market condition.

Having said that, as you look forward, it's hard to say. And I get back to my joke about being normal. I'm not sure that we know what that is. I think refineries are running at very high capacity right now. They have shorter turnarounds than they used to have because they're trying to make as much money as they can and meet the needs of consumption that are constantly going up. And anytime you run something flat out long time, you're going to increase the likelihood of an interruption. You just don't try to predict where it's going to be as a challenge.

With our current asset footprint, wherever that upset occurs, we've probably got assets that are going to be able to help the market with its challenges of temporary supply and demand and balances. And ultimately, because of our ability to transport crude to Cushing and our big footprint there, we're going to have the ability to help bleed off that excess over time to the areas that the crude actually can be liquidated or consumed.

So we're--like I said, we get back to kind of the macro. And part of the reason for going into the soapbox again today about what we said in '03 and what we're seeing in '07 is the picture is every bit as good, if not better, today for that type of environment to continue. And our asset base is even better prepared today than what it was in '03 to take advantage of it. And take advantage of it, but I mean simply serve the market's needs, but get paid well to do it.

That helps a lot to put color on it. I really appreciate the detail. Thanks.

Thank you, John.

There are no further questions at this time. I will now turn the conference back over to Management to conclude.

Again, thanks everybody for attending. We really appreciate the support. We get a lot of comments from time to time. We--we'll be having our Analyst Meeting on May 30 here in Houston. We intend to have upwards of 25 members of Senior Management available to either make presentations or be able to answer questions. And so, we look forward to seeing many of you here in Houston on May 30. Thank you.

Thank you. This concludes today's teleconference. Thank you for your participation. All parties may disconnect now.