Plains All American Pipeline LP (PAA) 2009 Q3 法說會逐字稿

Welcome to the Plains All American Pipeline's third-quarter 2009 results conference call.

During today's call, in addition to reviewing the results of the prior period, the participants will provide forward-looking comments on the Partnership's outlook for the future. Accordingly, in doing so, they will use words such as believe, estimate, expect, anticipate, etc. The Partnership intends to avail itself of the Safe Harbor precepts that encourage companies to provide this information and directly to the risks and warnings set forth in Plains All American Pipeline's most recently filed 10-K, 10-Q, 8-K and other current and future filings with the Securities and Exchange Commission.

In addition, the Partnership encourages you to visit its website at www.PAALP.com. in particular the section entitled non-GAAP reconciliations, which presents certain commonly used non-GAAP financial measures such as EBITDA EBIT, which may be used here today in the prepared remarks or in the Q&A session. This section of the website also reconciles the non-GAAP financial measures to the most radically comparable to 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 affect of selected items impacting comparability.

Today's conference will be chaired by Greg L. Armstrong, Chairman and CEO of Plains All American Pipeline. Also participating in the call are Harry Pefanis, Plains All American 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. Please go ahead.

Thank you, [Rachelle], and good morning to everyone and welcome. In addition to Harry and Al, we also have several other members of our management team available for the question-and-answer session, including Pat Diamond, our Vice President responsible for strategic planning. Roy Lamoreaux, our Manager of Investor Relations, is also here.

As a reminder, this slide presentation will be referring to in this call is available on our website at www.PAALP.com.

Plains All American has been very active and productive in the four months since the end of the second quarter. We delivered solid operating and financial results, acquired the remaining 50% interest in PAA Natural Gas Storage, raised approximately $1.2 billion in the capital markets at very attractive rates, and increased our annualized distribution by $0.06, or 1.7%, to $3.68 per unit. We also ended the third quarter with a solid balance sheet and over $1.6 billion of available committed liquidity of which approximately $260 million was used in early October to repay our 7.25% -- 7 1/8% notes.

With regard to financial results, as illustrated on Slide 3, yesterday we reported EBITDA of $242 million and net income of $122 million, or $0.65 per diluted unit. Excluding the selected items impacting comparability listed in the table at the bottom of Slide 3, our adjusted EBITDA was $234 million and adjusted net income was $114 million or $0.59 per diluted unit.

As shown on slight 4, this marks the 31st consecutive quarter of delivering results in line with our guidance.

During the remainder of today's call, we will focus on the topics listed on Slide 5 which include a comparison of actual performance to guidance and operational assumptions incorporated into our future guidance, capital projects and acquisition activities update, capitalization liquidity at September 30, 2009 and recent financings, our fourth-quarter 2009 financial guidance. We will also focus on the positive performance of PAA's assets and business model over the last few years and provide some preliminary 2010 EBITDA guidance and growth capital investment plans.

With that, I will turn the call over to Harry.

Thanks, Greg. During my portion of the call, I'll review our third-quarter operating results, compared to the midpoint of our guidance issued on August 5, 2009, discuss the operational assumptions used to generate our fourth-quarter 2009 guidance and discuss the progress of our expansion capital program and our acquisition activities.

Let me start with our operating results for the third quarter. As shown on Slide 6, our adjusted segment profit for the Transportation segment was $135 million or $0.50 per barrel. That is about $8 million above the midpoint of our guidance range. Higher than forecasted pipeline loss (inaudible) volumes and about $3 million of lower than forecasted G&A expenses were the primary drivers for the over-performance relative to our guidance.

About $1.5 million of the pipeline loss allowance amount was a correction to a prior period which had an offsetting impact on our Marketing segment.

Our pipeline volumes for the quarter were about 2.9 million barrels per day, which was approximately 5% lower than guidance. However, revenues were basically in line with our guidance due to volume mix in the quarter.

Adjusted [segment] profit for the Facilities segment was $59 million or $.32 a barrel. That is about $6 million above the midpoint of our guidance range. The PNGS acquisition -- that is our Natural Gas Storage -- contributed approximately $3 million of the (technical difficulty) performance. The remaining benefit was primarily attributable to the revenue recognition of a minimum annual throughput piece from one of our customers.

Average capacity of 61 million barrels per month for the third quarter was up slightly from guidance of 60 million barrels per month as a result of owning 100% of PNGS from one month during the period.

Adjusted segment profit for the Marketing segment was $37 million, or $0.53 per barrel, which is about $6 million lower than the midpoint of our guidance. As previously mentioned, approximately $1.5 million of this amount related to a prior-period adjustment.

In addition, we accrued a $1 million reserve relating to a potential resolution of certain outstanding disputes.

The balance of the underperformance was due to tighter than forecasted crude oil [quality] differentials partially offset by higher than forecast LPG margins.

Our marketing volumes of 741,000 barrels per day are below the midpoint of guidance of 765,000 barrels per day. Our lease gathering volumes and our LPG sales volumes were both slightly lower than forecasted.

Maintenance capital expenditures were $12 million for the third quarter. We continue to expect maintenance capital expenditures for the full year of 2009 to range from approximately $85 million to $95 million.

Let me now review the operational assumptions used to generate our fourth-quarter 2009 guidance, which is furnished in our Form 8-K issued last night and shown on Slide 7.

For the Transportation segment, we expect volumes to be approximately 3 million barrels per day, which is the slightly higher than the third-quarter volumes. Segment profit per barrel is forecasted to be $0.48 per barrel, which is just a touch lower than third-quarter results.

Facilities segment guidance is based on forecasted volumes of 56 million barrels per month of crude oil refined product and LPG storage, an average of 40 BCF per month natural gas storage capacity and an average of about 17,000 barrels per day of LPG processing throughput volumes, for a total capacity of 64 million barrels of oil equivalent.

The principal difference from last quarter is the full-period impact of the 40 BCF of natural gas storage capacity at the NGS.

Segment profit per barrel associated with the midpoint of our guidance is forecasted to be $0.32 per barrel, which is above the actual results generated during the third quarter of 2009.

Marketing segment guidance includes lease gathering volumes of approximately 600,000 barrels per day, LPG sales volumes of 150,000 barrels per day, refined product sales of 35,000 barrels per day, and water-borne foreign cargo volumes of 60,000 barrels per day. The sum of these volumes totals 840,000 barrels per day for the Marketing segment at a projected midpoint for segment profit per barrel is $0.74 per barrel. Fourth-quarter volumes and margins reflect the seasonality of our LPG activities.

We've completed a couple of acquisitions in the third quarter, including the acquisition of the remaining 50% interest is the Natural Gas Storage business. Given the amount of detail we've provided in our acquisition conference call and related press releases, we won't be spending any time discussing the acquisition on this call other than an update on the development activities at Pine Prairie. However, I would reiterate that we believe that the fundamentals supporting our business are solid and we're very pleased to own 100% of this business.

We also completed the acquisition of 290,000 barrels of refined products storage tankage located near our facilities in the Philadelphia area in the third quarter and in October we completed the acquisition from (inaudible) three creed oil proceeding crude oil receiving pipelines a small manifold system and 400,000 barrels of crude oil tank located at its Tulsa Oklahoma refinery. We continue to actively analyze various acquisition opportunities.

Moving to Slide 8, our 2009 capital program totals approximately $380 million. In addition to the typical minor adjustments to various projects, this net $10 million increase over last quarter's estimate includes $15 million of capital for the Pine Prairie development which, prior to the PNGS acquisition, was recorded as an equity investment and is now consolidated into our capital program.

Overall, our capital projects are generally progressing as planned. The expected in-service timing up for larger projects is shown on Slide 9. I'll spend just a minute updating the status of our gas storage development project at Pine Prairie in Louisiana. We expect to have Cavern Well 3 placed in service in the second quarter of 2010 with capacity in the 9 to 9.5 BCF range. Further within the next month or so, we expect to begin the drilling of Cavern Well 4, which will be immediately followed by the drilling of Cavern Well 5. We would expect to have Cavern Well 4 in service in the second quarter of 2011 and Cavern Well 5 and service in the second quarter of 2012.

With that, I will turn it over to Al.

Thank you Harry. During my portion of the call, I will update our capitalization and liquidity, provide a review of our recent financing activities, and discuss our guidance for the fourth quarter of 2009.

We remain committed to a proactive financial growth strategy that maintains a strong capital structure and significant liquidity to enable us to execute on our growth initiatives. In this regard, over the last four months, we have been very active on the financing front, ranging approximately $1.2 billion in the capital market and also renewing one of our committed bank facilities.

In July, we completed a $500 million offering of three-year senior notes. This capital is being used to supplement capital available under our hedged inventory facility. Since the maturity of the notes extends beyond one year, for GAAP purposes, the debt is classified as long-term. As we indicated on our call last quarter, we will disclose each quarter our adjusted long-term debt to capitalization ratio and adjusted long-term debt to adjusted EBITDA ratios that is consistent with the way we have reported them in the past, that is treating debt that is used to finance hedged inventory as short-term debt. At September 30, $437 million of the proceeds of these notes were used to fund hedged inventory. Accordingly, our adjusted long-term debt ratios are calculated after reclassifying that amount as short-term.

At the risk of stating the obvious, this adjustment is a reclassification between categories only. There is no change in total debt and no change in any ratios calculated using total debt. We have included a table summarizing the debt classification adjustment in our press release tables.

Staying with our inventory financing activities for a moment, in late October, we renewed our 364-day committed hedged inventory facility at a size of $500 million. We had excellent support in this transaction, expanding the number of banks from 9 to 23, including adding several new relationship banks. We would like to thank each of the banks for their support.

In early September, we completed a $500 million offering of ten-year senior notes priced to yield 5.8%. Net proceeds from the offering were approximately $494 million and were used to fund the PNGS acquisition, reduce borrowings under our credit facilities, and to call $250 million of our 7 1/8 senior notes due in 2014. These notes were redeemed at 103.5% of par on October 5. As a result of the favorable refinancing, the redemption of the notes was positive from a net present value perspective and also resulted in a five-plus-year maturity extension.

As reflected on Slide 10, our long-term debt has an average tenor of 11 years, is 93% fixed and there are no maturities until 2012.

In early September, we issued 1.9 million common units with a value of approximately $90 million in connection with the PNGS acquisition. In mid-September, we completed an overnight equity offering that resulted in the sale of approximately $5.3 million limited partner units at $46.70 per unit, raising $246 million net, including the proportionate contribution from our general partner.

The units were priced at an all-in discount of 5.25%, including the gross spread and discount to market relative to our closing price the day of launch. This compares favorably to other recent MLP equity offerings. The vast majority of the offering was sold in the retail market. The capital markets transactions enabled us to pay down the bank debt originally used to finance the PNGS acquisition, terminate the existing project finance credit facilities within PNGS, refinance the 2014 notes, and to reload our liquidity.

As summarized on Slide 11, we ended the third quarter with solid capitalization in our liquidity position, which was in line with our targeted credit metrics. At September 30, our adjusted long-term debt to capitalization ratio was 47%. Total debt to capitalization ratio was 53%. This ratio is burdened by $1.1 billion of hedged inventory debt that is essentially self-liquidating.

Our adjusted EBITDA interest to coverage multiple was 4 times and our adjusted long-term debt to adjusted EBITDA ratio was 3.7 times.

Adjusted short-term debt at the end of the third quarter was $1.1 billion. This includes the $437 million reclassification from long-term debt I discussed earlier. The short-term debt is primarily associated with hedged inventory that will be repaid with the cash proceeds received when the inventory is liquidated.

Let me now move on to guidance. The high point, which excludes selected items impacting comparability between period, are summarized on Slide 12. For more detailed information, please refer to the 8-K that we furnish last night.

We forecast fourth-quarter adjusted EBITDA to range from $240 million to $265 million with adjusted net income ranging from $114 million to $143 million, or $0.56 to $0.76 per diluted unit, yielding a full-year forecast of adjusted EBITDA ranging from $985 million to just over $1 billion with adjusted net income ranging from $520 million to $549 million, or $2.88 to $3.10 per diluted unit. The guidance reflects relatively weak market conditions for our marketing activities, including lower expected margins from quality arbitrage opportunities as a result of tighter differentials between grades and a relatively weak contango market structure, offset somewhat by the seasonal benefit in our LPG activities.

While we are seeing some weakness in our second-half Marketing segment results, the midpoint of our annual 2009 Marketing segment profit is $261 million, or $0.88 per barrel, which compares to our original guidance for the year of $273 million or $0.88 per barrel. Balancing the Marketing segment results, we have had stronger-than-expected performance from our two fee-based segments, Transportation and Facilities, which, based on our guidance, represent approximately 80% of our adjusted EBITDA for the second half of 2009.

Based on the recent distribution announcement, our average distribution per unit for 2009 will be slightly over $3.62 per common unit, an approximate 4% increase over the average distribution paid in 2008 of $3.50 per unit. As shown on Slide 13, based on the midpoint of our 2009 guidance and the weighted average unit outstanding for 2009, our distribution coverage ratio is projected to be around 111%. Consistent with past practice, we monitor our distribution coverage on a rolling four-quarter projected basis.

With that, I will turn the call back over to Greg.

Thanks Al. Before I discuss our preliminary guidance for 2010, I think it would be worthwhile to put the trials and tribulations of the last 27 months and PAA's performance during that period into perspective.

Although PAA is certainly not immune to the effects of the macroeconomic slowdown, PAA's asset base and its business model are designed to be countercyclically balanced to be able to generate a solid base line of EBITDA and distributable cash flow in almost any environment with the opportunity to exceed that baseline in certain market conditions.

Over the last 27 months, PAA has had the opportunity to demonstrate the performance of its asset base and business model in a number of extreme environments that, when taken together, constitute a realized stress test that validates theoretical spreadsheet testing. Specifically, it is described on Slide 14.

Since July 2007, crude oil has been as high as a $147 a barrel, as low as $32 a barrel, with backwardation as wide as $11.50 per barrel and contango as wide as $8.50 per barrel. Basis differentials have compressed significantly with West Texas sour crude averaging an approximate $1.35 per barrel and discount to WTI for the first nine months of 2009, as compared to the previous five-year average differential of $4.50 per barrel.

The Gulf Coast experienced three back-to-back hurricanes, including Ike, which scored a direct hit on Houston. A high profile competitor and a meaningful player in the crude oil space imploded. The financial community in our banking system has been plagued by chaos and instability causing major bank failures and forced mergers and resulting in dramatic government intervention.

The US and many parts of the world have been in the throes of a major recession. The AMZ MLP index hit a high of 343 and July of 2007 and a low of 146 in November 2008, all while investment grade credit spreads have also shown extreme volatility with low triple-B spreads trading from as narrow as 150 basis points over the ten-year treasury to as wide as 800 basis points.

Throughout this extended stress test period, PAA has performed consistently well. As represented on Slide 15, Plains All American has achieved or exceeded its operating financial guidance on both a quarterly and annual basis. As a directional illustration of PAA's performance during this time period, I would point out that adjusted EBITDA in 2009 is forecasted to be 45% above 2007 beginning of the year guidance.

We've maintain credit metrics in line with our targeted credit profile. We've maintain access to equity and debt capital markets, raising over $2.7 billion in seven separate transactions. That excludes multiple bank facility renewals. We've completed approximately $1.1 billion of acquisitions and we've invested over $1 billion in internal growth projects. We've also raised our quarterly distribution eight out of ten quarters, including the most recent quarter. We maintained high levels of liquidity throughout the period, culminating with the current level of well over $1 billion.

Although we maintain a healthy respect for the unknown and continue to position the Partnership for a potentially prolonged economic recovery period, we believe that Plains All American's performance during this period of realized stress testing should provide our investors and prospective investors with comfort in our assets, our business model and our management discipline.

With those thoughts in mind, let me share a few comments about our outlook for the fundamental economy in 2010 and how that outlook affects PAA's guidance for 2010. The low end of our guidance range incorporates our view of a prolonged recovery from the recession, which in turn translates into a continuation of a weak US economy throughout all of 2010.

Specifically, with respect to the energy industry, this outlook assumes that, relative to levels prior to the recession, the US will continue to see weak demand for crude oil and transportation fuels, reduced imports of crude oil and a weak market structure of crude oil with what we call limited structural volatility. That is essentially a market that is either slightly backwardated or slightly contango.

This outlook assumes that quality differentials will remain at or near the abnormally tight range currently being experienced in both the US and Canada. The high end of our range assumes essentially the same outlook as the low end of the range for the first half of 2010 but incorporates a gradual recovery in the economy beginning in the second half of 2010 that will increase domestic consumption and crude oil imports and result in an increase in structural volatility and expanded quality differentials for crude oil. With those thoughts in mind, our preliminary outlook for 2010 calls for adjusted EBITDA of $1 billion to $1.080 billion for up to a midpoint of $1.040 billion.

In addition to reflecting our thoughts on the macro energy environment, this guidance is intended to be broad enough to cover some moderate inflation in certain elements of our administrative and operating expenses, as well as the potential impact of negative adjustments to the producer of price index adjustments to our pipeline tariffs. This guidance, however, is not intended to cover any of the significant initiatives and unknowns that are currently being discussed in Washington DC.

We currently anticipate our expansion capital program for 2010 will range from $300 million to $400 million. We recognize that our economic outlook may appear to be relatively conservative in comparison to the enthusiasm exhibited by the current financial markets. In that regard, I would point out that, to the extent that the broad economic recovery actually begins earlier that we have anticipated or is stronger than we have forecasted, there is room for upward bias in the guidance range for both operating and financial performance and growth capital expenditures.

I would also note that, without regard to the economic recovery, the baseline level of our adjusted EBITDA generating capacity and 2010 exit rate will be higher than the average rate for 2010, a portion of which will be tempered somewhat by the imposition of incremental taxes in Canada in 2011, but on balance a very positive outlook for 2011.

We believe PAA has delivered demonstrated financial performance during the unsettling economic and financial environment of the last 47 months, our expected performance for 2010 and beyond and our solid capital structure liquidity position continue to make PAA an attractive investment opportunity that combines a low-risk profile with a compelling current yield and a positive outlook for future growth.

We thank you all for participation in the call today. We look forward to updating you on our activities and providing more detailed 2010 financial guidance on our year-end call in early February. At this time, we will open the call up for questions.

(Operator Instructions) Brian Zarahn, Barclays Capital.

Good morning. On the Transportation segment, pipeline volumes were down below guidance. Can you talk a little bit about what was behind that? Was it weak refinery demand, lower imports?

There's variance on so many different pipelines, it is hard to pinpoint. It will say basin was down a little bit but on average, basin has been on target for the year. It just could have some monthly variations and that was probably the one pipeline system that had a little more variance than the others.

In terms of acquisition, can you talk a little but about the Tulsa acquisition and how it fits in with your Cushing assets?

Well, you know the tankage will be pretty much used by Holly for its refinery supply. It does have -- we do have connectivity, pipeline connectivity, between the Cushing terminal and Holly's refinery. We have a struck an arrangement with Holly where (inaudible) contango opportunities we would share in the contango opportunities (technical difficulty) that tankage of Cushing and our sort of supplying at Cushing.

Yes, Brian, basically it is backed by a long-term use agreement, so we get a guaranteed rate of return on the low end and we get upside through contango opportunities. So we're able to do the same strategies in Tulsa that we do in Cushing but the connectivity there is why it's important to get those pipelines.

I guess, looking at a higher level, what kind of opportunity set do you see from the large integrateds that are pursuing at lot of asset sales over the next one or two years?

We purchased a lot of assets from integrated historically, so we think we're as well positioned as anyone to acquire extreme assets that they would consider selling.

Yes, I would say, Brian, we certainly welcome the opportunity and the fact they've made a public statement generally means they are going to go ahead and follow through on that. There certainly will be other competitors for those assets, but a lot of these assets we studied and in some cases approach the majors in the past to try and do a deal on and been rebuffed. So it's not as if we're going to have to start from scratch learning about the assets they want to sell. Whether we are the winner or not will be really a function of just what synergies we can see with those assets versus our competitors and the relative cost of capital.

Thank you.

Darren Horowitz, Raymond James.

Greg, in your outlook commentary, you were talking about your expectation for aggregate crude oil differentials to essentially remain consistent with where they are today. But when you dig a little bit deeper into the various grades, does anything stand out to you? We see sour differential has been pressured for a while, but the forward curve for crude oil has improved at a pretty decent pace. So wouldn't that make sense that the dis might widen out a little bit?

Well, you've got a lot of issues going on there. You've got fundamentals and then you've got money flows impact. We added a slide in the appendix there, and if you look, I think it is Slide 21. It shows both for US domestic grades and then also for Canadian grades just extreme tightening in the (technical difficulty). So it's hard for us, as we're providing 2010 guidance, to say we are smarter than the market and that we're going to forecast that it widens. It seems, with the uncertainty about the economy -- because to some extent, for that forward curve to be correct -- and I'm not saying the financial players are wrong, but consumption is going to have to pick up some time here pretty soon. In the US, we're running about 18.5 million barrels a day of petroleum demand; that is versus 20.7 million barrels, so we're down about 10%.

I guess what we're communicating is that, until we start to see actually the demand turn around, we're not so sure that the forward curve is supportable. Yet, on the other hand, there is a lot of really smart money betting on that forward curve saying it is coming. So I hope they're right and we're wrong because our numbers are going to get better. But it was easier for us to tell you what we think we can do if we have a continuation of this weak environment and that if the economy really does take a while to turn around.

Right, yes. I appreciate the color and I agree. I think it is prudent to set the base case pretty well.

Switching gears over to your expansion capital, Slides 8 and 9 respectively, just a quick housekeeping item -- I notice that the Patoka expansions got scaled back by about $10 million. Specifically, it looks like Phase 3 got pushed out a bit. Can you give us a little bit more color there?

I think it is really just timing issues on -- if you are talking about on Page 8? We had I think what Harry was saying, of the net capital, we added $15 million and it only translated into a net increase of $10 million. Part of that is just simply those capital just getting pushed out the actual expenditure of capital into next year. I think the actual timing for the projected coming onstream is the same; it's just when we pay the bills.

One final question for you, Greg, within the Pipeline segment -- when you look at the Gulf Coast line cap line, is there anything there in your forecast (inaudible) sequential decline for throughput that causes you concern that base level might continue into 2010?

You're talking about the 190,000 barrels a day?

Yes, down from what you guys reported what was what -- about 205,000 in the third quarter?

I think that cap line, when you look at some of the Canadian pipelines coming into the Patoka area in 2010, our forecast for 2010 does anticipate cap line volumes being a little lower than they've been in 2009. So we do expect a little bit of an impact on cap line in 2010.

Let me just get back to you on Patoka. I think Patoka -- there has been a little bit of a reduction in our expected cost on Patoka.

I appreciate the color. Thanks guys.

[Dave Warren], Banc of America.

Hey, good morning, everyone. A couple of questions -- this Holly Corp. -- the Holly Corp. sale leaseback transaction, kind of the shared contango upside -- is that something that you've got in other types of contracts that you have got around some your storage? I'm also just curious kind of how that transaction came about, whether you approached Holly or whether Holly approached you as part of their recent refinery acquisition and I guess whether you see any sort of similar sales leaseback transactions happening with other independent refiners?

As far as upside sharing and contango, I think that is really the only one that we have. It was just a negotiation between what the minimum rate versus how much upside do you share. As far as who approached who, I'm not sure really there's any relevance from our perspective to our decision to invest there. I'll say that we certainly think Holly is a well-managed company and the ability to do business with them and get -- build upon that relationship -- this is a step that enabled to do it. They've -- by combining the two Tulsa refineries, they're probably going to extract longer-term synergies than either refinery could have done individually.

But as far as trying to take that investment opportunity sale-leaseback transaction and replicate it in other places, that is not on our radar screen right now.

Okay. Then a second unrelated question pertains to the current County oil discoveries that Oxy announced in July. Given the size of that, I guess do any of your legacy PPX assets stand to benefit from that and down the line, do you see any gross capital to be invested there?

Yes, there's upside opportunity there. We've got two pipelines that have under-utilized capacity from Bakersfield into the Los Angeles area. Then we also have a pretty decent infrastructure in the San Joaquin Valley from a gathering area perspective. So to the extent there's increased production, I mean we think will, at a minimum, participate pro-ratably in any volume increases in that area.

As far as immediate plans for building additional infrastructure out there, there's not been any announcements and anything that would happen in California, as you know, is preceded by an extended permitting process. I'll think you'll see it when it comes.

Ross Payne, Wells Fargo.

The first question is are you seeing any uptick in oil drilling and oil production, lower 48, just with the Bakken and other areas and how that may impact you guys maybe one or two years out?

Ross, I think it is really somewhat producer dependent but the answer to your question is yes we are seeing some in West Texas where rigs are getting picked up. Oil prices clearly went from a very high level to a very low level and service costs were a little bit stickier on the way down. Things have settled out quite a bit and we're seeing the producers able to target economics and to see the visibility of those economics materialize through the cost of drilling, the efficiency of drilling and then also just the prices have stabilized at a good range. Then the upside, as far as in the Bakken, that is just a continuation. Again, it's going to be a producer-by-producer situation.

We've seen volume increases in the Bakken on both sides of the border and have assets that I think will benefit by increased Bakken production in Canada and in the US.

I know you touched on it a bit earlier but, from a timing standpoint, where is Pier 41 now, and does it continue to move forward and what are your expectations there?

Pier 400? Basically where we are is we've had a challenge to the permit that was approved by the port and the city council. We expect that is something that is going to take probably six months or so to resolve. So, we're really in a position where it's not prudent to spend capital, meaningful amounts of capital, on that project until the litigation has been resolved.

Does that cover it?

Yes, that's [got] it for me. Thanks.

Michael Blum, Wells Fargo.

Hi everyone. Just one question -- you mentioned that, in your marketing business, you are experiencing higher LPG margins. Can you just talk about what the drivers of that are and how you see that moving forward into 2010?

Well, it's seasonal business, so we're going to see higher margins in the, say, fourth quarter and first quarter than we would in the second and third quarters of any year. It's being driven right now by some early cold weather in October and some delayed crop drying, so all of that helps benefit our fourth-quarter forecast.

Do you see any change in the import activities for LPGs going forward?

LPGs?

Yes.

Not anything meaningful.

I think Michael one of the challenges that is on the entire system right now is what to do with the amount of gas that is being generated and you're ending up with for example in the Marcellus and other areas, some of those are fairly high liquids content. So I think whatever view you might have had two or three years ago about importing LPG is probably in the process of changing right now because of the domestic supply increase that we're going to be seeing.

Thank you.

I think that opens up an issue as to -- for transportation pipelines. You are going to have to move it around the US but I think it just shifted from a focus on foreign to domestic now.

John Edwards, Morgan Keegan.

Good morning, everybody. Just a quick question -- in your 2010 guidance, could you maybe -- (technical difficulty) you said this, but what was the marketing margins that you assumed embedded in that guidance?

We have not provided that level of granularity yet. We typically don't do that until the February phone call. But you can assume that it is fairly conservative based upon the macro economic energy environment that we spoke to there. I don't recall, Al. It is probably close to the fourth-quarter numbers, skewed by the LPG?

Yes. Clearly, we are looking at more the second half versus the first half, especially the first quarter of this year. The first quarter was strong. We're looking more at kind of the nine-month (inaudible) back end. We normally don't provide that at this point.

Yes, I do think we said in the 8-K or I can say is that probably we expect the marketing contribution to be roughly in the 25% to 30% range, which would suggest to you that, assuming volumes are comparable, you're going to be in the same reasonable range for margin per barrel (technical difficulty) was before.

Okay, great. Thank you very much.

(Operator Instructions). Yves Siegel, Credit Suisse.

Thank you. Good morning. On the CapEx preliminary guidance for '10 of $300 million to $400 million, how much of that would be just completing the projects that are on the slide? Or how much is the new projects I guess is the other way to look at it.

Some of these projects were on various expansions but I would say a fairly high percentage of it is probably in the 50% to 60% at least is in that range. To us, some of these lose a little bit of identity as we go, for example, on Pine Prairie. Obviously we've got the carryover activity from Cavern Well 3 but were starting Cavern Well 4. So that is in that number whether you want to view that as a new project or simply a continuation of existing projects. There is not necessarily any what I would call significant groundbreaking on brand-new projects, so it is really continued expansion.

And if I could --.

As Harry said, it does not include a big expenditure for Pier 400. If and when that is ever able to come to fruition, we will certainly let people know we add that to the capital program.

Then in terms of when you think about acquisitions in 2010 perhaps, what is the ballpark? Typically you target $200 million to $300 million. Potentially, what could that number look like in 2010 as some of these assets come on the market and you're successful?

Well, you stole part of my answer when you referenced it. We always kind of focus in on a rolling average of that $200 million to $300 million. The reason for that is we just we've gotten so big that the bolt-on acquisitions -- we're always looking at things that seem like we can build up that sized basket. I think, if you go back and look historically, we may have had years where we only had $150 million of acquisitions but we also had years where we had $600 million and $700 million without necessarily any single big one making up 60% or 70% of it.

As far as going forward, I would say we certainly levered our balance sheet up with a lot of liquidity and we're not afraid to use it for the right opportunity. We will continue to follow a balanced financing program once we do on something of a combination of a cash flow and equity for at least 50% of it. But clearly, if the majors are selling $10 billion of assets, we want more than our fair share of it.

Also going backwards to organic growth projects, you've been real successful in doing scalable projects. Anything in your sites other than the Pier 400 that could be a relatively large project? I'm not talking about the Natural Gas Storage. I guess what I'm moving toward is could you see yourselves maybe looking at a pipeline project that could be fairly sizable?

Pipeline projects, big major large diameter pipeline projects really aren't in the middle of our wheelhouse. We do a lot of plumbing around things to connect things together, but we don't have anything on the drawing board that would be a $1 billion pipeline project. Those generally take multiple years and have a lot of risk associated with them in terms of both execution and changing market conditions.

I will say there are a number of organic growth projects that we're looking at that are probably in the $100 million to $200 million range. You stack up two or three of those, you start getting into that big scale projects but they are really -- individually you could scale them up or down. We like that flexibility in our portfolio.

My last question, Greg -- anything new in terms of the relationship with Oxy? Are they one of the majors, perhaps, that could be within that $10 billion bucket of asset sales?

I think, if you look at Oxy's balance sheet, they are more on the buying side than the selling side right now. They certainly have opportunities and assets, Yves, on either a joint venture or some sort of working together basis, that probably would make sense just because of our skill sets and our asset footprint and their skill set, balance sheet and their footprint. But it would surprise me. I haven't heard Oxy say that they've got anything major for sale. If anything, I would look at their balance sheet and say there are buyers not sellers.

So how does that relationship evolve from the start? Has that been pretty much in line with what you were thinking? How would you describe it?

I would say we're just over a year, slightly over a year, into their owning part of the general partner. I think certainly we like what we see and I hope they feel the same way. They have observer rights at our board meetings and they've had a chance to see how we do business, and I think we have their respect, obviously. If you were to go back to when we announced that, we said basically, from closing, we thought while we jointly agree to pursue things, we thought it was going to be 12 to 24 months before something would come to pass. So I don't think the absence of any an announcement should indicate a change in our approach to each other.

This is Harry. Just I want to just circle back on your comments about pipelines. Could we build a 100-mile pipeline? Sure. We've had some opportunities (inaudible) in the past and had some ideas in the future that could work, but just like Greg said, we build -- a major pipeline would take years to build and the $1 billion, that's not in our wheelhouse, as Greg had said.

I think the pipeline projects we're looking at are in the couple hundred million dollar range.

Yes.

It's not like that small change either though, right?

It sure rolls off the tongue easier today than it did when we first went public in '98.

Thanks guys.

(Operator Instructions). There are no further questions in queue. Back to you, gentlemen.

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