Plains All American Pipeline LP (PAA) 2008 Q4 法說會逐字稿

Welcome to Plains All American Pipeline's fourth quarter and year-end 2008 results conference call. During today's call the participants will provide forward looking comments on the partnerships outlook as well as review the results of the prior period. Accordingly in doing so they will use words such as believe, estimate, expect, anticipate, et cetera. The 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 Pipeline 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 reconciliations 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 measure to the most directly comparable GAAP financial measures and includes a table of selected items that impact comparability with respect to the partnerships' 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 compared 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 Al Swanson, Plains All American Senior Vice President and CFO. I will now turn the call over to Mr. Greg Armstrong.

Thanks. Good morning, and welcome to everyone. As a reminder the slide presentation accompanying this call is available on our website at www.PAALP.com.

Yesterday afternoon Plains All American reported fourth quarter and annual operating results in line with guidance capping off a very successful year. We also provided formal guidance for 2009 that was in line with our preliminary 2009 guidance provided in May 2008. To place these results in proper perspective it is useful to frame the environment in which these results were generated.

This past year will likely be remembered by most investors for the avalanche in the financial markets that began with the deep rumble in 2007 and surged with a deafening roar throughout 2008. Volatility in the capital and commodity markets increased significantly and global economies substantially weakened. Three of the top five Wall Street investment banks failed or were forced into shotgun marriages and the other two converted to bank holding companies to receive government assistance. Specifically within our industry a high profile competitor of PAA experienced a rapid financial meltdown, leaving its investors and customers with many unanswered questions. Even closer to home we experienced back-to-back hurricanes in the Gulf Coast, the second of which was a direct hit on our headquarter city of Houston.

As a result of these collective developments PAA's business model and strategies were scrutinized and stress tested. Despite all the turbulence created by these events we are pleased to report that PA's business model and assets performed as designed. Additionally due to proactive and preemptive steps that we have taken over the past several years we believe PAA is well positioned to continue to execute our business plan and create long term value for our stakeholders. 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 three major points listed on slide three.

First, PAA delivered another solid year of operating and financial performance and with the acknowledgement of an isolate cost overrun on the Salt Lake City expansion project achieved or exceeded each of the public goals we set at the beginning of 2008. Second, based on investments made in 2008 and prior years we issued guidance for 2009 that forecast the mid-point of our baseline adjusted EBITDA will be $960 million, which is an increase of approximately 8% over 2008 levels. And third, based on the cumulative impact of timely financing activities over the last several years, we enter 2009 with solid credit metrics and ample liquidity and are well positioned to continue to execute our business plan in the current market environment.

Let me begin by briefly discussing the results we released yesterday afternoon. As illustrated on slide four, for the fourth quarter of 2008 we reported EBITDA of $213 million and net income of $98 million or $0.56 per diluted unit. Excluding the impacts of selected items impacting comparability, which are included in the table at the bottom of slide four, our adjusted EBITDA was $236 million and adjusted net income was $121 million or $0.74 per diluted unit. These adjusted results represent increases of 41%, 51%, and 48% respectively over the corresponding metrics in last year's fourth quarter.

In addition to the selected items that impact comparability between periods, our reported results include chatter flowing through the numbers that is fully reflected in adjusted EBITDA. By and large, most of these items ended up offsetting each other but I wanted to highlight some of the more notable items. These primarily include an estimated estimated $6 million adverse impact for hurricane-related issues which was slightly larger than we initially anticipated, an approximate $4 million adjustment related to the resolution of a pipeline tariff protest, a $3 million increase in our reserve for doubtful accounts that were recorded in recognition of recent events and the current economic environment. And a realized gain of approximately $17 million related to pipeline line fill. Net-net, including the full impact of all of these items our adjusted EBITDA results came in slightly ahead of the mid-point of our guidance; however, given the diverse nature of these items that contributed to the chatter in the quarter I would characterize our fourth quarter results relative to guidance as an inline type of performance with which we are very pleased considering the environment.

As shown on slide five, including the fourth quarter performance, PAA has delivered 28 consecutive quarters of results in line with guidance.

As shown on slide six for the full year of 2008 we reported adjusted EBITDA of $887 million and adjusted net income of of $472 million, or $2.96 per diluted unit. These results represent increases of 14% and 10%, and a decrease of 4% respectively but were similar measures for 2007. Our beginning of the year guidance projected a mid point for adjusted EBITDA of $785 million. Actual results for 2008 were impacted by a number of items including the acquisition of the rainbow pipeline and the negative impacts of hurricanes Gustav and Ike as well as a variety of other gains and charges not included in the initial guidance. Netting out these items we effectively were inline with or slightly ahead of the midpoint of the original guidance. Importantly these results were generated during an extremely volatile time in the commodities markets with crude oil prices ranging from below below $33 a barrel to above -- excuse me, me, $146 per barrel. The partnerships strong performance under these types of conditions highlights the strength and the durability of our business model and the strategic location of our assets. At the beginning of each year we provide our unit holders in the financial community with specific goals to gather activities and provide a framework by which to measure our annual performance.

Slide seven provides a summary of the four goals we set for 2008 along with brief commentary on our performance relative to each of those goals. As I've just mentioned, we exceeded our financial guidance for 2008. In addition we invested approximately $491 million in internal growth projects which underpin our forecasted growth and baseline adjusted EBITDA levels. With the notable exception of the Salt Lake City project, the bulk of these projects were completed substantially on time and on budget relative to acceptable tolerances. On the acquisition front we consummated two strategic and accretive acquisitions for a total of $731 million. Finally, we increased our distribution in each quarter ending the year at a $3.57 unit level, which represented an increase of 6.3% over the 2007 year end level of $3.36 per unit. This increase was in line with our beginning of the year target range for distribution growth of 5% to 8% but acknowledged that it was below the increased range that we targeted in connection with the Rainbow acquisition.

As shown on slide eight, our financial performance during 2008 could have readily supported the higher distribution level as our distribution coverage for the fourth quarter and full year 2008 was a very solid 112%, even after raising our distribution by 6.3% during the year. However, due to the macroeconomic and financial considerations, we made the decision to balance the near-term benefits of distribution growth with the long-term benefits of cash flow retention. This approach provides us with significant and valuable optionality consistent with the best long-term interest of our shareholders. All in all 2008 was a year of solid fundamental performance for the partnership. Despite these achievements PA's unit price was caught in the downdraft of the overall financial market turmoil.

The total return realized by PAA's unit holders for 2008 was a minus 28%, reflecting an approximate 33% decrease in our unit price, partially offset by our quarterly distributions. Although disappointing, this performance compared favorably to various benchmarks. The total return for the S&P 500, the Dow Jones Industrial Average and the Alerian MLP Index decreased approximately 37%, 32% and 37% respectively during 2008. And importantly, despite the adverse conditions affecting the world economy, our baseline business continues to perform well and we have a strong balance sheet and excellent liquidity. As a result we believe we are well positioned to protect and prudently grow our cash flow and distributions into the future. With that I'll now turn the call over to Harry.

Thanks, Greg. During my portion of the call I'll review our fourth quarter operating results compared to the mid-point of our guidance issued on November 5, 2008, discuss the operational assumptions used to generate our 20009 guidance and discuss the progress of our expansion capital program.

Let me begin with our operating results for the fourth quarter. As shown on slide nine, adjusted segment profit for our transportation segment was $129 or $0.46 per barrel and that's about $8 million above the mid-point of our guidance range. The total volumes of approximately 3 million barrels per day were in line with the midpoint of our guidance, and as Greg mentioned the performance relative to the guidance was primarily impacted by the the $17 million gain on the line fill transaction which is partially offset by a tariff adjustment of approximately $4 million, resulting from the resolution of a tariff dispute on the Rainbow pipeline system. The adjusted tariffs have been incorporated in our 2009 guidance and overall the Rainbow systems perform, in line with our acquisition economics.

Adjusted segment profit for the facility segment was $46 million, or $0.26 per barrel which metrics were slightly before the midpoint of our guidance. Average capacity was 58 million barrels per month which was in line with our guidance. Adjusted segment profit for the marketing segment was $58 million or $0.72 per barrel compared to the guidance midpoint of $69 million and $0.88 per barrel. The marketing segment was primarily impacted by the increase in the reserve of doubtful accounts plus the fact that Gulf Coast volumes and foreign imports were impacted by the hurricanes for a little longer period than we'd forecasted.

We're starting to see the volumes in the Gulf Coast recover and expect to be back to pre hurricane levels in the second quarter of 2009. Marketing volumes were 901,000-barrels per day, compared to 852,000 barrels a day in the guidance with the variance being principally driven by an increase at LPG sales volumes due to the colder than normal weather experienced in our markets. Maintenance capital expenditures were $25 million for the fourth quarter and $81 million for all of 2008 and this is higher than our guidance as we were able to complete more of our API653 and pipeline work than originally anticipated. For the full year of 2009 we're expecting maintenance capital to be in the 70 million to $80 million range, and this amount is higher than our preliminary 2009 guidance and incorporates higher projected costs associated with pipeline testing and tank integrity on additional tankage due to the current market environment.

Let me -- let me go over to the operational assumptions used to generate our 2009 guidance which was furnished on our Form 8-K issued last night and is shown on slide 10. For the transportation segment, we expect volumes of approximately 3 million-barrels per day which is a little stronger than our 2008 volumes reflecting the full year benefit of the Rainbow pipeline acquisition as well as the impact of increased volumes carried on the Salt Lake City pipeline expansion. On the facility segment guidance is based on forecasted volumes of 57-million barrels per month of crude oil, refined product and LPG storage, an average of 19 bcf per month of natural gas storage and an average of 18,000 barrels per day of LPG processing through-put volumes for a total of 61 million-barrels of capacity per month.

The increased storage volumes reflect initial expansion tankage being placed in service primarily at Patoka and St. James. Marketing segment guidance includes forecasted lease gathering volumes of approximately 640,000 barrels per day, LPG sales volumes of 105,000 barrels per day, refined product sales of 30,000 barrels per day and water-borne foreign crude volumes of 75,000 barrels per day, the sum of these volumes totaled 850,000 barrels per day for the marketing segment. Our forecast for 2009 includes assumptions that the current Contango market environment will persist through the first part of the year and the Gulf Coast volumes will return to pre hurricane levels in the second quarter of 2009.

Although the first quarter will benefit from the pronounced Contango market structure it is important to note that we have a counter cyclical balance in our marketing segment, so there are parts of our segment that do not perform as well in a Contango market. In addition I should also point out that due to API653 and the fact that we now list more tankage to third parties we do not expect to see the type of over performance that we experienced in prior Contango markets, beginning in May of 2009 we'll take about 4.8 million barrels of tankage out of service, not all of this was available for Contango opportunities.

Our tankage available for Contango opportunities will decrease by approximately 1.8 million-barrels of shelf capacity. These are tanks that are not necessary for our ongoing operation and ones we could not justify -- that we cannot previously justify the refurbishment costs necessary to consolidate the I-653. In light of the current market conditions we may spend the capital to put some of this tankage back in service; however, cleaning, inspection and repair could take two to six moments per tank depending on the size of tankage and the nature of the needed repairs.

With regard to capital projects, slide 11 shows the expected in service timing of our larger projects. We brought 600,000-barrels of new capacity at West [Hines] into service around the end of the year. We also recently completed construction on our 2.8 million-barrel Patoka Phase I project. At Paulsboro we remain on-track to bring the remaining 550,000 barrels our 1.0 million-barrel refined product tank expansion into service during the second quarter. We also completed the Salt Lake City pipeline near the end of the year, and we expect to have all operating permits in place to begin operations on this pipeline by the end of this month. At Pier 400 we had a last minute protest there that has stalled the process temporarily; however, we continue to work with the requisite groups to advance the project through the regulatory process. We are also refining the cost estimate for the project and holding discussions regarding such costs with our various customers.

As shown on slide 12 our aggregate 2009 capital, expansion program totals $295 million. In addition to carryover projects from 2008 our 2009 capital program will include a few new projects including the St. James Phase III and Patoka Phase II expansion projects that I described last call as well as a new 1.7 million barrel Phase 7 expansion at our Cushing facility. The total cost for our Cushing project was about $44 million with an estimated $29 million to be invested in 2009. And this is an expansion that is underpinned by a long-term lease with a third party and is scheduled to be completed in the first half of 2010 and we'll bring our -- PAA's storage capacity at Cushing to approximately 12.5 million barrels.

With respect to the PAA Vulcan gas storage joint venture as highlighted in our press release last month, Dean Liollio was hired as President of PAA Natural Gas Storage LLC. Dean brings 25 years of experience from the natural gas business, most recently serving as President and CEO of Energy South Inc. a NASDAQ listed company prior to its acquisition by Sempra Energy in October 2008. From an operational perspective at Grande Prairie we began our operations on the Cavern Well one in the fourth quarter. As operator of the joint venture we expect to bring second cavern online in the second quarter of 2009 and the third cavern into service in the second quarter of 2010. Additionally the joint venture has recently filed a permit that would increase the permitted working capacity of the facility to 48 bcf. And with that I'll turn it over to Al.

Thanks, Harry. Before I address our capitalization, liquidity and 2009 guidance, I want to cover a few accounting items related to our fourth quarter results.

Crude oil prices declined approximately $56 per barrel during the quarter from $101 per barrel at September 30, to $45 per barrel at year end, additionally the Canadian dollar weakened significantly against the US dollar, beginning the quarter at an exchange rate of $1.06 and ranging to as high as $1.30 before ending the year at $1.22. These two things in particular resulted in several selected items impacting comparability. These items materially offset and in the aggregate total a loss of $23 million. The decrease in oil and LPG prices resulted in a lower or cost of market or LTM adjustment of $81 million, net of reversals from the third quarter. Derivative gains associated with this revalued inventory totaled $65 million in the quarter. The result is a net loss associated with inventory revaluations of $16 million for the quarter and $11 million for the year. The weakening of the Canadian dollar against the US dollar resulted in an FX loss on net monetary assets of $13 million net of reversals from the third quarter.

I won't repeat the lengthy explanation I provided last quarter, other than to mention that the loss is directly attributable to US dollar denominated business activity being conducted in a Canadian subsidiary, since the business activity is US dollar denominated and PAA is a US dollar entity there is no real economic FX loss, the loss relates to timing which we expect to materially reverse over the next few quarters.

There is one final accounting item that does not affect the fourth quarter, but will impact future periods. This relates to SFAS 141R which affects the accounting for business combinations. This standard went into effect on January 1, and will affect our reporting for acquisitions in the future. All acquisition costs such as due diligence, legal fees and investment banking success fees will be expensed as incurred. Previously these costs were deferred until the outcome of the acquisition was known. If the acquisition was successful, the costs were capitalized and depreciated. If the acquisition effort was unsuccessful, the costs were expensed. Additionally successful acquirers may be required to record -- record more goodwill than they would have under the previous standard as the fair market value recorded for acquired assets will be based on what another market participant would have paid. I will now move on to our capitalization and liquidity.

As summarized on slide 13 we ended 2008 with solid capitalization and liquidity which were in line with our targeted credit metrics, at December 31, our long term debt to cap ratio was 48%, our adjusted EBITDA to interest coverage multiple was 4.5 times and our long term jet to adjusted EBITDA ratio was 3.6 times. Our short term debt at December 31, was approximately $1 billion which represents a reduction of $322 million from September 30. Our short-term debt is primarily associated with hedged inventory and will be repaid with the cash proceeds received when the inventory is liquidated. Including short term debt, our total debt to capitalization ratio was 55% which is well within our target guideline of 60% or less.

At year end 2008 we had approximately $1 billion of available committed liquidity. This liquidity includes includes $764 million of availability under our $1.6 billion committed revolving credit facility. The majority of our revolver borrowings support our LPG inventory which we typically build during the summer and fall and sell during the winter heating season. The LPG is pre-sold using forward physical or financial contracts, a portion of this inventory was delivered during the fourth quarter. We expect to continue to reduce our LPG-related short-term debt over the balance of the winter as we sell and deliver the inventory.

It is worth noting that a significant portion of the debt reduction will remain, even as we begin rebuilding inventory this summer and fall for the 2009, 2010 winter as we anticipate repurchasing inventory at significantly lower prices. Accordingly, the reduction in inventory related debt is not necessarily an indication of reduced volumes or profitability, but simply lower unit costs. In addition to the resolving revolving credit facility we had $245 million of available committed liquidity at year end under our $525 million committed hedged inventory facility. The borrowings under this facility are secured by the crude oil volumes that are hedged through forward sales contracts and this debt is self-liquidating with the sale proceeds from that inventory.

The partnership's long-term debt balance at year-end was approximately $3.3 billion, which is up slightly from September 30. As reflected on slide 14, our long-term debt balance is principally comprised of senior unsecured notes, is 96% fixed and has an average tenure of approximately 12 years. We only have one series of notes maturing over the next three years. It is the $175 million tranche that matures in August of this year. We have reserved sufficient capacity on our revolver to allow us to retire these notes without having to rely on the capital markets.

Our normal working capital position is a deficit and this deficit increased from $207 million at September 30, to $364 million at December 31. As a result of growth in our business and assets during the fourth quarter we transferred approximately $40 million of working inventory from current to long-term to reflect the anticipated holdings period of that inventory. For cash and liquidity planning we forecast a use of cash related to working capital during 2009 of approximately $100 million as our working capital position returns to more normalized levels. After allowing for our projected operating results, the anticipated decrease in inventory costs, rolling over of our hedged inventory facility, our 2009 capital spending program and the use of cash for other working purposes, we expect to end 2009 with approximately 650 million to $800 million of committed liquidity and that assumes we do not access the capital markets.

Our 2009 expansion capital program totals $295 million, which represents decreases of approximately 40% and 45% respectively from 2008 and 2007 levels. This amount is up approximately $45 million over the preliminary guidance we provided in November, due primarily to our decision to construct 1.7 million barrels of additional tankage in Cushing to support third party leases we have entered into with customers as well as recoup for our own account a portion of the tankage we elected to lease in 2008. As highlighted in our November conference call, we anticipate that our 2009 capital program can be financed without being required to come to market for debt or equity during 2009. We expect this to be accomplished through a combination of cash flow and excess of distributions, proceeds associated with reductions in crude oil and LPG inventories and asset sales. Importantly by funding our capital in this way we effectively maintain about the same level of total debt over this time frame.

With that said, a key component of our financial strategy is to maintain strong capitalization and liquidity. Accordingly we will opportunistically monitor the capital markets during 2009 with the intent to raise capital if it is reasonably priced.

The high points of our guidance which exclude selected items impacting comparability between periods are summarized on slide 15. For more detailed information please refer to the 8-K that we furnished last night. We forecast first quarter adjusted EBITDA to range from 235 million to $255 million with adjusted net income ranging from 121 million to $146 million, or $0.71 to $0.91 per diluted unit. For full-year 2009 we are forecasting adjusted EBITDA to range from 935 million to $985 million with adjusted net income ranging from 478 million to $544 million, or $2.73 to to $3.25 per diluted unit.

Slide 16 provides a segment view of our 2009 guidance by the applicable drivers, volumes and unit margins. The slide also shows that approximately 70% of our 2009 segment profit is forecast to be generated from our fee-based segments and only 30% from our marketing segment. I would point out that this guidance is based on a FX rate of CAD1.18 CAD to $1 US since October 1, the FX rate has been volatile ranging from 1.06 to 1.30, the current rate is approximately 1.24. A $0.10 change in the exchange rate would impact our consolidated annual adjusted EBITDA by approximately 1 to 1.5% or roughly $12 million.

I would like to mention a few final items before I return the call to Greg. First, we expect that beginning on the afternoon of March 2, unit holders will be able to access their respective K1s and T50-13 Canadian reporting forms unline at our website at www.PAALP.com. We anticipate mailing K1 information to unit holders during the first week of March. Also for those investors interested in PAAs gross receipts during the first week in March we will post the full year 2008 gross receipts per unit under the gross receipts tab of our Investor Relations section of our website. With that, I will turn the call back over to Greg.

Thanks, Al. Prior to opening the call up for questions, I want to address six remaining items related to 2009. First item is PAA's macro outlook and then PAA's positioning relative to the macro outlook, third item is our outlook for opportunities not included in the current capital plan, fourth item will be our -- our -- be on raising incremental capital throughout the year, fifth item will be our management of our distribution and then last I'll clean up with our goals for the contract year.

Our thoughts regarding macro outlook for 2009 are summarized on slide 17. In general we believe that the economic conditions, market conditions will get worse before they get better, and we do not anticipate a V-shaped recovery. We are planning as if the economic recovery will in the materialize until sometime in 2010. As a result, we believe the capital markets will be volatile and highly selective and that larger, high quality companies will have preferential access to the markets. This outlook also carries over into the energy sector where we expect to see continued volatility, pressure on consumption levels and a decrease in domestic and Canadian oil field activities that will ultimately impact production levels.

As Al outlined and as noted on slide 18, PAA is well-prepared for the current environment in terms of financial strength, liquidity and flexibility. To be sure, PAA's business will in the be immune from potential adverse consequences of the challenging conditions and we have attempted to incorporate this outlook into our 2009 financial and operating guidance.

Slide 19 provides a conceptual illustration of the various issues that will affect the energy sector, as the box at the bottom of this slide states, we do believe that certain assets in our assets and our business model will serve to mitigate a fair portion of the impact on our results as portions of our business benefit from volatile conditions. As a result of our preparations, we believe we are well positioned to capitalize on opportunities that are not included in the 2009 capital plan. We have raised our return requirements for both organic growth projects and acquisition opportunities. Despite the recent and anticipated future slowdown in drilling activities, the construction, retooling and optimization of the current energy infrastructure in the US and Canada still has a long way to go. Because of the increased costs of and more challenging access to monetary capital, the competition for both expansion projects and acquisition will be less, and the economic returns should be higher than we have seen in the last several years. We even believe that it is possible that certain major integrated and independent oil companies may be willing to sell or joint venture certain highly strategic assets that were previously considered off-limits and we intend to put ourselves in position to compete for those opportunities and transact should they be willing to do so. We believe PAA will participate in its fair share of those opportunities.

In that regard, I want to make a few comments on our outlook for accessing capital. As Al noted earlier, we placed a high value on maintaining significant liquidity. With that in mind, even though we have positioned ourselves so that we are not required to come to market for debt or equity during 2009 over the next 12 to 18 months we believe we will have incremental opportunities to build or acquire assets or participate in consolidation activities at returns that are attractively in excess of our average cost of incremental capital. Accordingly we will be monitoring these growth opportunities as well as the debt and equity capital markets and we intend to continue to maintain a solid investment grade capital structure, depending on the tone of the financial markets and our outlook with respect to particular growth opportunities any capital raising efforts that we do undertake could lead or lag an incremental expansion transaction. Admittedly, there is risk that if we raise capital and an opportunity does not materialize, but I can tell you that over my last 28 years at Plains we have yet to be confronted with the problem of having too much capital and not enough opportunities.

We believe PAA is one of a limited number of MLP's that is opposed to raising capital for projects for which distribution growth is already embedded in our guidance and discounted in our unit price. Any incremental capital that PAA raised in 2009 is likely to be used to increase our already strong distributable cash flow level.

Next I want to address how we intend to manage our distribution level in 2009. In mid-January we announced a quarterly distribution of $0.8925 per unit or $3.57 on an annualized basis which represents a 5% increase over the February 2008 distribution of $0.85 per unit and was unchanged relative to our November distribution.

As illustrated on slide 20, the implied distributable cash flow associated with our guidance for 2009 indicates that we can readily support distribution growth within our multiyear target range of 5% to 8% while still maintaining healthy coverage ratios.

However, as summarized on slide 21, in light of the world financial and economic instability our respect for the unknown and our design to remain financially agile we elected to depart from our past practice of setting annual distribution goal for 2009. The net result is that, in addition to our ability to execute against our guidance, our distribution growth in 2009 will be driven by developments in global economic and financial markets as well as incremental opportunities that we encounter. Additionally, I would note that if our assessment of the global economic and financial situation turns out to be overly cautious, that is we're just wrong, we have the option of making a step change increase in our distribution level later in 2009.

Finally, I want to outline a few of the 2009 goals that we have set, and which will serve as a guide to our efforts over the next year and provide the basis for updates on our conference calls going forward. These goals are listed on slide 22 and include delivering baseline operating and financial performance in line with our guidance, as well as our annual goal to to pursue strategic and accretive acquisitions. We are targeting to successfully execute our 2009 capital program and set the stage for its continued growth in 2010. Finally, although we are not setting a specific target for distribution growth in 2009, we are very focused on prudently managing our capital resources, preserving our strong capitalization on liquidity and navigating the dynamic economic and financial market landscape.

Due to our solid position and awareness of the challenges in the broader market we are cautiously optimistic about the future and we believe that the preparations we have made and the mid-course corrections that we have and will continue to make will serve us well in the near, medium and long term. As a result we believe PAA continues to represent an attractive investment opportunity that combines a substantial current yield with a solid foundation for continued growth. We thank you for joining us today. We appreciate your continued support. And we look forward to updating you on our next call. We can open up the call for questions now.

Thank you, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Brian Zarahn with Barclays Capital. Please state your question.

Good morning.

Good morning, Brian.

Looking at your guidance for 2009 it appears your G&A expense is up over 2008. Can you describe what is driving that?

Brian, a lot of it is just growth. Certainly we made about 700 of acquisitions during the year, and so that's going to be a fair part of it. Al, is there anything else that's?

Yes. And also I think in '08 we did see the -- the cash part of our L-TIP plan is less than what is anticipated for next year as well. But we have lagged on hiring on our growth side.

And, Brian, also I think we forecasted our L-TIP costs which are in G&A, we use $40, I think, which is higher than what the average price was, in effect at year end I think it was closer to $34 so a fair part of that is the cume catch up if you will, of repricing equity that may or may not be issued depending on whether we hit our performance benchmarks.

Looking at the forward curve, how is the -- you had, it appeared better margins and loose gather in the fourth quarter. How is it looking in the first quarter?

Well, I think our guidance, I mean we've -- out there 235 million to 255 million and then given the detail in the 8-K and so it is right inline with what we've got there in guidance so we're feeling very good about -- we're trying to make sure that we're at 28 quarters running of hitting our guidance and we're going to try to make it 29.

But do the counterbalance of the gathering and the Contango, is it more just the marketplace is becoming -- you -- less competitive for get-- loose gathering?

Oh, I do not think that we're ever less competitive.

No, no, not--.

I think certainly there is margin compression that does happen as you go into a Contango market, on your gathering and marketing activities.

Maybe I did not state it as clearly. I was just trying to see given that loose gathering market that would come down in Contango, is that being offset at all by the competitive environment for loose gathering due to one of your key competitors having trouble?

Well, certainly we picked up some volumes, and I think Harry mentioned, the hurricane impacts the -- volumetrically certain volumes had more margins than others and so the first quarter reflects our forecast right now of all of those elements which does include some pressure on -- on gathering margins, just because of the Contango market. It also is offset by, we have, as you pointed out either fewer competitors or fewer high credit quality competitors and so there are certainly some producers that would rather deal with somebody that they know for sure is going to pay them and we think we've put ourselves solidly in that category.

They weren't a huge lease gatherer either. They -- there were certain areas where they had their fair share of volume. But the leases weren't huge.

And final question, looking -- your gross CapEx for 2009 is a little more modest than 2008 but is there potential cost savings due to likely lower labor, materials costs?

I would tell you our engineers say they have tried to dial that in. I think what is a fair statement, Brian, is in this environment, the -- there's probably less reason to be concerned about either project delays or project cost overruns because of that environment, as to how much additional margin we might be able to capture, part of it depends on -- some of these projects are longer lead times, and so when you order steel you are committed to that price and so even though a steel price is deteriorating six months from now we are not going to get the benefit of that in orders we've already placed.

Yes, or at least not in 2009.

Thank you.

Our next question comes from Steve Maresca with Morgan Stanley. Please state your question.

Good morning, gentlemen. Thanks for the call. I just wanted to know, you talked about tanks coming out of service potentially in May of this year. I do not know if I caught this, is there a percent of tanks that are going to have to come out of service in Cushing?

Well, I think the only way that people know for sure, Stephen, is people's own inventory of tanks and what they've done the work on and tested and they know can remain in service or the ones that they can't. It is hard to give an estimate, I think. We know what we're taking out of service. And I would suspect that decisions that were made, because you really you need to be a year or two ahead of it. It is quite possible that some tanks that were planned to be taken out of service may yet -- people try after the date to bring it back into service, Stephen, simply because the market is very attractively priced Contango. We're certainly looking at that ourselves and we've retooled this and said, where we've got tanks that we really did not think we needed operationally. And that we did not think supported in what you would think in the conventional Contango market spreads, we're taking another look at it because it is very attractive right now but having said that it still takes six months to longer when you make that decision to bring those back to service.

And I take it, Stephen, you were asking about third party's tankage at Cushing, not necessarily ours.

In general, yes, but I was talking third party, yes.

We don't own that tankage is probably already out of service.

I mean, our facility, if you will recall, was not built until 1993 or 1994 was the first tank so we're not taking any tanks out of service in Cushing.

Okay. What percent of your storage in Cushing is leased sort of long term versus any that is available for your own marketing use?

A fairly high percentage of it is leased to too for operational purposes to refiners or customers, so it's probably in the 75 to 80% range.

Okay. And lastly, you talked a lot about certainly opportunities as this crisis unfolds. What do you think the biggest catalyst is going to be to seeing transactions start to happen? Is it sort of the bid-ask spread coming in, seller asking prices coming down? Is it capital markets opening up more? What is it going to be for you, that is going to make things happen?

Well, as I mentioned, we've raised our return threshold for both organic and for acquisition opportunities. I think it is fair to say that the body language we're getting from sellers is that the acquisition multiples are coming down, but there's still a gap right now. You are not seeing a lot of deals getting out so I think while the market is coming the direction we think it should, it is not there yet. As far as from our perspective, what would catalyze us to move or not move, it is really -- we think we've got the capital that we need and we have access, if we need more capital it is more the returns. As far as what is holding up the sellers, I can speculate, and tell you that I think it's probably to some extent they are trying to figure out what their alternatives are. In some cases, I think if they think that they can make it on their own, they are -- probably do not want to sell at the prices we want to pay if they don't think that that is going to be feasible, then I think they're going to have to come and meet us and, we'll have to negotiate, clearly we're not immune to that. But I do think that it is just the gap right there and the capital markets are very tight for non-investment grade entities so there is possible that while it opens up for certain entities it may not open up for everybody who needs it.

Right, okay. Well, thanks a lot for the color and I'll get off now.

Thanks, Stephen.

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

Yes, good morning everybody.

Hi, John.

Greg, can you talk on -- on the -- your capital expenditures, I think the last guidance we saw was for 2009 around $250 million, and you -- it looks like you raised it to your midpoint around $37 0 million. Can you talk about what the incremental -- what you are expecting the capital to go for and when you expect returns on that?

Yes, just to clarify, we had actually said $250 million was the expansion capital number and I think our maintenance CapEx was in the $70 million and so that would have been a $320 million aggregate capital number. The comparable would be the 250 million grew to about 295 million and the biggest elements that grew there were we did -- were basically going to build 1.7 -- barrels more tankage in Cushing than we had three, four moments ago, again, partly because the returns are there and because we wanted to return some of the tankage for our own use back to PAA. That's probably, I think, $29 million of the $45 million growth.

Yes. Some of it is that put a little more flexibility into our dock facility at St. James that supplements some of our existing business, that was a good chunk of the remainder.

Right. So we're building a -- a dock facility at St. James as Harry mentioned that's going to service the additional tanks we're putting in (inaudible), I think it is going to allow us to unload panamatches and--.

We can take barges, ocean-going vessels, take take product into St. James, take it out of St. James. We just increased the flexibility of--.

And I think that that was 17 million or $16 million so if you add those two together that is the $45 million round number that got added to the $250 million and then the maintenance CapEx I think we had estimated around $70 million and now we're giving a 70 million to $80 million range.

Okay. And then when -- as far as the new tanks and the dock facility, when would those go into service?

The -- the tank and dock facility will be 2010 but the dock facility probably late 2009 and tank's 2010.

Okay. All right. And then I think just to clarify, I think it was Steve's or Brian's question, as far as any rolloffs of leases that you might be able to take advantage of, with the Contango environment, do you expect any rolloff of leases near term?

We've got some that I think are -- 2010 is probably the earliest the stage is in. So the guidance that we have right now, John, just to be clear, and this is discussed a bit more in the 8-K but it's -- we've got basically a Contango market outlook for the first four months of year and then our $960 million midpoint does not assume that it stays Contango beyond April. Clearly if that happens there is some additional upside and I think that one of the questions that we had in a recent conference was how much? Depending upon the level of the Contango and how it averages throughout the month, we don't wait until the last day of the month to try to lock up our tanks and so if the market blows out at the end of the month, we would not get the benefit of it but we would estimate that the incremental upside to the $960 million midpoint would be in the 20 million to $60 million range if in fact we saw a Contango as it currently has from let's say May through December.

Okay.

And you could probably put a pencil to it and think that the number is bigger but you have to take into impact it has on the leased business, our business in Canada, some of the other grades that we handle so it's not -- there are some offsets as we said.

Okay.

It has a counter cyclical balance to it.

For example in the second half of the year where we assume there is no Contango market we are assuming certain margins in our (inaudible) business are going to be better because of that structure.

Okay. So bottom line there, that's why you're showing, I think, in your marketing segment about $1.15 or so margin but for the full year I think you had it in the 8-K about $0.88 or so, because you are expecting this flattening out in the market?

It is a fair statement, yes. We have to make assumption about the market conditions. And we would rather stay conservative and surprise you on the upside than we would to come back and tell you we counted on it staying buoyant through the whole year and then it didn't.

Okay, great. Thank you very much.

Thanks, John.

Our next question comes from Michael Blum with Wachovia Securities, please state your question.

Hi, thank you. A couple of questions, one can you just clarify a little bit your thinking on distribution growth in '09? So if your forecast for the economy and commodity markets et cetera proves correct would your thought be to then not raise distribution at all in '09 or perhaps just raise it but below that long term 5 to 8% target?

No. Mike, we haven't -- the answer is we don't know because we're not sure when we run all of the different scenarios where in all the shades of gray it is going to shake out. Again, we think in general we've retained the optionality to adapt to the market as opposed to giving you a number and saying count on us increasing by X and then we find out that two more banks go under and, the economy is worse than it really is and so then we're stuck with, okay, do we go back and now have to raise equity capital to replace that that we just agreed to pay out? And so what we're really showing you is -- is that our coverage for next year at the current level is very strong, I think that was in the order of 115, 116% coverage. And if we raised it to 365 average for the year, if we're at 357 now, that would assume that we exited at a higher rate than the average of the two, that we can still cover it very well. And so I'm not -- I guess I am dodging your question, but not because we know an answer and we're not telling it, we just don't know what the future holds.

What we do know is, if we're able to generate returns in, 300 to 500 basis points ahead of our cost of capital, the cheapest source of capital that we have is cash flow that we retained, and it is hard for me to believe right now that the market is embedding into our unit price the assumption of a whole lot of growth and so if we raise it and we don't get paid for it, all we've done is increase our cost of capital, not facilitate our ability to create value. And so if your assumption is that we're overly cautious and that the market is actually going to recover and these economists are right and that in the second quarter and the third quarter we're going to see the market come running back then you should safely assume that we'll probably raise our distribution because if we perform, we've certainly got the coverage. If on the other hand you are like me and I do not know what it is going to be but we think the recovery is going to be in 2010 and I could take that capital and go back and invest it at a 20% rate of return or higher, you will make a whole lot more money as a unit holder with us managing that and that approach as opposed to raising our distribution then going back out and paying the brokers another 4%, 5% to get the money back to invest and the money by the way, we paid out, I think most people are putting it in money markets right now and earning less than 1% and so the 1 to 20% spread to me sure makes sense for us to retain the optionality.

So we're not saying we're not going to increase it, we're not saying we are, we're saying it just really depends on the macro environment. We think we'll hit our numbers and we think we'll have the coverage. In the absence of the macro market issue we'd be back at that 5% to 8% range.

Okay. That's helpful. Second question on Pine Prairie, can you just talk -- you are obviously planning to add a lot of storage there. Can you just talk about what is driving the demand for that natural gas storage, especially in light of the larger market issues that you brought out?

Well, that's a soft ball. Yes, we're pretty pumped about that. The bottom line is we've got, right now, demand is declining, the first six months of the year, I think, US demand over '07 was up about 3 or 4%. In the second half of the year they gave all of that back and we think actually when you adjust for the fact that it was a leap year, on a daily basis, we'll actually see demand flat to down. Yet domestic production is up about 6 to 8% and if you take out the hurricane impact it is actually up closer to 9% domestic -- or onshore it is up about double digits 11 to 12.

You've got big shale plays going on, these are big wells, they are still going to make a good rate of return even at $4 gas and so we think you're going to end up with a supply/demand imbalance in these wells and the shale gas plays have a hyperbolic performance curve, they need to have storage. It's a lot like oil now where it comes in in lumps and it has to be stored because there is not an equivalent demand increase just because they bring on a new well at 24 million cubic feet a day and you multiply that times 10 or 12 wells and it gets to be a big number. So we're pretty excited about Pine Prairie, it is coming on at just the right time. We also have -- we ran into some construction challenges and cost overruns but we put a lot of investment into two elements of that facility that are very, very analogous to what we did at Cushing. On the manifold side we had huge flexibility to pull out gas, I think we've got the ability to pull out gas when we've got all of our counters up at about 2 to 2.4 bcf a day, we have the injection capability that is a bit less than that but it is still very large, that can be a fixed term or more service and then on top of that we built a leaching facility, which is the ability to create cavern space now and we believe that we have leaching rates now that are at least 50% if not closer to 60 or 70% higher than any of our nearest competitors and we own almost all of the domes.

So we think that we can knock out soft cavern storage capacity on a very routine basis and in this environment where some of our competitors who are trying to build salt ad cavern storage, they are not located in as good a place as we are, they don't have the interconnects and they have a higher uncertainty about the ability to meet their deadlines because they haven't gone through some of the trials and tribulations we have and they haven't put the money in the leaching rate and so we think that we win in just about every situation and so we think ultimately this is a business that could be a great standalone business with tremendous consolidation opportunities.

And all of the storage that you are planning to build, you already have customers and contracts lined up for all that?

We have for the first phase of the first three caverns, I think we're in the 80% plus range as far as committed. As we -- we filed a permit now to build an additional 24 bcf, and we -- we do not have customers there until we get approval because the last thing we want to do is to have a contractual commitment to deliver and no regulatory permission to permit us to do so, but as we get closer to that, and we think it will be about an eight-month process to get that permit, we -- we certainly believe the market is there. All indications are that it is there. And we certainly have a business model on our side that has proven that we can manage that, even if we did not have a customer and so we're pretty -- as I say, we're pretty pumped and thanks for that soft ball question.

You are welcome. And thanks for all the answers.

Our next question comes [Mark Rikeman] with SMH Capital, please state your question.

Good morning, just beyond a Contango market demand for storage has really been driven by the imports and the increasing heavy Canadian crude production and then also the need for segregation due to the additional grades of foreign crudes and I was just curious, how do you see the demand for storage growing, over the longer term, and I guess also kind of factoring in your view of the oil sands production forecasts?

Yes. Well, there are certain locations that we have that we think still have the capacity for increased -- increased storage, Patoka being one, it's a central hub. It has access to both domestic crude, crude coming up from the Gulf Coast, foreign sources coming in from Canada. Cushing is probably going to be a tough place to have a whole lot more capacity developments, locations on -- on the Gulf Coast, I mean locations on both East Coast and the West Coast probably have a little bit more expansion capacity there as well but got a little less land to work with in those areas so that will be the limiting factor on both East and West Coast, but those areas where we do see opportunity, expansion opportunities that continue to exist, and then Canada, we've got a couple of locations in Edmonton and (inaudible) where we think we'll have some expansion opportunities as the -- as Canadian oil sands continue to be developed.

Yes. As Harry mentioned, obviously we're building Phase III at St. James. That project didn't even exist for us until I think 2005. Here we are four years later we're into our third phase, Patoka we announced it for the first time 2.5 years ago and we're on Phase II there and as Harry mentioned both those are somewhat related. The additional condensate movements that will be coming up into St. James, we move in on cap line up into Patoka ultimately for delivery into Southern lights into the Canadian markets, so they are all plumbed together. At the same time, Mark, we're bringing crude down the other direction so it's -- back to the issue of crude is not fungible, we handle over 100 different grades and varieties and they each have a different refining value and there is a lot of volatility in that. So I think the Canadian oil sands in this environment we're seeing things slow down but that is what has happened historically, they've never quite been as fast as everybody had anticipated and adding additional drive if you will to the demand for the tankage that we are building is this API 653 and the fact that a lot of tanks are going to be -- have been phased out or are being phased out and the ones that are being phased out are being replaced with tanks that are much more versatile and have a higher utilization capacity. So if you take an old, old tank out and it might have had 100,000-barrels of "shell capacity" that's how they would define it, but you may have only been able to use 70% of that tank. The new tanks that are being built with 100,000 barrels of shelf capacity are upwards in the 85%, to 90% so the utility of them is much higher and it really needs to be to support the additional new construction costs. So that's why my earlier comments that we think that the infrastructure still has a ways to go because there are these big projects that are being built and big pipelines but you have to have the tankage to be able to support those and then, just the dynamics of the foreign market where you've got a very tight supply/demand two years ago and now all of a sudden we've got excess capacity and the biggest variable is demand and to the extent that it turns back around and we go back to 2010, 2011, let's assume for a minute that the market comes roaring back and the economy because we are not going to stay in a recession forever, it is going to drive that again and it's going to cause additional volatility and assets is really what you want to own in a volatile market. And that really fits into our business model.

That is very helpful. And then the second question is a little more specific, could you remind me what the incremental capacity is on that Salt Lake expansion? And then -- and then that -- I just wanted to clarify, that's -- is expected to go into service at the end of the first quarter?

End of the first quarter, yes.

Okay.

The pipeline will have the capacity to do about 120,000 barrels a day, it is going to take some volume that was on another pipe -- basically what we did, is we built a pipeline from our -- the terminus of our Frontier pipeline system into -- into Salt Lake City. It probably has the capacity to add 30,000 or 40,000 barrels a day total new volume, although that all won't come at one time. We'll have more direct capacity into Salt Lake City than we had because part of the volume that was coming off of Frontier was going on a system that we refer to as our refuse system that was going to a Chevron pipeline going into Salt Lake City and now all that volume will go from Frontier into our new Salt Lake City line, into Salt Lake City. But also got our own project to reverse some of the flow on a -- on an underutilized segment of our Salt Lake City core system and so in total probably 30,000, 40,000 barrels a day of incremental new capacity. Like I say, not all that will be day one start up in volume.

But it adds in addition to capacity it also adds additional flexibility for different grades of crude into that market and so back to that earlier market. The multiple grades and varieties really causes you to need more flexibility in your infrastructure.

Yes, it was really due also that we could move heavy Canadian crude off of Frontier into Salt Lake City.

I see, okay, well, thank you very much. It is very helpful, appreciate it.

Our next question comes from Barrett Blaschke from RBC Capital Markets, please state your question.

Yes, just one quick one really, and that is basically looking forward at, if you do see some improvement in the capital markets, do you see it as still being relatively easy to make some acquisitions here to get the capital funding that you would need to make acquisitions?

We think the actual on the capital is available to the higher quality names and we put ourselves in that category, defined both as that with a track record and also an investment grade rating. I would tell you that we will continue to be cautious, we like to pre-fund or simultaneously fund because it allows us not to get hung where you have big commitments and then all of a sudden you find out your cost of capital went skyrocketing through.

So again -- I -- my earlier comment was that our fund-raising could lead or lag the announcement of either an expansion or an acquisition. We think there's very little risk that if we raised it in advance that we wouldn't find a way to put it to work. I think there is a high risk that if you have announced a commitment or -- and whether for expansion or an acquisition and you had not raised the capital, that -- in this environment given our outlook for 2009, 2010, and we may be wrong but, again, our risk is very low if we're wrong and is that that we end up raising capital too soon. Because if you don't raise it soon enough, and you have another bank and god forbid XYZ bank goes under and it just paralyzes the markets you might have a great project at a 20% rate of return and you find out that your cost of capital went up 300 or 400 basis points if you can get it at all.

So if you are asking would we still look to raise capital in advance of an announcement of the acquisition, yes. Because we think that that is the prudent thing to do, and we think the fact that we don't have to have the capital and the capital would be going ultimately to add value, probably puts us in a better position than most, where they are looking to raise capital to fund things that are already embedded into their capital program.

Okay. I guess my only follow-on to that is given that you don't need to raise capital for your organic growth CapEx for 2009, would raising capital in advance of, say, an acquisition maybe put up a red flag that are you in the market and shopping?

Well, I'll tell everybody right now we're in the market and shopping anyway. The -- I think the thing that we also have -- we have an inventory of let's call it, 300 million to 600 million of projects that we control right now. So if we raise capital, getting ready for an acquisition, and we didn't see one, we could simply divert that capital into those projects. We're clearly negotiating with people who come to us and say we want you to build us a tank and we want you to build us this and we say, look, it has got to be a higher return. If they hit our numbers, we want to be able to go forward and the way you do that is to have additional capital to move quickly.

All right. Right. Thank you.

Thank you. Our next question comes from Ross Payne with Wachovia. Please state your question.

How are you doing, guys?

Hey, Ross.

First -- first question is obviously this probably is a good time to be looking at assets and acquisitions, can you comment on your thoughts on how the rating agencies might react to an acquisition of decent size? You obviously have had a good track record historically of integrating but that being said they've tended to put negative outlooks on and what have you but if you an comment on that?

I'll give you two comments, I'll give you what I think they should do and then I'll tell you what they might do. I think given our history of making solid strategic acquisitions and delivering the results on-time and on-schedule as far as budget goes, they should look at it and say, gosh, this is a great time to be making acquisitions, I think our history of pre-funding and funding simultaneously should also bode well for us, but I would think quite candidly that they would probably prefer us to have raised the money in advance as opposed to after the fact because they too can see that it is a very tumultuous market. So again, that is probably back to the bias that said you'd probably see us lead rather than lag in our capital raising efforts. If you put those together and anything we do that is strategic and down the middle of our fairway and we simultaneously have prefunded it, I don't see why they should have any problem at all.

Okay, okay, that sounds good. Just a couple of house cleaning items, Al, you mentioned you had 764 in availability on the $1.6 billion facility. Are there any -- what is the actual draw on that or where do the LC's probably go against the availability for that?

At year end it was right around $50 million, Ross, of LC's so the balance is borrowing.

Okay. And the cash balances at year-end?

Yes. I don't know that I have them right in front of me. They would have been fairly small, about $10 million or less. We generally try to keep -- to keep cash very low.

Okay. And the working capital facility, what is the size of that now?

5.25.

Okay. Got you. Okay. Great. Thanks, guys.

Thank you, Ross.

Thank you. Our next question comes from Yves Siegel with [Arroyo] Capital. Please state your question.

Yes, thanks, and good morning, everybody. I just had a couple of hopefully soft ball questions. One is in terms of the guidance and in terms of thinking, for -- premising the guidance on the Contango market going away after four months, is that consistent with somewhat it gets worse before it gets better type of scenario? And and what -- what would you think, for the Contango to go away in four months, I would think that that would suggest that maybe the economy looks a little bit better.

No, actually, they're unrelated. Our whole history has been any time we get a really favorable Contango market we only forecast it out to what we can actually see and take advantage of. And so, we're not locking up Contango transactions in the November/December time period right now and so, if you're not doing that, there is no sense in trying to forecast that because it could go away. In 2007 we saw the market go from Contango to backwardation literally in two days and so I'm just not bold enough to say I can predict that it won't. Clearly we believe all the supporting issues that are contributing to Contango right now probably are going to stay, that is to say you've got weak to declining demand. You've got production that continues to -- it is being cut but not cut fast enough and you've got a ton of crowd in tanks right now and on the water. So it has nothing to do with our economic outlook, it was just conservatism. And so, if your belief is we stay this way for a while, that gets back to the incremental overperformance that I mentioned we could have, and I hope we're at the end of the year saying, look, it stays in Contango and we delivered a whole lot more free money to our unit holders that we reinvested in a 20% rate of return.

I think the other thing when you look out there you are seeing differentials on some of the grades are very strong. And, ultimately there has to be an equilibrium. You can't continue to have huge Contango and strong grades. At some point in time the WTI is going to come out and be running into some of those grades. So when that starts happening, you are not going to have the stronger Contango market when people start pulling on the WTI's.

And just to amplify what Harry is saying, for example, WTS crude in Canada probably traded out as wide as a $30 differential and at the beginning of the year I think it was around a 15 to $20 differential, even today it is $6.50, okay? So, I mean, something is going to break here, I just do not know which way it is going to break and so what we've got, is we've got numbers out there that we think if we execute against opportunities we know we can control, we can deliver. And we think we have got opportunities to overperform that, we just don't forecast them.

Could you also just speak to the Gulf -- what is happening on the Gulf Coast, and when those volumes come back, how that may or may not change the dynamics of what we're seeing in the market right now?

You're talking about the production that is offline due to the hurricane.

Yes.

As well as there's some projects coming on?

Yes.

It is going to jam an already crowded party, you know? I mean, -- it is -- again, back to Harry's comments, some of differentials will start to -- people will be competing, you've got crude on crude competition at some point and, again, if it comes onto the market right now and tanks are full, something has got to give.

That is -- and that is high quality crude, right?

Some of the stuff coming on is, yes.

Yes, okay.

Some of the stuff that was shut off because of the hurricane was. Some of the newer stuff coming on is a medium sour type of crude.

Okay. And -- and then -- just last two. LNG, perhaps, some think that you are going to see a bunch of LNG coming to the US in the summer. What are your thoughts there, number one? And number two, this is part B to this question, how does that also impact your natural gas storage? Are you talking to any LNG players as perhaps being able to -- that they may be interested in leasing up capacity?

Well, again, most of the capacity we've got available is leased up, we certainly applied for an expansion and, again, we're -- we're frothing at the bit to want to have those discussions when we get a permit close enough to where we can say we'll build it for you at a price that we think they are prepared to pay and we can make a very good return on. As far as LNG coming to the market, it was probably averaging a couple of years ago about 2 bcf a day average it is probably about half that for the last year and there is a lot of liquefaction facilities coming onstream. We certainly have the ability on a regasification U.S. now to bring a lot of volume in. And we've got a world economy that these liquefaction facilities that were being built were designed to meet needs over in Europe and Asia that are -- probably do not have as big a need. At the end of the day, the U.S. is still the -- I refer to the, if you remember the Life commercial about Mikey, we are the Mikey of the world. We will eat anything. We have 5% of the world's population and we consume 25% of the world's production. So if you've got a ship and you need to get rid of it, you may not like the price but you know that there is a place in the U.S. that can take it, we'll have the storage to be able to handle that and we can certainly reliquefy it -- or regasify it. So, no, we think that, again, going back to the soft plays, we're just really pumped about what we can do with gas storage and also we think that is a standalone business that in and of itself might have opportunities to really consolidate that industry. So that is just one more contributing factor.

And, this is Harry, we do have pipeline connectivity to pipelines that -- that will have LNG brought into their systems. And, we have customers that have the capacity to bring LNG into Pine Prairie. Whether or not they use that capacity for LNG, we don't know. We do have customers that have that type of flexibility.

Okay. And I promise my final soft ball question is as it relates to potential opportunities with Oxy, and thoughts there?

Nothing really new that we can or should say other than all the reasons why we think Oxy wanted to invest and why we wanted to have in those investor in terms of the opportunities there we think are still there fundamentally because they're not affected by high prices or low prices or good markets or bad markets. True business fundamentals and synergies are valid in any kind of market and so we're just as excited as then. Clearly everyone has been a little bit distracted and there's other things to pay attention. So I will say that, you know it has caused, probably not as much focus as we might have thought to be able to actually take action but we've all been pretty busy and we think productive. So going forward, we have got that additional element and the inventory thing to work on.

All right. Great. Thank you, guys.

Thank you.

Thank you. Our next question comes from John Edwards with Morgan Keegan. Please state your question.

Yes, hi. Greg, just a follow-up question on the Contango, so you're not necessarily assuming that the curve flattens around April but it -- that was -- it was essentially that was as far out as you felt comfortable with -- in terms of your guidance and so that is why you effectively I assumed it would be flat and you've reserved the remaining as potential upside. Is that a fair way of--?

That's correct. That's the way we handled it back in '06 and '07 too, is we only looked out one quarter basically four months, because of the way the contracts work, you can actually see that we're in February now and so we can actually see into April. And so, yes, it is just really -- it is that alone. It is not a bias that says that we think we're going to go out of Contango, it is just simply conservatism.

This is Harry, we had mentioned earlier on the segment profit per barrel between the first three months and the remaining portion of the year.

Yes.

Just to clarify, some of the things that drive the first quarter performance on a per-quarter basis are -- or on a per barrel basis, one, the seasonality of the LPG business, you re going to get a lot higher margins in the first quarter than the rest of the year and then secondly the Contango factors in to the upper barrel calculations as well.

Okay. Okay, thank you very much.

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

We want to thank everybody for their support all through 2008. Thank you for dialing in today. We hope to be giving you additional good news in the next quarter.

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