Plains All American Pipeline LP (PAA) 2007 Q4 法說會逐字稿

Welcome to the Plains All American Pipeline 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 the words such 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 warning 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 & Exchange Commission.

In addition, the partnership encourages you to visit its website at www.paalp.com and particularly the section entitled non-GAAP reconciliation which presents certain comments used non-GAAP financial measures such as EBITDA and EBIT which may be used here today in the prepared remarks or 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 the Plains All American Pipeline. Also participating in the call are Harry Pefanis, Plans All American's President and COO; and Phil Kramer, Plain's All Americans Vice President and CFO.

I will now turn the call over to Mr. Greg Armstrong. Thank you. You may now begin.

Thank you and welcome to everyone. As a reminder, the slide presentation accompanying this call is available on our website today and you can follow along just by simply advancing the slides. In addition to discussing fourth quarter and year end results, during the course of today's call we will be covering information that supports the five major points listed on slide slide. First, PA delivered another year of solid operating and financial performance that achieved or exceeded all five goals that were set for 2007. Second, the Pacific acquisition has performed well and contributions to adjusted EBITDA are in line with or ahead of the guidance we provided in June 2006. Third, we expect our baseline adjusted EBITDA which excludes contributions from favorable market conditions will grow at an average annual rate in the range of 7% to 10% through 2010 driven primarily by internal expansion projects. Fourth, we expect to continue to deliver attractive annual distribution growth for PAA which is underpinned by our baseline performance and projected contribution for our internal growth projects. And fifth, and finally as a result of the disciplined execution of our financial growth strategy we have excellent credit metrics, a solid capital structure, significant committed liquidity, and we believe we are well-positioned to execute our business plan even in a challenging capital markets environment.

Let me begin by briefly discussing the results we released yesterday afternoon. As illustrated on slide four, for the fourth quarter 2007 we reported EBITDA of $164 million net income of $77 million for $0.47 per diluted unit. Excluding the selected items impacting comparability, our adjusted EBITDA was $167 million, and adjusted net income was $80 million or $0.50 per diluted unit. These adjusted results represent an increase of 14% and decreases of 1% and 31% respectively over the corresponding metrics in the last year's fourth quarter. The largest item impacting comparability was a $12 million gain on the sale of landfill which was anticipated in our November 1, 2007 guidance. The other selected items include a $9 million loss associated with SFAS 133 and a $6 million expense associated with accrual for equity compensation. The aggregate effect of these items was a $3 million reduction to EBITDA in net income.

As discussed in our November call, our fourth quarter guidance reflected the delayed impacts of the crude oil market transition such as Contango interests realized in the fourth quarter associated with profits realized in the third quarter and other market related impacts. Fourth quarter results were also affected by higher than forecast maintenance expenditures. Those these results were between the low end and mid point of our fourth quarter guidance range as shown on slide five, this represents the 24th consecutive quarter that PAA has delivered results within or ahead of our guidance range.

As shown on slide six, for the full year we reported adjusted EBITDA and adjusted net income of 779 million and 431 million or $3.09 per diluted unit. These results represent increases of 52% and 32% and a decrease of 12% respectively over similar measures for 2006. These results also represent an increase of 13% over the baseline adjusted EBITDA guidance we provided at the beginning of the year. Before I turn the call over to Harry to cover the operational details of the fourth quarter, I want to address the five take away points I outlined earlier.

Slide seven provides a summary of the five goals we set for 2007 along with a brief commentary on our performance relative to those goals. As I just mentioned we exceeded financial guidance for 2007, we successfully integrated the Pacific Energy assets and operations and achieved the targeted level of synergies, we executed approximately $525 million in internal growth projects which underpins our forecasted growth and baseline adjusted EBITDA levels. We also completed four acquisitions totaling 123 million resulting in a three-year annual acquisition average of approximately $300 million which excludes the Pacific acquisition. Finally, we exceeded our distribution target as we achieved a 14.4% year-over-year increase in distributions paid in 2007 as compared to 2006. Overall 2007 was a year of solid execution that delivered excellent operating and financial results.

Next I want to briefly review the Pacific Energy acquisition. It has now been 20 months since we announced the planned acquisition of Pacific Energy and 15 months since its closing in November 2006. As we noted in prior calls, the farther we get from the closing date, the more difficult it will be to isolate the contributions from those assets and operations as they become part of our integrated activities. However, the short answer is that although not without some frustrations and mid course corrections, Pacific's assets and operations exceeded our original acquisition forecast for 2007. In our June 2006 conference call to announce the transaction, we identified 10 targeted transaction benefits, some were specifically quantified while others were more conceptual in nature but all were important. We have included six slides from that June 2006 conference call and have annotated them to reflect our current assessment.

Slide eight simply highlights the major components of the combination synergies and the fact that the full transaction benefits would be realized over an extended time period.

As noted in the slide excerpt included at the bottom of slide nine, we targeted to achieve $30 million in contributions to PA's adjusted EBITDA run rate with the first full year following the acquisition, 55 million by 2010 and 72 million by 2012, and those are all synergies. The upper part of the slide highlights that the source of these contributions were expected from a variety of sources including cost savings, operating synergies, and commercial synergies. As we integrate the assets and operations it becomes a bit challenging to isolate each component, but we can confidently state that the run rate synergies are in excess of the $30 million we targeted for 2007, and we also believe we're on track to ahead of schedule to achieve the $55 million of synergies we targeted by 2010.

Slides 10, 11, and 12 address the other seven transaction benefits. Since we have provided a status update on each of these, I don't intend to belabor these points now. I will summarize by saying that in addition to achieving quantified distributable cash flow contributions, we have indeed benefited by expansion in our organic growth projects which has given us significant flexibility to adapt to developments in the market, and also to adjust our project schedule when faced with regulatory delays. In addition, our business platform has benefited from the significant expansion of our refined products activities, the addition of important trundling and storage assets on both the West and East Coast and the resulting access to increased foreign activity. All of these enhanced our ability to generate a stable baseline of cash flows and a variety of market conditions while at the same time enabling us to maintain significant exposure to upside in favorable market conditions.

As I noted earlier, the Pacific transaction was not without its frustrations including adjustments in the timing of a few projects both forward and backwards. In our May conference call we discussed the fact we had to discuss a fair amount of management time putting out a number of fires. These hot spots involved compliance with environmental and safety rules and regulations and were primarily associated with acquisitions Pacific had made in 2004 and 2005 that had not been fully integrated by Pacific prior to the merger with PAA. These headaches were generally short-term in nature.

In addition, certain of these situations represented opportunities to tighten up historical practices and potentially realize long-term upside not originally included in our forecast. The other area of frustration relates to delays in receiving regulatory approval for certain capital projects primarily Pier 400. As you may recall from our acquisition conference call although Pier 400 was not considered essential to our acquisition of Pacific, it does provide some long-term upside that we definitely want to capture and it also sets up additional revenue opportunities once it is up and running. Our original estimate for bringing Pier 400 online was about a year later than Pacific's expectations but even that has proven to be a bit optimistic as regulatory delays now suggest a possible start-up date of late 2010 or early 2011 barring any further delays. I won't pretend that we're indifferent regarding the delay or the fact that we lack clarity on exactly when we will be able to commence construction. I will say that we were able to make some mid-course corrections and have been able to develop a number of other high return projects. As a result of accelerating these projects in conjunction with the incremental synergies we've been able to realize, a fair portion of the financial impact associated with the delay in Pier 400 has been mitigated, and we continue to expect attractive returns Pier 400 and associated projects just a bit farther out than initially anticipated.

Slide 13 illustrates just how successful in transforming this transaction was for PAA. As you can see on this slide, the portion of PAA's adjusted EBITDA on fee-based activities in a baseline comparison has increased from about 56% in 2006 to a solid two-thirds based on the midpoint of our baseline guidance for 2008. At the same time using that same mid-point metric, adjusted EBITDA is expected to increase by over $300 million from 2006 to 2008 which does not include the benefit of the favorable market conditions we were experiencing in 2006. All in all we are very pleased with the acquisition of Pacific Energy and similar to our 2004 acquisition of Link, we believe that in addition to providing a solid cash flow stream from current operations the Pacific assets will also provide a source of attractive growth opportunities for several years to come. The third take away point reinforces the success of the Pacific transaction and our expansion capital activities as the mid-point of our 2008 guidance for adjusted EBITDA targets a 14% increase over the initial baseline guidance we provided this time last year for 2007.

Slide 14 illustrates our history of steadily increasing our baseline results as well as our ability to capture certain upside opportunity. Just for clarification, and for our new listeners on the call, when we refer to the term baseline results, our intent is to speak to the range of results we believe that our business model and the counter cyclical aspects of our as set base will generate excluding the attractive but unpredictable impacts of favorable market conditions. When we do encounter favorable market conditions such as those of the pronounced Contango market we experienced from early 2005 to mid-2007 we utilize the incremental cash flow associated with such market conditions to reduce the amount of equity necessary to fund our capital programs or to pay down debt. Such incremental cash flow is not part of our baseline performance, and we do not include it in our outlook for distribution growth.

In addition, when providing financial guidance as shown on slide 15, historically we have only incorporated the incremental cash flows of associated with such favorable market conditions for the period of time that we have good visibility. We do not forecast that favorable market conditions will remain for an extended period of time when we issue annual guidance. However, any continued impact of favorable markets as well any other near term impacts on expected results will be reflected in the guidance we update quarterly which was shown on slide 5 and previously and it's repeated here on slide 16.

Looking beyond 2008, our inventory of internal growth projects provides us solid visibility for continued growth through 2009 and 2010. Although there will be some undulations in the actual results, we believe that the completion of these capital projects will enable to us target a 7% to 10% per year increase in baseline adjusted EBITDA for 2009 and 2010. This outlook is illustrated conceptually on slide 17 which shows an adjusted EBITDA target range of 840 million to $865 million for 2009 and 900 million to $950 million for 2010.

Also want to take this opportunity to address our outlook for future distribution growth which is our fourth take away for today's call. Several years ago we shared our belief that we could grow our distribution at an average annual compound growth rate of 7 to 9% per year. Catelized by bo9th organic growth and acquisitions we have exceeded that target as the actual three-year compound average growth rate on distributions paid through 2007 totaled 12.5%. Individual year-over-year distributions grew approximately 14.4%, 11.5%, and 11.8% for 2007, 2006, and 2005. Based on distributions paid in each year. Assuming we're successful in achieving our 2008 distribution goal ratably over the next three quarters, our four-year compound average distribution growth rate on paid distributions will be approximately 11% which we believe stacks up very well in comparison to our large cap peer group.

As many of you are aware, we take our operating financial guidance and our distribution growth targets very seriously. After taking into account the changes that have occurred over the last several years, the current market environment and the conditions that we believe are likely to exist over the next several years, as well as PA's overall growth and timing uncertainties for certain expansion projects, we have modified our targeted average annual distribution growth range to a range of approximately 5% to 8%. In arriving at this conclusion we consider a number of factors with each bearing its own appropriate weighting. A few of these factors are illustrated graphically on slide 18 and the majority can be summarized in the following four points.

First, we considered the current state of the U.S. economy and broader financial markets, as well as conditions that are specifically applicable to debt and MLP equity markets and the energy markets in which PAA operates.

The diagram in the upper left-hand portion of slide 18 illustrates the major down draft experienced by the MLP index and other major stock indexes during the latter half of 2007. Second, we consider PA's current unit price, the limited depth and breadth of the MLP equity markets and management's desire, commitment, and responsibility to prudently manage our cost of capital in relation to PA's potential capital needs and to maintain an investment grade capital structure as we grow our business via organic growth and acquisitions.

The chart in the upper middle portion of slide 18 shows how PAA's unit prices followed the trend of the MLP index despite consistently raising our distribution throughout that time period and the upper right-hand chart illustrates the capital investment opportunities that drive our capital needs over the next three years or so. Third, adjustments to the timing of certain of our expansion capital projects, recognition of the overall cost pressures that have affected the industry as a whole, and a decision we made to PAA to accelerate the application of pipeline integrity and tank inspection and repair procedures to assets that are not currently subject to regulatory mandate. Finally, the attractive inflation adjusted total return of an investment PAA when you can combine our current yield with the achievement of distribution growth with the targeted range.

As illustrated in the right half of the lower graph, based on our current yield holding constant, if we deliver annual distribution growth within our target range, the total return to PAA investors should range between approximately 12% and 15% annually. Balancing the delivery of attractive distribution growth and total return while prudently managing capital costs and availability is clearly a challenge for everyone, but the take away is that all the factors I just referenced are interrelated and management is charged with recognizing the impact of changing market conditions and adapting accordingly to ensure the continued execution of our business plan.

I want to clarify that the source of the targeted 5 to 8% distribution growth is derived from our current baseline activities, our inventory of expansion capital projects, and the typical bolt-on type acquisitions that augment our annual capital programs. If we are able to complete more significant acquisitions or business combinations as we have in the past, we have the potential to make a step change in our distribution level that could equal or exceed the high-end of the target range in any given year. I think it is worth noting that our assessment also leads us to believe that there will be potential attractive opportunities for consolidation among both public and private mid-stream entities over the next three years.

Along those lines and in light of the recent state of the capital markets our fifth and final take away point is significant. As a result of proactively managing PA's capital structure over the last several years we're very well-positioned to finance PAA's growth. We have effectively prefunded the equity requirements for our 2008 capital program with the remaining excess equity capacity for future expansion of our capital programs for funding acquisitions. Although raising the equity capital in advance benefits the balance sheet, it does have an adverse impact on our per unit performance measurements in the near term. That said, we believe the continued proactive execution of our financial growth strategy will create the most value for our unit holders over the long-term. And is one of the reasons we believe we have the ability to continue to execute our business plan even in challenging capital markets environment. I apologize to my colleagues for a somewhat lengthy introduction but we felt it was very important to provide you with the post transaction review on the Pacific Energy acquisition and state our position clearly on our financial results and distribution growth this that PA believes it will be able to accomplish. With that I'll now turn the call over to Harry.

Thanks, Greg. During my portion of the call I will review our fourth quarter operating results compared to the midpoint of our guidance, discuss the progress of our capital projects and detail the operating assumptions used to generate our 2008 guidance.

As you can see on slide 19, adjusted segment profit for our transportation segment was at the midpoint of our guidance, right at $92 million. Volumes of 2.9 million-barrels per day were in line with our fourth quarter guidance as was our margin of $0.35 a barrel. Adjusted segment profit for the facility segment was slightly above our guidance of $32 million which is $0.23 a barrel, and the facilities volumes were 45 million-barrels per month. Adjusted segment profit for the marketing segment was $43 million or $0.52 per barrel on volume of 868,000 barrels a day. The total volumes were slightly higher than forecasted with LPG sales volumes of approximately 18,000 barrels a day higher than forecasted partially offset by crude oil volumes being about 8,000 barrels a day lower than forecasted. Marketing segment results were below the low end of our guidance for the quarter primarily due to the forecasted margins in our crude oil business. I should say lower than forecasted margins in our crude oil business.

Maintenance capital for 2007 was $50 million. As noted in the last call we expect maintenance capital for our asset base to range between 50 million and $55 million per year on an ongoing basis. Some of our 2007 maintenance capital slipped in 2008. We expect maintenance capital in 2008 to be about $60 million. Operational assumptions for our 2008 financial guidance which Phil will review in a moment include volumes in the transportation segment of about 2.9 million-barrels a day which is in line with our current volumes, estimated volumes in our major pipelines are shown on slide 20 and are also detailed in our 8-K guidance which was furnished last night. Segment profit is expected to increase a couple of pennies to $0.36 per barrel. For all three segments I should point out the referenced segment profit excludes selected items impacting comparability.

Facilities segment guidance is based on 50 million-barrels per month of crude oil, refined product and LPG stores. 14 BCF per month of natural gas storage and 19,000 per day of LPG processing throughput capacity. The capacity increase of nearly 30% over 2007 levels includes the full year impact of the Bumstead and Tirzah acquisitions as well as new capacity from our expansion project. Segment profit is forecast to be $0.23 per barrel or about $0.01 higher than our 2007 amount. Marketing segment guidance for 2008 is comprised of lease gathering volumes of approximately 685,000 barrels per day, LPG sales of 105,000 barrels per day, refined product sales of 30,000 barrels per day and foreign volumes of 75,000 barrels per day for total volumes of 895,000 barrels per day which is slightly higher than the 2007 volumes. Segment profit for the marketing segment is forecasted to average $0.78 a barrel, that's about $0.08 a barrel lower than our 2007 amount but in line with the current market conditions and our forecast for the first quarter of 2008.

As Greg mentioned in his comments our 2008 operating expense forecast includes our estimate of the impact of the overall cost pressures that have affected the industry as a whole as well as the impact of a decision we made at PAA a couple years ago to initiate a risk screening and mitigation process four our non-jurisdictional assets that are not currently subject to a regulatory mandate. While these integrity inspection and repair costs are not currently mandated, we think it is a prudent decision in that in the long-term we'll see return on these expenditures through both lower operating expenses and albeit a few years out and also an extension of the useful life of certain of our assets.

During 2007 our expansion projects totaled $525 million and include a number of large projects. Projects completed during 2007 include the Cheyenne pipeline, the Crawford tank expansion, and the High Prairie rail terminal.

Slide 21 shows the expected in-service timing at some of our larger 2007 carry over projects and our 2008 projects. Those projects that are expected to contribute to 2008 results include, first a recent completion of the final 1.1 million-barrels of our 3.4 million-barrel Cushing phase 6 storage project, the final 150,000 barrels of our 850,000 barrel Martinez expansion, will be placed into service by the end of the first quarter of 2008, our Salt Lake City expansion which is a JV with Holly is expected to be placed into service in the second quarter of 2008 and the timing on this has slipped a little bit due to the inclement weather we experienced this winter in that part of the country. The 300,000 barrels of ort Laramie phase I tankage will go into service this month, and the 450,000 barrels of phase II tankage will be placed into service throughout the second half of the year. The 2.6 million-barrel Potoka terminal is expected to be in service by the end of the third quarter 2008. The 500,000 barrel West Heinz expansion is expected to be completed by the end of the fourth quarter 2008, our 2.7 million-barrels St. James Phase II projects begin to be placed into service this year, about 1.3 million-barrels will be placed into service by the end of the first quarter, and the remaining 1.4 million-barrels are expected to be phased into service during the second half of 2008 and first half of 2009. Our 1 million-barrel Paulsboro expansion is expected to be completed in stages with approximately 450,000 barrels in service by the end of 2008 and the remaining capacity coming on line by the second quarter of 2009.

In addition, to a number of carry over projects from 2007 our 2008 capital program totals $330 million and a summary of that is on slide 22, includes a couple of new projects. The more notable projects are first a $47 million upgrade to our corroborate facility which will give us greater receipt and deliverability flexibility with connecting carriers, we expect construction to begin on this project late in the second quarter of 2008 and we are currently targeting to complete the project in the second quarter of 2009, and also a 320,000 barrel expansion of our Edmonton terminal which we expect to start construction the first half of 2008 and should be completed by the end of 2009.

With respect to the PAA/Vulcan/Pine Prairie project we expect to have 4.5 BCF of storage capacity in cavern one leeched by the end of February, contingent upon receiving the applicable state and federal permits, we expect the storage capacity to be in service by the end of the second quarter. Upon cessation the initial leeching operation on capital well one will begin leeching cavern well two which should be placed in service with approximately 8 BCF of storage capacity next year. As you can see we have a number of expansion projects with various stages of development with our 2008 capital program Pier 400 and other projects in the development stage we have over $1 billion of internal growth projects to complete over the next few years. In addition, we continue to target making annual average of 200 million to $300 million in accretive acquisitions. With that I'll turn the over to Phil.

Thanks, Harry. During my portion of the call I am going to discuss our capitalization, liquidity and then finally the guidance for the first quarter and next year's full annual period.

As summarized on slide 23 we ended 2007 with strong capitalization and liquidity and well within our targeted credit metrics. Pursuant to our financial growth strategy and consistent with past equity financings, where we prefunded the equity component of anticipated capital costs, with our June equity offering of last year we essentially prefunded the equity component of our 2008 expansion capital program. As a result our long-term debt to capitalization metric of 43% is favorably below our target of 50% as it has been consistently over the last several years. I would note that although our 2007 expansion projects and acquisitions totaled approximately $650 million that our long-term debt balance of December 31, of 2007 was unchanged from the balance at the end of 2006. Largely as a result of our proactive equity funding in 2006 and 2007 and the cash flow in excess of distributions that were reinvested in these capital activities. As a result, our cash flow based metrics are also strong with a long-term debt to EBITDA ratio of 3.4 times and an EBITDA to interest coverage multiple of 4.8 times.

Contango related interest costs are excluded from the interest coverage multiple as that interest is reflected in gross margin as a direct cost of storage, and also to reiterate, the leverage metrics I just stated are calculated using our long-term debt. Our short-term debt balance at December 31, of 2007 was approximately $960 million primarily represents borrowings to wanted support support our hedge, crude oil, and LPG inventory as well as our NYMEX and NYSE margin requirements. About 50% of the short-term debt is actually funded on our five year revolver, but we designate these borrowings as working capital borrowings and classify them as short-term because of their self-liquidating nature and by that I mean that the debt is paid down as the inventory is sold.

As Greg mentioned earlier, during the fourth quarter of 2007 we realized an approximate $12 million gain from the sale of line fill. The sale was a result of our periodic reassessment of line fill and working inventory required to operate our pipelines and it is reflected in operating income on the income statement. However, due to the infrequent nature of line fill sales we have identified this as a selected item that impacts comparability and thus we've excluded it from adjusted EBITDA and adjusted net income.

The high points of our guidance which exclude selected items that impact comparability between periods are summarized on slide 24. For more detailed information please refer to the 8-K we furnished last night. We expect first quarter adjusted EBITDA to range between 175 million and 195 million, adjusted net income should range between 85 million to 109 million, and adjusted net income per diluted limited partner unit should range from $0.52 to $0.72 per unit. We expect our full year of '08 adjusted EBITDA to range from 760 million to $810 million, calculating to a midpoint of $785 million. Forecasted adjusted net income is expected to range between 390 million and ,453 million, a mid-point of $422 million, and then based on that forecasted net income per limited partner unit calculates to a range of $2.48 per unit to $3.01 per unit. I might add that our forecasted net income per unit for the year is calculated using the general partners incentive distribution based on the current distribution rate of $3.40 per limited partner units. Assuming everything else remaining equal, a $0.05 per unit increase in annual distribution rate to the limited partners will decrease net income per limited partner unit by $0.05 per unit on an annual basis and that's because of the GP share of that increase.

Slide 25 gives insight into how we expect our current profitability to compare to 2007. Full year adjusted segment profit for the transportation and facilities segments should be higher in '08 than they were in '07, but we expect full year '08 marketing segment profitability to be below last year's levels. Generally we expect this on a quarterly basis as well with 2008 quarterly adjusted transportation and facilities segment profit either flat with or higher than each respective 2007 quarter. Adjusted marketing segment profitability is expected to be comparatively down through the first three quarters of '08 but is expected to be higher during the fourth quarter of '08 compared to the fourth quarter of 2007. These expectations for the marketing segment are based on our assumption of the continuation of the current moderate backward dated market throughout the year again as opposed to the more volatile and favorable Contango market that prevailed for the better part of the first three quarters of last year.

Finally, a couple of additional items before I turn the call back over to Greg. First, beginning February 28, unit holders may access the respective K-1s and T-5013 Canadian reporting forms online by clicking on the red K-1 button located on the left-hand side of our home page at www.PALLP.com. We anticipate mailing K-1 information to unit holders the week of March 3. Then also for those investors that are interested in PAA's gross receipts, you'll find full year 2007 gross receipts per unit under the gross receipts tab of the investor relations portion of our website. With that I'll turn the call back over to Greg.

Thanks, Bill. We are pleased with PAA's operating and financial performance in 2007, and we're excited about our prospects for 2008.

In addition to providing guidance for 2008, we want to share with you our goals for the year. These goals are listed on slide 26 and include delivery and baseline operating and financial performance in line with our guidance as well as our annual goal to continuously make strategic and accretive acquisitions. We are also targeting to execute our $330 million capital program during 2008 and set the stage for achieving continued growth in baseline adjusted EBITDA for 2009. Finally, we are targeting to increase our distributions in 2008 by approximately $0.20 to $0.25 per unit, equating to a year end run rate of between $3.56 and $3.61 per unit. Achievement of this level of distribution growth would represent approximately 6% to 7.4% distribution growth in run rate distributions year-over-year and represent a two-year distribution growth of approximately 19 to 20%.

In closing, I want to summarize the five important take aways from today's call. First, PA delivered another solid year of operating and financial performance and achieved or exceeded all five goals we set for 2007. Second, the Pacific acquisition has performed well and actual contributions to adjusted EBITDA are in line with to ahead of guidance we provided in June 2006. Third, we expect our baseline adjusted EBITDA will grow at an average annual rate in the range of 7% to 10% through 2010 driven primarily by internal expansion projects. Fourth we expect to continue to deliver attractive average annual distribution growth of PAA in the range of 5% to 8% which is underpinned by our baseline performance and projected contributions from our internal growth projects and fifth and finally we have excellent credit metrics, a solid capital structure, significant committed liquidity and we believe we're well positioned to execute our business plan even in a challenging capital markets environment.

Before opening the call up for questions I also want to mention that we plan to hold an analyst meeting on the afternoon of April 10, in New York City. The meeting will also be webcast live. If you would like to attend and have not yet received an invitation, please call 800-564-3036, that was 1-800-564-3036 and ask to speak with our Investor Relations team. We sincerely appreciate your continued support. We look forward to updating you on our progress towards achieving our 2008 goals in the upcoming first quarter conference call. A complete written transcript of our prepared remarks for this call will be posted on our website very shortly. You will also have the option to download an audio version of the call. With that we would open the call up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from Yves Siegel with Wachovia Securities. Please proceed with your question.

Thank you. Good morning. I have three questions. One is could you give maintenance expenses for the quarter? Could you sort of quantify what the incremental expenses were and how you think about that going forward? The second is Greg and Harry, as you look at incremental projects going forward, any change in terms of expectations on returns? And then lastly as it relates to the distribution, have you changed your thought process as it relates to what kind of distribution coverage ratio or what kind of cushion you would like to have going forward? Thanks.

Okay. On the maintenance expenses, Yves, there wasn't any one major concentration. It was basically part poor forecasting, part unexpected events that could have slid between quarters. When I say poor forecasting, as we put together our guidance, we didn't have all of the projects that the operations team expected to execute in the fourth quarter, so nothing that would indicate a trend. It was just more of a year end catch up kind of activities. On the capital project returns, no real change in expectations, certainly not to the downside as to what we expect to generate in terms of returns. There has been cost pressures in capital projects we've seen, some of our costs go up on certain projects but down on others. Harry, I would say overall the revenue stream seems to be keeping good pace with the expected capital expenditures. So I still think we're in the, on the organic growth projects Yves, you're in that 6 to 7.5% multiple range. Any questions on those two items?

Just as you look at new projects that you're evaluating now, does the opportunity set still look pretty good, and that you would still be able to realize those type of returns do you think?

Very much so very much so. I mean, as I mentioned, frustration and the delays on Pier 400, but we have protection in our arrangements there, so that as costs go up, our returns stay relatively constant. It may not exactly stay the same, but it certainly doesn't change neighborhoods. The other projects that we developed that we somewhat accelerated, we're doing that because they are very attractive and we simply want to capture a good return, so I would say there is certainly no deterioration in the quality of the returns or the inventory of projects that we have. If anything, I think as we get deeper into it just like we did when we saw link, we're going to see additional projects, once we get some of these Pacific assets totally lined down we'll see additional room for expansion in those areas.

I guess the complement to that question, too, is what are you seeing on the acquisition side? Have multiples compressed some given the environment that we've encountered over the last six months?

We haven't transacted any big acquisitions in the last three or four months. I will tell you that I think on the last call we made comments that while it was a little bit early to be making projections, we thought we were seeing some processes take longer, some that we had been excluded from kind of got indications that we could get back in the process even though our number hadn't changed, and so I think there is perceptively or probably a strong word. We think there is some sense that the -- there has been a recognition by sellers that capital is not as available to everyone and that the cost of that capital has gone up, and that typically is going to cause the sales multiples to go down.

So that -- ultimately everybody has to make a reasonable return on a risk-adjusted basis, so I would tell you to stay tuned. I think the next six to mine months will be important. I think we have also seen in terms of the cost of capital a differentiation between investment grade and non-investment grade, and where an investment grade Company might have been able to access 6% capital, seven or eight months ago, and a non-investment grade would access 7% or 7.5% capital, I think you're seeing that widen out by 200 or 300 basis points, and in some cases capital not being available to the non-investment grade, so ultimately I think that will have an impact on the acquisition market.

Thanks, Greg. Then the last question was just on how you think about the coverage on the distribution.

The coverage on distribution, we've had the good fortune for the last several years to be running very high coverage levels partly because of the strong market conditions. We never included those in our determination as to whether we'd ever think about distributing that capital. Instead we wanted to reinvest it. I would tell you based on using our baseline growth, we're pretty comfortable with about a 105 coverage ratio. That gives us 30 million, $40 million of excess coverage. I think we've shown our baseline EBITDA approach has been very resilient and very growing, so call it a 105 plus or minus a little bit, maybe a bias towards higher coverage than lower but still 105 being comfortable. If we have strong market conditions, that number is going to go back up. I think we actually were as high as 140 at one point in time, but again we viewed that as not necessarily distributable as much as it was investable.

Good deal. Thank you.

Thank you.

Our next question is from [Noah Lerner] from [Hearts Capital]. Please proceed with your question.

Good morning, everybody.

Hi, Noah.

Really two quick questions, somewhat more of a global basis overriding it, though. I just wonder if you can speak a little bit on what you see or think the impact of a slowing economy might be on the asset utilization? I noticed in the release that Menudo and Range Lands have had a decrease over the last quarter on transportation activity level. Then the second question is do you see any impact either positively or negatively to the operations, opportunities to exploit the increase in the biodiesel and ethanol markets, whether it is for storage or blending as part of your expansion projects?

When you look at some of the Canadian volumes, I don't think that's really reflective of what's going on in the economy as a whole. We've got some -- we have some modifications and some plans with the Range Land system that is impacting some of the flows temporarily, but I don't care it temporarily, I don't think it is reflective of any large are industry trends. Second question was opportunities with respect to biodiesel or ethanol?

Right.

I think - we had some facilities that could benefit from increased usage of ethanol. Biodiesel is a little different. It is -- some of the terminals could probably handle biodiesel, but been hard to look at moving biodiesel on pipelines, just there is a lot of different types of biodiesel that have different characteristics. That is probably a much longer term prospect for anybody in the industry.

Noah, I think it is a fair statement that if ethanol and biodiesel are here to stay, the way they're currently configured, there is going to require more infrastructure to handle those on a routine basis, wouldn't you say, Harry, if we're handling 100,000 barrels of product a day across a given facility, that does not include ethanol or biodiesel, and you add either one of those elements into it, to handle the same volume people are going to have to have more physical assets for the segregation issues and the blending activities that are necessary and so that's a positive development for us.

I have -- don't want to get on a soap box, but personal opinion is it depends on just how long the government wants to subsidize some of these activities. If they're going to do it a long time then we're probably going to be a beneficiary, we wouldn't try and get you to extrapolate huge numbers for us yet because I just don't know what will happen if we have a change in administration. That's one of the issues you have with both ethanol and biodiesel. It is not like you have got a huge oilfield there that you can build a pipeline to. You have got all of these plants and different supply sources, so it is given new construction is not just readily apparent. And I would say this, for every one of those plants where you have five that are successful, you may have an equal number that are going to go under.

Right.

And so it is going to be fairly dynamic, but again you're adding more products slate to an already somewhat saturated product slate relative to assets to handle that, so if they're here to stay you're going to have to see more tanks built and more ways to transport that type of product.

I take it you have nothing on the drawing board now, you're waiting for the tipping point to occur?

That's probably a fair estimate. In isolated areas we're certainly accommodating our customer's requests.

Particularly with ethanol.

On the East Coast and certainly the areas in the Midwest, we could handle that, I just don't know that we would go out and try and front run that trend, build a bunch of assets and then pray that the government didn't change their subsidies.

Okay. Just moving back to the first question real quickly, putting aside the -- what's went up in Canada on this -- the two pipelines, just generally as you look out and you hear all the rhetoric and noise out there regarding are we heading into a recession or are we not in a recession, do you think a slowing U.S. economy is going to have any material impact to the operations and your success in meeting all your goals and has that been factored in at all while you were setting those goals?

We would certainly look to see if there was anything that would cause us to change our expectations in those environments, and we didn't see anything. Noah, you never want to root for a bad answer for anybody else, but if you think about it, if the economy does slow down, unless there is a simultaneous adjustment in production volumes, you're probably going to shift the market from backward dated back into Contango, and we're not unhappy to be in Contango because effectively what would happen is demand would be slowing down, production would be continuing to increase. You're going to fill the tanks up, and you're going to end up basically having to roll those positions. That's where our tanks become the most valuable: certainly some of the projects that you see when you start seeing who is going to cut, OPEC certainly is one source, and if they do it and they do it perfectly, we won't have a problem and maybe we won't have an opportunity, but some of the Canadian projects that have been going on for many many years, I don't think you're going to see them slow down. A lot of those projects require additional (inaudible) to be shipped up there so they can continue to blend it. I think you're going to see a continued growth in the infrastructure part of the energy business for the next three or four years regardless of the economy, the profit opportunities maybe fluctuate relative to the economy, but we're very comfortable with our baseline numbers.

Thanks a lot. Appreciate it.

Thank you, Noah.

(OPERATOR INSTRUCTIONS) Our next question is from Barrett Blaschke from RBC Capital Markets. Please proceed with your question.

Hi, guys. Again, this is just to beat a dead horse a little bit on the attitude towards the economy a little bit, but are you guys looking to add to your slate of projects here to keep the run rate going at about the level it is now on an annual basis?

I don't know that we change our attitude, Barrett, about trying to add to or not. What happens is our projects are things that we believe are necessary to meet to meet the demands of the energy sector. In some cases we're doing it specifically at the request of a customer and in some cases we're doing it because we see market opportunities that we think our customers will want to lease assets from us to take advantage of. If they don't our merchant ability gives us the ability to do that. I don't think we're putting our foot on the gas or on the brake, either one, as much as we're just continuing to generate those opportunities. Keep in mind we have got about a two to three-year backlog right now, so the kind of projects we're talking about are four and five years out. I am not too worried about that we're going to run out of projects if that's the question.

I think we'll have room for organic growth for another couple of years. Again, if I go back to our distribution growth outlook, again, that's underpinned based upon our current baseline activities and our existing internal growth projects and doesn't give respect to significant acquisitions, something well beyond the bolt-on. We've never gone more than a year or two before we've made one of those, and so those typically set up additional expansion projects, so my guess is three years from now when we're visiting we'll talk about having the same kind of backlog. It may be scaled up some relative to our then current size. Just one other follow-on.

Basically what would be -- where do you see the biggest effects from a return or from a return to more of a Contango market structure for you guys? Obviously the tanks are filled up and that's a tremendous positive or you, but flying else that really benefits?

I'm not sure I understand the question totally.

I guess what I'm saying is it seems like certain segments are kind of hedged against the others where some do better in backwardation, and some do better in Contango. Does that transition time period have an effect if that happens this year?

If we transition from backward to Contango?

Right.

I don't think -- you might see some of our pipeline volumes fluctuate in a given quarter because what would happen for instance if we were to pronounce Contango, you would see tanks start to fill up in West Texas, so Basin pipeline wouldn't be moving as much as we forecast but we should be more than offsetting any profit loss on that activity. Once those tanks get full, then everything fills back up, and so it is a temper. I don't think there is significant adverse effect when we shift out of backwardation and Contango. Our marketing activities will be effected some, but again, Harry, it is what, about a two-month impact?

I think the worst scenario for us it would would be if the market or the intermonths hovered around flat plus or minus $0.10, $0.15, didn't have a lot of volatility. That would probably be so from our marketing segment, probably the most negative type of market we could be in. That happened like 2001, 2002, where we went through six months of that or so, but--.

Right after 9/11 we saw a flat market for about six months.

Right. Okay. Thanks, guys.

Thanks, Barrett.

(OPERATOR INSTRUCTIONS) Our next question is from John Edwards with Morgan Keegan. Please proceed with your question.

Good morning, everybody. Just the comment that was made that your 2008 outlook I think it was $0.78 per barrel is projected in the -- for the marketing segment, and given how fourth quarter came in as was $0.52 or $0.54 per barrel, I am just wondering how comfortable you are with that assumption now given what happened last quarter?

Sure. Well, obviously we were familiar with what happened in the fourth quarter when we were looking towards our 2008 forecast, and we looked a lot where we think the first quarter is and what kind of changes might impact the rest of the year, but we feel very comfortable. You're in a transition market from third to fourth quarter.

You had an environment where one of the negative things that happens when you come out of Contango just the way interest works, and that's factored into our margin it is is the barrels are already out, so the profit, some of the profit was generated in earlier quarters was the interest carried ore into the fourth quarter, and so that had negative impact and you had a period there where the grade differentials also weren't very favorable, the tightening of the spreads between foreign crude that moved into the Gulf Coast markets and you saw we had lower volumes in the fourth quarter and in our foreign movements, and so that had a negative impact, but a lot of that has cleaned up and we took that into consideration coming up with our $0.78 that we're looking at for the 2008 period.

Okay. Thank you very much.

Thanks, John.

There are no further questions in queue at this time. I would like to turn the floor back to management for closing comments.

Well, if there is no other questions, we'll complete the call. Thanks to everyone for attending. Apologize for the length of it, but as an annual call and trying to set the stage for 2008 we wanted to address all of those important factors, and we'll look toward to updating you the end of the first quarter.

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