Pacific Energy Partners, L.P. (NYSE:PPX) (�Pacific Energy� or the
�Partnership�) announced that net income for the three months ended
September 30, 2006, was $19.2 million, or $0.48 per limited partner
unit, compared to net income of $12.2 million, or $0.39 per limited
partner unit, for the three months ended September 30, 2005.
Recurring net income for the three months ended September 30, 2006
was $20.3 million, or $0.51 per limited partner unit, compared to
recurring net income of $12.2 million, or $0.39 per limited partner
unit, for the corresponding period in 2005. All per unit amounts in
the text of this news release are reported on a diluted basis. The
increase in recurring net income for the quarter ended September
30, 2006, reflects the benefit of the September 30, 2005,
acquisition of refined products terminals and a refined products
pipeline from Valero L.P., increased income from our California
pipelines, increased margins from crude oil marketing activities
and higher revenue from our Southern California terminals.
Partially offsetting these increases was a decline in
transportation revenue from the Partnership�s Canadian pipeline
operations. In addition, the Partnership incurred higher interest
expense attributable to the financing of the refined products asset
acquisition and increased general and administrative costs. There
were approximately 28% more units outstanding in the third quarter
of 2006 compared to the corresponding quarter in 2005. Recurring
net income for the third quarter of 2006 excludes $1.1 million of
transaction costs related to the planned merger with Plains All
American Pipeline, L.P. (�Plains�). �We are very pleased with our
third quarter results. Recurring net income was up 31 percent on a
per unit basis versus the prior year quarter and also exceeded the
guidance given in last quarter�s earnings press release. Our core
transportation and storage business performed well, and favorable
market conditions allowed us to generate better than expected crude
oil marketing income,� stated Irv Toole, President and CEO of
Pacific Energy. �Organic pipeline and terminal growth projects in
both of our business units continue to progress and are a primary
focus of the Partnership.� On October 20, 2006, Pacific Energy
announced a cash distribution of $0.5675 per unit for the third
quarter of 2006, or $2.27 per unit annualized. This is unchanged
from the second quarter 2006 distribution level but is 10.7% higher
than the third quarter 2005 distribution level. The distribution
will be paid on November 13, 2006, to holders of record as of
October 31, 2006. Distributable cash flow available to the limited
partners� interest for the third quarter of 2006 was $26.9 million
after deducting $1.1 million in merger costs. On a diluted,
weighted average, basis there were 39,321,000 limited partner units
outstanding during the third quarter of 2006. Earnings before
interest, tax, depreciation and amortization expenses (�EBITDA�)
were $40.7 million in the third quarter of 2006. OPERATING RESULTS
BY SEGMENT WEST COAST BUSINESS UNIT Operating income was $24.2
million for the three months ended September 30, 2006, compared to
$9.8 million in the corresponding period in 2005. This increase was
primarily due to the addition of the Northern California and East
Coast terminals on September 30, 2005, improved operating income
from California pipeline operations, higher tank revenue from Los
Angeles area terminal operations, and increased margins from crude
oil marketing activities. The Northern California terminals are
operating at capacity. Construction of 450,000 barrels of
additional storage capacity at Martinez was completed in late
September 2006, with lease revenue beginning October 1. As
previously announced, due to strong customer demand, Pacific Energy
increased its capital budget to provide for the construction of an
additional 850,000 barrels of storage capacity at Martinez, which
is under contract. It is projected that $1.1 million of capital
will be expended in 2006 for these tanks, with an additional $27.1
million to be expended in 2007. Completion of 250,000 barrels is
expected in the third quarter of 2007 and the remaining 600,000
barrels is expected to be completed in the fourth quarter of 2007.
The East Coast terminals are also operating near capacity. East
Coast terminal income includes the benefit of expanded ethanol
facilities, which began operations in the second quarter of 2006
and are now fully operational, and the start-up of ultra low sulfur
diesel and jet fuel handling facilities. Volumes transported to Los
Angeles on the Partnership�s crude oil pipelines for the three
months ended September 30, 2006 were approximately 6% higher than
in the third quarter of 2005, due to refinery maintenance and
higher Outer Continental Shelf production volumes which were lower
in 2005 due to maintenance downtime. In addition to the long-haul
volume improvement, revenue increased as a result of a $0.10 per
barrel tariff increase effective May 1, 2006 on Line 2000. In
addition, deliveries to Bakersfield refineries more than tripled
from the prior year quarter as a result of pipeline modifications
in the San Joaquin Valley that were completed on October 1, 2005,
that increased delivery capacity to those refineries. Operating
income for Los Angeles Basin terminals was higher compared to the
corresponding quarter in 2005 due to increased tank utilization,
higher rates on tank leases and lower operating expenses. The
reactivation of 300,000 barrels of storage at the Alamitos terminal
was completed in July 2006, and reactivation of a second 300,000
barrel tank is scheduled to be completed in the first quarter of
2007. Total capacity available to be leased after these
reactivations will be 7.4 million barrels, with an additional 0.8
million barrels idle but available for reactivation in the future.
The Partnership�s crude oil marketing income in the third quarter
of 2006 was significantly higher than in the prior year quarter due
to favorable margins and increased crude oil volumes. The
Partnership continues to advance the development of the Pier 400
deepwater import terminal in the Port of Los Angeles, with the
draft environmental impact report expected to be released by the
Port in the fourth quarter of 2006. This past quarter, efforts
continued to be focused on finalizing environmental mitigation
factors with the Port of Los Angeles and the Partnership�s
customers. The Partnership expects to receive the permits necessary
to begin construction by mid-year 2007, with start-up of operations
expected in the first quarter of 2009. The project, which will
require a total estimated investment of $315 million, is currently
anticipated to include 4,000,000 barrels of storage capacity that
will be constructed in two phases. Long term volume commitment
agreements have been signed with subsidiaries of Valero Energy
Corporation and ConocoPhillips, and it is anticipated that, with
additional customer commitments currently being finalized, the
estimated 250,000 barrels per day of offloading capacity will be
fully subscribed. ROCKY MOUNTAIN BUSINESS UNIT Operating income was
$12.2 million for the three months ended September 30, 2006,
compared to $13.6 million in the corresponding period in 2005. The
$1.4 million decrease was primarily due to lower operating income
for the Rangeland pipeline system in Alberta, partially offset by
higher volumes on the Western Corridor system and the income
contribution from the Rocky Mountain Products Pipeline that was
part of the Valero L.P. acquisition. The decrease in Rangeland�s
third quarter 2006 income was due in part to the absence of an
unusual item that benefited the 2005 quarter: the correction of an
error in the procedures used to properly account for inventory and
cost of goods sold that resulted in an increase in Rangeland�s
pre-tax income in the third quarter 2005 of $1.2 million ($0.7
million after tax). Two major profit generating capital projects,
the Salt Lake City pipeline expansion project and the Cheyenne
pipeline project are proceeding on schedule and on budget.
Construction of the first phase of the Salt Lake City pipeline
expansion began in October 2006 and is scheduled to be completed
around the end of this year. The second phase is expected to be
completed in the fourth quarter of 2007. Total cost of this
93-mile,16-inch pipeline, with a capacity of 95,000 barrels per
day, is approximately $77 million and is supported by firm,
ten-year transportation agreements with four Salt Lake City
refiners. The Cheyenne Pipeline consists of a 24-inch crude oil
pipeline, approximately 10 miles in length, from Guernsey, Wyoming,
to Pacific Energy�s Fort Laramie, Wyoming tank farm and a 16-inch
crude oil pipeline, approximately 85 miles in length, from Fort
Laramie to the Frontier Oil and Refining Company Cheyenne refinery.
The project is on schedule to be completed in the second quarter of
2007 at a cost of approximately $59 million and is supported by a
firm ten-year commitment by Frontier Oil to ship 35,000 barrels per
day on the pipeline, and lease approximately 300,000 barrels of
storage capacity at Fort Laramie. The new pipeline system�s initial
capacity will be 55,000 barrels per day, expandable to a capacity
of 90,000 barrels per day. CORPORATE ITEMS General and
administrative expenses were $5.6 million in the third quarter of
2006, approximately $1.5 million higher than in the third quarter
of 2005. This increase was associated with support of newly
acquired assets, the Partnership�s long term incentive plan, and an
expense for the LB Pacific, LP (�LB Pacific�) option plan
introduced in the first quarter of 2006, the cost of which is
required by generally accepted accounting principles to be recorded
as a Pacific Energy expense even though the plan is funded by LB
Pacific not the Partnership. Interest expense was $10.9 million for
the third quarter of 2006, $4.6 million greater than in the
comparable period in 2005, due to the increase in debt for the
Valero L.P. asset acquisition. Income tax expense was $1.2 million
lower compared to the third quarter of 2005, as a result of reduced
Rangeland earnings. NINE MONTH RESULTS For the nine months ended
September 30, 2006, net income was $52.3 million, or $1.31 per
limited partner unit, compared to $27.8 million, or $0.96 per
limited partner unit, for the nine months ended September 30, 2005.
Recurring net income for the nine months ended September 30, 2006,
was $52.3 million, or $1.31 per limited partner unit, compared with
$34.7 million, or $1.13 per limited partner unit, for the nine
months ended September 30, 2005. Recurring net income for the first
nine months of 2006 reflects the benefit of nine months of
operations in 2006 from the assets acquired from Valero L.P.,
increased margins from crude oil marketing activities, higher
revenue and lower pipeline repair expenses for the California
pipeline operations, increased pipeline revenue in the U.S. Rocky
Mountain region, and higher Los Angeles area storage revenue.
Partially offsetting these increases were increased interest and
general and administrative expenses. In addition, there were
approximately 31% more units outstanding in the nine months ended
September 30, 2006 versus the comparable period of 2005. Recurring
net income for the nine months ended September 30, 2006 excludes
$4.5 million of costs associated with the pending Plains merger
transaction, and a $4.6 million deferred tax benefit. Due to
legislation enacted in the second quarter of 2006, both federal and
Alberta corporate tax rates in Canada are being reduced, and
Pacific Energy�s deferred tax liability balance was required by
accounting rules to be adjusted to reflect the new rates. Recurring
net income for the nine months ended September 30, 2005 excludes a
$2.0 million expense for the insurance deductible associated with
remediation of the March 2005 Line 63 oil release, a $3.1 million
expense related to accelerated vesting of restricted units under
Pacific Energy�s long-term incentive plan as a result of the change
in control attributable to the purchase of Pacific Energy�s general
partner by LB Pacific, and $1.8 million of expense from this
general partner transaction required to be recorded as a
partnership expense even though it was paid by the general partner,
not the Partnership. For the nine months ended September 30, 2006,
total capital spending was $67.5 million: $57.5 million of
expansion capital, $4.1 million of sustaining capital (including
$1.5 million in the third quarter), and $5.9 million of transition
capital. LOOKING FORWARD For the quarter ending December 31, 2006,
Pacific Energy is forecasting recurring net income of $0.34 to
$0.40 per unit and EBITDA of $34 million to $38 million. Major
maintenance expenses budgeted for 2006 but not yet incurred will
increase costs in the fourth quarter of 2006 and are reflected in
the guidance for the quarter and full year. Sustaining capital
expenditures for the fourth quarter of 2006 are expected to be $2
million to $3 million. For full year 2006, Pacific Energy is
forecasting recurring net income of $1.65 to $1.71 per unit and
EBITDA of $144 million to $148 million. Capital expenditures for
the full year are projected to be $119 million, including $105
million for expansion projects, $7 million for transition capital
projects and $7 million for sustaining capital projects. The
reduction in expansion capital spending over prior guidance
reflects a change in timing of certain project expenditures from
2006 to 2007. The guidance for recurring net income for the fourth
quarter and full year 2006 does not include expenses related to the
Plains merger transaction or the deferred tax benefit resulting
from the change in Canadian tax rates. The guidance for EBITDA
reflects $1.3 million and $5.8 million, for the fourth quarter and
full year, respectively, for estimated merger expenses to be
incurred prior to closing. For more information about non-GAAP
(�generally accepted accounting principles�) measures, see the
schedules accompanying this press release. MERGER WITH PLAINS ALL
AMERICAN PIPELINE, L.P. On June�12, 2006, Pacific Energy announced
that it had entered into an Agreement and Plan of Merger with
Plains, pursuant to which the Partnership will be merged with and
into Plains. A special meeting of unitholders of the Partnership to
consider approval of the merger is scheduled to occur on November
9, 2006. The parties expect to complete the merger on November 15,
2006 assuming the proposals are approved by the unitholders and all
other conditions to closing are satisfied. OTHER MATTERS Pacific
Energy will host a conference call at 2:00 p.m. EDT (11:00 a.m.
PDT) on Thursday, November 2, 2006, to discuss the results of the
third quarter of 2006. Please join us at www.PacificEnergy.com for
the live broadcast or dial in at 800-446-1671 or 847-413-3362
passcode 16033900. The call, with questions and answers, will
continue to be available on Pacific Energy�s web site following the
call. About Pacific Energy: Pacific Energy is a master limited
partnership headquartered in Long Beach, California, engaged
principally in the business of gathering, transporting, storing and
distributing crude oil, refined products and other related
products. The Partnership generates revenues by transporting such
commodities on its pipelines, by leasing capacity in its storage
facilities and by providing other terminaling services. Pacific
Energy also buys and sells crude oil, activities that are generally
complementary to its crude oil operations. Pacific Energy conducts
its business through two business units, the West Coast Business
Unit, which includes activities in California and the Philadelphia,
PA area, and the Rocky Mountain Business Unit, which includes
activities in five Rocky Mountain states and Alberta, Canada. For
additional information about the Partnership, please visit
www.PacificEnergy.com. Investor Notice: Pacific Energy and Plains
All American Pipeline, L.P. have filed a joint proxy
statement/prospectus and other documents with the Securities and
Exchange Commission (�SEC�) with respect to the proposed merger of
Pacific Energy with and into Plains, which joint proxy
statement/prospectus has been declared effective by the SEC. The
definitive joint proxy statement/prospectus has been sent to
security holders of Pacific Energy and Plains seeking their
approval of the merger and related transactions. Investors and
security holders are urged to carefully read the joint proxy
statement/prospectus because it contains important information,
including detailed risk factors, regarding Pacific Energy, Plains
and the merger. Investors and security holders may obtain a free
copy of the definitive joint proxy statement/prospectus and other
documents containing information about Pacific Energy and Plains,
without charge, at the SEC's web site at www.sec.gov. Copies of the
definitive joint proxy statement/prospectus and the SEC filings
that are incorporated by reference in the joint proxy
statement/prospectus may also be obtained free of charge by
directing a request to Pacific Energy or Plains. Pacific Energy or
Plains and the officers and directors of the respective general
partners of Pacific Energy or Plains may be deemed to be
participants in the solicitation of proxies from their security
holders in connection with the proposed transaction. Information
about these persons can be found in Pacific Energy�s or Plains'
respective Annual Reports on Form 10-K filed with the SEC, and
additional information about such persons may be obtained from the
joint proxy statement/prospectus. Cautionary Statement Regarding
Forward-Looking Statements: This news release may include
�forward-looking� statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included or incorporated herein
may constitute forward-looking statements. Although Pacific Energy
believes that the forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct.
The forward-looking statements involve risks and uncertainties that
may affect Pacific Energy�s operations and financial performance.
Among the factors that could cause results to differ materially are
those risks discussed in Pacific Energy�s filings with the
Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended December 31, 2005, and including the
definitive joint proxy statement/prospectus referred to in this
press release. PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except per
unit amounts) � � Three Months Ended September 30, Nine Months
Ended September 30, 2006� 2005� 2006� 2005� Operating revenues:
Pipeline transportation revenue $ 36,995� $ 27,283� $ 105,652� $
83,067� Storage and terminaling revenue 23,467� 9,731� 65,420�
30,923� Pipeline buy/sell transportation revenue 10,010� 11,683�
31,136� 28,905� Crude oil sales, net of purchases 9,924� 5,823�
27,453� 13,647� Net revenues 80,396� 54,520� 229,661� 156,542� �
Expenses: Operating 34,046� 25,019� 99,120� 72,065� General and
administrative 5,649� 4,115� 18,236� 12,987� Depreciation and
amortization 10,398� 6,560� 30,692� 19,695� Merger costs1 1,112� ��
4,529� �� Accelerated long-term incentive plan compensation
expense2 �� �� �� 3,115� Line 63 oil release costs3 �� �� �� 2,000�
Reimbursed general partner transaction costs4 �� �� �� 1,807� Total
expenses 51,205� 35,694� 152,577� 111,669� � Share of net income of
Frontier 373� 516� 1,246� 1,363� � Operating income 29,564� 19,342�
78,330� 46,236� � Net interest expense (10,853) (6,237) (30,029)
(17,679) Other income 720� 494� 1,455� 1,387� � Income before
income tax expense 19,431� 13,599� 49,756� 29,944� � Income tax
benefit (expense): Current (485) (1,411) (2,288) (1,898) Deferred5
289� (22) 4,824� (239) (196) (1,433) 2,536� (2,137) � Net income $
19,235� $ 12,166� $ 52,292� $ 27,807� Net income (loss) for the
general partner interest6 $ 347� $ 243� $ 720� $ (1,215) Net income
for the limited partner interests6 $ 18,888� $ 11,923� $ 51,572� $
29,022� � Basic net income per limited partner unit $ 0.48� $ 0.39�
$ 1.31� $ 0.97� Diluted net income per limited partner unit $ 0.48�
$ 0.39� $ 1.31� $ 0.96� � Weighted average units outstanding: Basic
39,307� 30,761� 39,305� 30,051� Diluted 39,321� 30,762� 39,332�
30,089� PACIFIC ENERGY PARTNERS, L.P. (Unaudited) (Amounts in
thousands) CONDENSED CONSOLIDATED BALANCE SHEETS � � September 30,
December 31, 2006� 2005� Assets Current assets $ 265,226� $
192,115� Property and equipment, net 1,252,750� 1,185,534�
Intangible assets 67,639� 69,180� Investment in Frontier Pipeline
Company 8,651� 8,156� Other assets 17,957� 21,467� Total assets $
1,612,223� $ 1,476,452� Liabilities and Partners� Capital Current
liabilities $ 204,160� $ 156,187� Long-term debt 669,163� 565,632�
Deferred income taxes 32,560� 35,771� Environmental and other
long-term liabilities 17,416� 20,623� Partners� capital 688,924�
698,239� Total liabilities and partners� capital $ 1,612,223� $
1,476,452� CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS � Nine
Months Ended September 30, 2006� 2005� Cash flows from operating
activities: Net income $ 52,292� $ 27,807� Depreciation,
amortization, non-cash employee compensation under long-term
incentive plan, deferred income taxes and Frontier adjustment
27,458� 24,256� Working capital adjustments (30,259) 13,592� Net
cash provided by operating activities 49,491� 65,655� Cash flows
from investing activities: Acquisition (2,365) (461,165) Net
additions to property and equipment (67,522) (27,265) Additions to
pipeline linefill and minimum tank inventory (16,106) �� Other 181�
�� Net cash used in investing activities (85,812) (488,430) Cash
flows from financing activities: Issuance of common units, net of
fees and offering expenses �� 289,122� Capital contribution from
the general partner �� 8,569� Net proceeds from senior notes
offering �� 170,997� Proceeds from bank credit facilities 182,094�
203,291� Repayment of bank credit facilities (81,463) (195,661)
Deferred financing costs �� (4,676) Distributions to partners
(68,714) (46,224) Issuance of common units pursuant to exercise of
unit option �� 707� Related parties (28) (1,171) Net cash provided
by financing activities 31,889� 424,954� Effect of exchange rate
changes on cash 83� 213� Net increase in cash and cash equivalents
(4,349) 2,392� Cash and cash equivalents, beginning of period
18,064� 23,383� Cash and cash equivalents, end of period $ 13,715�
$ 25,755� PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND OPERATING HIGHLIGHTS BY SEGMENT Three
Months Ended September 30, 2006 and 2005 (Unaudited) (Amounts in
thousands) West Coast Business Unit Rocky Mountain Business Unit
Intersegment and Intrasegment Eliminations Total Three Months Ended
September 30, 2006: Revenues: Pipeline transportation revenue $
18,224� $ 21,500� $ (2,729) $ 36,995� Storage and terminaling
revenue 23,467� �� 23,467� Pipeline buy/sell transportation revenue
�� 10,010� 10,010� Crude oil sales, net of purchases 9,494� 572�
(142) 9,924� Net revenue 51,185� 32,082� 80,396� Expenses:
Operating expenses 21,505� 15,412� (2,871) 34,046� Depreciation and
amortization 5,528� 4,870� 10,398� Total expenses 27,033� 20,282�
44,444� Share of net income of Frontier �� 373� 373� Operating
income7 $ 24,152� $ 12,173� $ 36,325� � Operating Data (barrels per
day, in thousands) Line 2000 and Line 63 pipeline systems 111.0�
Rangeland pipeline system: Sundre � North 19.7� Sundre � South
48.5� Western Corridor system 26.6� Salt Lake City Core system
126.7� Frontier Pipeline 46.2� Rocky Mountain Products Pipeline8
59.2� � Three Months Ended September 30, 2005: Revenues: Pipeline
transportation revenue $ 13,887� $ 14,887� $ (1,491) $ 27,283�
Storage and terminaling revenue 9,731� �� 9,731� Pipeline buy/sell
transportation revenue �� 11,683� 11,683� Crude oil sales, net of
purchases 5,690� 163� (30) 5,823� Net revenue 29,308� 26,733�
54,520� Expenses: Operating expenses 16,004� 10,536� (1,521)
25,019� Depreciation and amortization 3,491� 3,069� 6,560� Total
expenses 19,495� 13,605� 31,579� Share of net income of Frontier ��
516� 516� Operating income7 $ 9,813� $ 13,644� $ 23,457� �
Operating Data (barrels per day, in thousands) Line 2000 and Line
63 pipeline systems 104.4� Rangeland pipeline system: Sundre �
North 19.3� Sundre � South 48.1� Western Corridor system 26.8� Salt
Lake City Core system 125.6� Frontier Pipeline 49.6� Rocky Mountain
Products Pipeline8 �� PACIFIC ENERGY PARTNERS, L.P. CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND OPERATING HIGHLIGHTS BY
SEGMENT Nine Months Ended September 30, 2006 and 2005 (Unaudited)
(Amounts in thousands) West Coast Business Unit Rocky Mountain
Business Unit Intersegment and Intrasegment Eliminations Total Nine
Months Ended September 30, 2006: Revenues: Pipeline transportation
revenue $ 52,083� $ 60,790� $ (7,221) $ 105,652� Storage and
terminaling revenue 65,420� �� 65,420� Pipeline buy/sell
transportation revenue �� 31,136� 31,136� Crude oil sales, net of
purchases 26,000� 1,860� (407) 27,453� Net revenue 143,503� 93,786�
229,661� Expenses: Operating expenses 63,200� 43,548� (7,628)
99,120� Depreciation and amortization 16,534� 14,158� 30,692� Total
expenses 79,734� 57,706� 129,812� Share of net income of Frontier
�� 1,246� 1,246� Operating income7 $ 63,769� $ 37,326� $ 101,095� �
Operating Data (barrels per day, in thousands) Line 2000 and Line
63 pipeline systems 112.6� Rangeland pipeline system: Sundre �
North 21.9� Sundre � South 44.5� Western Corridor system 26.3� Salt
Lake City Core system 125.3� Frontier Pipeline 46.6� Rocky Mountain
Products Pipeline8 60.3� � Nine Months Ended September 30, 2005:
Revenues: Pipeline transportation revenue $ 46,525� $ 41,348� $
(4,806) $ 83,067� Storage and terminaling revenue 31,073� �� (150)
30,923� Pipeline buy/sell transportation revenue �� 28,905� 28,905�
Crude oil sales, net of purchases 13,368� 369� (90) 13,647� Net
revenue 90,966� 70,622� 156,542� Expenses: Operating expenses
46,507� 30,604� (5,046) 72,065� Line 63 oil release costs3 2,000�
�� 2,000� Depreciation and amortization 10,497� 9,198� 19,695�
Total expenses 59,004� 39,802� 93,760� Share of net income of
Frontier �� 1,363� 1,363� Operating income7 $ 31,962� $ 32,183� $
64,145� � Operating Data (barrels per day, in thousands) Line 2000
and Line 63 pipeline systems 120.8� Rangeland pipeline system:
Sundre � North 21.3� Sundre � South 45.3� Western Corridor system
24.0� Salt Lake City Core system 119.8� Frontier Pipeline 46.4�
Rocky Mountain Products Pipeline8 �� PACIFIC ENERGY PARTNERS, L.P.
(Unaudited) (Amounts in thousands) RECONCILIATION OF OPERATING
INCOME BY SEGMENT TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME �
Three Months Ended September 30, Nine Months Ended September 30,
2006� 2005� 2006� 2005� Operating income by Business Unit: West
Coast Business Unit $ 24,152� $ 9,813� $ 63,769� $ 31,962� Rocky
Mountain Business Unit 12,173� 13,644� 37,326� 32,183� 36,325�
23,457� 101,095� 64,145� General expenses and other income
(expense):7 General and administrative expense (5,649) (4,115)
(18,236) (12,987) Merger costs1 (1,112) �� (4,529) �� Accelerated
long-term incentive plan compensation expense2 �� �� �� (3,115)
Reimbursed general partner transaction costs4 �� �� �� (1,807)
Interest expense (10,853) (6,237) (30,029) (17,679) Other income
720� 494� 1,455� 1,387� Income tax benefit (expense)5 (196) (1,433)
2,536� (2,137) Net income $ 19,235� $ 12,166� $ 52,292� $ 27,807�
LIMITED PARTNERS AND GENERAL PARTNER ALLOCATION OF NET INCOME �
Three Months Ended September 30, Nine Months Ended September 30,
2006� 2005� 2006� 2005� � Net income for the limited partner
interests: Net income $ 19,235� $ 12,166� $ 52,292� $ 27,807� Costs
allocated to general partner: LBP Option Plan costs9 370� �� 1,250�
�� Senior Notes consent solicitation and other costs �� �� �� 893�
Severance costs �� �� �� 914� Total costs allocated to general
partner 370� �� 1,250� 1,807� Income before costs allocated to
general partner 19,605� 12,166� 53,542� 29,614� Less: General
partner incentive distribution rights paid (331) �� (917) ��
Subtotal 19,274� 12,166� 52,625� 29,614� Less: General partner 2%
ownership (386) (243) (1,053) (592) Net income allocated to limited
partners $ 18,888� $ 11,923� $ 51,572� $ 29,022� � Net income for
the general partner interest: General partner 2% ownership $ 386� $
243� $ 1,053� $ 592� Incentive distribution payments to general
partner 331� �� 917� �� Costs allocated to general partner (370) ��
(1,250) (1,807) Net income (loss) allocated to general partner $
347� $ 243� $ 720� $ (1,215) PACIFIC ENERGY PARTNERS, L.P.
(Unaudited) (Amounts in thousands, except per unit amounts)
RECONCILIATION OF NET INCOME TO RECURRING NET INCOME10 � Three
Months Ended September 30, Nine Months Ended September 30, 2006�
2005� 2006� 2005� Net income $ 19,235� $ 12,166� $ 52,292� $
27,807� Add: Merger costs1 1,112� �� 4,529� �� Add: Accelerated
long-term incentive plan compensation expense2 �� �� �� 3,115� Add:
Line 63 oil release costs3 �� �� �� 2,000� Add: Reimbursed general
partner transaction costs4 �� �� �� 1,807� Less: Deferred tax rate
adjustment5 �� �� (4,560) �� Recurring net income $ 20,347� $
12,166� $ 52,261� $ 34,729� Recurring net income for the general
partner interest $ 369� $ 243� $ 719� $ 695� Recurring net income
for the limited partner interest $ 19,978� $ 11,923� $ 51,542� $
34,034� Basic and diluted recurring net income per limited partner
unit $ 0.51� $ 0.39� $ 1.31� $ 1.13� RECONCILIATION OF NET INCOME
TO EBITDA11 � Three Months Ended September 30, Nine Months Ended
September 30, 2006� 2005� 2006� 2005� Net income $ 19,235� $
12,166� $ 52,292� $ 27,807� Interest expense 10,853� 6,237� 30,029�
17,679� Depreciation and amortization 10,398� 6,560� 30,692�
19,695� Income tax (benefit) expense 196� 1,433� (2,536) 2,137�
EBITDA $ 40,682� $ 26,396� $ 110,477� $ 67,318� PACIFIC ENERGY
PARTNERS, L.P. RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH
FLOW12 (Unaudited) (Amounts in thousands) � Three Months Ended
September 30, Nine Months Ended September 30, 2006� 2005� 2006�
2005� � Net income $ 19,235� $ 12,166� $ 52,292� $ 27,807�
Depreciation and amortization 10,398� 6,560� 30,692� 19,695�
Amortization of debt issue costs and accretion of discount on
long-term debt 625� 487� 1,847� 1,424� Non-cash employee
compensation under long-term incentive plan 236� �� 732� 1,429�
Costs allocated to general partner6 370� �� 1,250� 1,807� Deferred
income tax expense (benefit)5 (289) 22� (4,824) 239� Sustaining
capital expenditures (1,502) (2,243) (4,148) (3,070) Distributable
cash flow 29,073� 16,992� 77,841� 49,331� Less: net (increase)
decrease in operating assets and Liabilities (22,783) 165� (30,259)
13,592� Less: share of income of Frontier (373) (516) (1,246)
(1,363) Add: distributions from Frontier �� 667� 622� 1,317� Less:
non-cash employee compensation under long-term incentive plan added
(deducted) above (236) �� (732) (1,429) Add: employee compensation
under long-term incentive plan 236� �� 782� 2,886� Less: costs
reimbursed by general partner �� �� �� (1,807) Add: other non-cash
adjustments (16) (40) (1,665) 58� Add: sustaining capital
expenditures 1,502� 2,243� 4,148� 3,070� Net cash provided by
operating activities $ 7,403� $ 19,511� $ 49,491� $ 65,655� Total
distributable cash flow $ 29,073� $ 16,992� $ 77,841� $ 49,331�
General partner interest in distributable cash flow (2,192) (458)
(4,423) (1,659) Limited partner interest in distributable cash flow
$ 26,881� $ 16,534� $ 73,418� $ 47,672� PACIFIC ENERGY PARTNERS,
L.P. RECONCILIATION OF RECURRING NET INCOME GUIDANCE TO NET INCOME
GUIDANCE AND EBITDA GUIDANCE13 (Unaudited) (Amounts in millions) �
Three Months Ending December 31, 2006 Year Ending December 31, 2006
Low High Low High Recurring net income guidance14 $ 13.7� $ 16.0� $
65.9� $ 68.2� Less: Merger costs (1.4) (1.2) (5.9) (5.7) Add:
Deferred tax rate adjustment �� �� 4.6� 4.6� Net income guidance15
$ 12.3� $ 14.8� $ 64.6� $ 67.1� Add: Depreciation and amortization
10.6� 11.0� 41.3� 41.7� Add: Interest expense 10.8� 11.5� 40.8�
41.5� Add: Income tax expense (benefit)16 �� 0.2� (2.5) (2.3) � � �
� Earnings before interest, tax, depreciation and amortization
(EBITDA) $ 33.7� $ 37.5� $ 144.2� $ 148.0� PACIFIC ENERGY PARTNERS,
L.P. NOTES TO FINANCIAL SCHEDULES (Unaudited) (Amounts in millions,
except volume data) 1 On June 12, 2006, we announced that we had
entered into a merger agreement with Plains All American Pipeline,
L.P. (�PAA�), pursuant to which we will be merged into PAA. PAA
will acquire common units (except for common units purchased from
LB Pacific, LP) of Pacific Energy through a tax-free unit-for-unit
merger in which each unitholder of Pacific Energy will receive 0.77
newly issued PAA common units for each Pacific Energy common unit.
Under the terms of a separate agreement, PAA will acquire from LB
Pacific, LP and its affiliates (�LB Pacific�) the general partner
interest and incentive distribution rights of the Partnership as
well as 5.2 million common units and 5.2 million subordinated units
for a total of $700 million in cash. For the three and nine months
ended September 30, 2006, we incurred $1.1 million and $4.5
million, respectively, in professional fees and other costs
directly related to the merger. 2 On March 3, 2005, in connection
with a change in control of the Partnership�s general partner, all
restricted units outstanding under the Long-Term Incentive Plan
immediately vested pursuant to the terms of the grants. The
Partnership recognized compensation expense of $3.1 million
relating to the accelerated vesting. Of this compensation expense,
$0.6 million was considered operating expense and $2.5 million was
general and administrative expense. 3 On March 23, 2005, there was
an oil release of approximately 3,400 barrels in northern Los
Angeles County. Although this event involved an outlay of cash, we
believe these costs are unusual and are not indicative of the
Partnership�s recurring earnings. 4 In 2005, our general partner
reimbursed us $1.8 million for transaction costs incurred in
connection with the change in control of our general partner.
Generally accepted accounting principles require us to record an
expense with the reimbursement shown as a partner�s capital
contribution. 5 During the nine months ended September 30, 2006, we
recognized into earnings a $4.6 million deferred tax benefit to
adjust our deferred tax liability for recently enacted reductions
in the Canadian provincial and federal income tax rates. 6 See
�Limited Partners and General Partner Allocation of Net Income�
schedule included herein. 7 General and administrative expenses,
merger costs, accelerated long-term incentive plan expense,
reimbursed general partner transaction costs, net interest expense,
other income and income tax expense are not allocated among the
West Coast and Rocky Mountain business units. 8 The Rocky Mountain
Products Pipeline was purchased on September 30, 2005. 9 In January
2006, LB Pacific, LP (�LBP�), the owner of our General Partner,
granted options under its LBP Option Plan (the �Plan�) to certain
of our officers and key employees. Under the Plan, participants are
granted options to acquire partnership interests in LBP. We are not
obligated to pay any amounts to LBP for the benefits granted or
paid to our officers and key employees under the Plan, although
generally accepted accounting principles require that we record an
expense in the Partnership�s financial statements with a
corresponding increase in the general partner�s capital account.
For the three and nine months ended September 30, 2006, we recorded
compensation expense of $0.4 million and $1.3 million,
respectively, relating to the LBP Option Plan. 10 Recurring net
income is a non-GAAP financial measure. This measure is used to
more precisely compare year over year net income by eliminating
one-time, non-recurring charges. You should not consider recurring
net income as an alternative to net income, income before taxes,
cash flow from operations, or any other measure of financial
performance presented in accordance with accounting principles
generally accepted in the United States. Our recurring net income
may not be comparable to similarly titled measures of other
entities. 11 EBITDA (earnings before interest, taxes, depreciation
and amortization expense) is used as a supplemental performance
measure by management to assess (i) the financial performance of
our assets without regard to financing methods, capital structures
or historical cost basis, (ii) the ability of our assets to
generate cash sufficient to pay interest cost and support our
indebtedness, (iii) our operating performance and return on capital
as compared to those of other companies in the midstream energy
sector, without regard to financing and capital structure, and (iv)
the viability of projects and the overall rates of return on
alternative investment opportunities. You should not consider
EBITDA as an alternative to net income, income before taxes, cash
flow from operations, or any other measure of financial performance
presented in accordance with accounting principles generally
accepted in the United States. Our EBITDA may not be comparable to
similarly titled measures of other entities. Additional information
regarding EBITDA is included in our annual report on Form 10-K for
the year ended December 31, 2005. For the three and nine months
ended September 30, 2006, EBITDA has been reduced by $1.1 million
and $4.5 million, respectively, for costs directly related to the
proposed merger with Plains All American Pipeline, L.P. For the
nine months ended September 30, 2005, EBITDA was reduced by $3.1
million of compensation expense relating to the accelerated vesting
of our long term incentive compensation plan, $2.0 million of oil
release costs and $1.8 million of general partner costs that was
required by GAAP to be recorded in our income statement. There was
no unusual impact on EBITDA for the three months ended September
30, 2005. 12 Distributable Cash Flow provides additional
information for evaluating our ability to make the minimum
quarterly distribution and is presented solely as a supplemental
measure. You should not consider Distributable Cash Flow as an
alternative to net income, income before taxes, cash flow from
operations, or any other measure of financial performance presented
in accordance with accounting principles generally accepted in the
United States. Our Distributable Cash Flow may not be comparable to
similarly titled measures of other entities. Additional information
regarding distributable cash flow is included in our annual report
on Form 10-K for the year ended December 31, 2005. 13 The guidance
for the three months ending December 31, 2006 and for the twelve
months ending December�31, 2006 are based on assumptions and
estimates that we believe are reasonable given our assessment of
historical trends, business cycles and other information reasonably
available. However, our assumptions and future performance are both
subject to a wide range of business risks and uncertainties so no
assurance can be provided that actual performance will fall within
the guidance ranges. Please see �Forward-Looking Statements� above.
These risks and uncertainties, as well as other unforeseeable risks
and uncertainties, could cause our actual results to differ
materially from those in the table. This financial guidance is
given as of the date hereof, based on information known to us as of
November 1, 2006. We undertake no obligation to publicly update or
revise any forward-looking statements. 14 Recurring net income
guidance for the twelve months ending December 31, 2006 excludes
$4.5 million of merger costs and a $4.6 million deferred tax
benefit to adjust our deferred tax liability for reductions in the
Canadian provincial and federal income tax rates that were enacted
into law in the second quarter of 2006. 15 Included in the net
income guidance for the year ending December 31, 2006 is forecast
general and administrative expense of $23 million to $24 million.
16 Included for the year ending December 31, 2006 is forecast cash
tax expense of $2.7 million and forecast deferred tax benefit of
$5.1 million. Pacific Energy Partners, L.P. (NYSE:PPX) ("Pacific
Energy" or the "Partnership") announced that net income for the
three months ended September 30, 2006, was $19.2 million, or $0.48
per limited partner unit, compared to net income of $12.2 million,
or $0.39 per limited partner unit, for the three months ended
September 30, 2005. Recurring net income for the three months ended
September 30, 2006 was $20.3 million, or $0.51 per limited partner
unit, compared to recurring net income of $12.2 million, or $0.39
per limited partner unit, for the corresponding period in 2005. All
per unit amounts in the text of this news release are reported on a
diluted basis. The increase in recurring net income for the quarter
ended September 30, 2006, reflects the benefit of the September 30,
2005, acquisition of refined products terminals and a refined
products pipeline from Valero L.P., increased income from our
California pipelines, increased margins from crude oil marketing
activities and higher revenue from our Southern California
terminals. Partially offsetting these increases was a decline in
transportation revenue from the Partnership's Canadian pipeline
operations. In addition, the Partnership incurred higher interest
expense attributable to the financing of the refined products asset
acquisition and increased general and administrative costs. There
were approximately 28% more units outstanding in the third quarter
of 2006 compared to the corresponding quarter in 2005. Recurring
net income for the third quarter of 2006 excludes $1.1 million of
transaction costs related to the planned merger with Plains All
American Pipeline, L.P. ("Plains"). "We are very pleased with our
third quarter results. Recurring net income was up 31 percent on a
per unit basis versus the prior year quarter and also exceeded the
guidance given in last quarter's earnings press release. Our core
transportation and storage business performed well, and favorable
market conditions allowed us to generate better than expected crude
oil marketing income," stated Irv Toole, President and CEO of
Pacific Energy. "Organic pipeline and terminal growth projects in
both of our business units continue to progress and are a primary
focus of the Partnership." On October 20, 2006, Pacific Energy
announced a cash distribution of $0.5675 per unit for the third
quarter of 2006, or $2.27 per unit annualized. This is unchanged
from the second quarter 2006 distribution level but is 10.7% higher
than the third quarter 2005 distribution level. The distribution
will be paid on November 13, 2006, to holders of record as of
October 31, 2006. Distributable cash flow available to the limited
partners' interest for the third quarter of 2006 was $26.9 million
after deducting $1.1 million in merger costs. On a diluted,
weighted average, basis there were 39,321,000 limited partner units
outstanding during the third quarter of 2006. Earnings before
interest, tax, depreciation and amortization expenses ("EBITDA")
were $40.7 million in the third quarter of 2006. OPERATING RESULTS
BY SEGMENT WEST COAST BUSINESS UNIT Operating income was $24.2
million for the three months ended September 30, 2006, compared to
$9.8 million in the corresponding period in 2005. This increase was
primarily due to the addition of the Northern California and East
Coast terminals on September 30, 2005, improved operating income
from California pipeline operations, higher tank revenue from Los
Angeles area terminal operations, and increased margins from crude
oil marketing activities. The Northern California terminals are
operating at capacity. Construction of 450,000 barrels of
additional storage capacity at Martinez was completed in late
September 2006, with lease revenue beginning October 1. As
previously announced, due to strong customer demand, Pacific Energy
increased its capital budget to provide for the construction of an
additional 850,000 barrels of storage capacity at Martinez, which
is under contract. It is projected that $1.1 million of capital
will be expended in 2006 for these tanks, with an additional $27.1
million to be expended in 2007. Completion of 250,000 barrels is
expected in the third quarter of 2007 and the remaining 600,000
barrels is expected to be completed in the fourth quarter of 2007.
The East Coast terminals are also operating near capacity. East
Coast terminal income includes the benefit of expanded ethanol
facilities, which began operations in the second quarter of 2006
and are now fully operational, and the start-up of ultra low sulfur
diesel and jet fuel handling facilities. Volumes transported to Los
Angeles on the Partnership's crude oil pipelines for the three
months ended September 30, 2006 were approximately 6% higher than
in the third quarter of 2005, due to refinery maintenance and
higher Outer Continental Shelf production volumes which were lower
in 2005 due to maintenance downtime. In addition to the long-haul
volume improvement, revenue increased as a result of a $0.10 per
barrel tariff increase effective May 1, 2006 on Line 2000. In
addition, deliveries to Bakersfield refineries more than tripled
from the prior year quarter as a result of pipeline modifications
in the San Joaquin Valley that were completed on October 1, 2005,
that increased delivery capacity to those refineries. Operating
income for Los Angeles Basin terminals was higher compared to the
corresponding quarter in 2005 due to increased tank utilization,
higher rates on tank leases and lower operating expenses. The
reactivation of 300,000 barrels of storage at the Alamitos terminal
was completed in July 2006, and reactivation of a second 300,000
barrel tank is scheduled to be completed in the first quarter of
2007. Total capacity available to be leased after these
reactivations will be 7.4 million barrels, with an additional 0.8
million barrels idle but available for reactivation in the future.
The Partnership's crude oil marketing income in the third quarter
of 2006 was significantly higher than in the prior year quarter due
to favorable margins and increased crude oil volumes. The
Partnership continues to advance the development of the Pier 400
deepwater import terminal in the Port of Los Angeles, with the
draft environmental impact report expected to be released by the
Port in the fourth quarter of 2006. This past quarter, efforts
continued to be focused on finalizing environmental mitigation
factors with the Port of Los Angeles and the Partnership's
customers. The Partnership expects to receive the permits necessary
to begin construction by mid-year 2007, with start-up of operations
expected in the first quarter of 2009. The project, which will
require a total estimated investment of $315 million, is currently
anticipated to include 4,000,000 barrels of storage capacity that
will be constructed in two phases. Long term volume commitment
agreements have been signed with subsidiaries of Valero Energy
Corporation and ConocoPhillips, and it is anticipated that, with
additional customer commitments currently being finalized, the
estimated 250,000 barrels per day of offloading capacity will be
fully subscribed. ROCKY MOUNTAIN BUSINESS UNIT Operating income was
$12.2 million for the three months ended September 30, 2006,
compared to $13.6 million in the corresponding period in 2005. The
$1.4 million decrease was primarily due to lower operating income
for the Rangeland pipeline system in Alberta, partially offset by
higher volumes on the Western Corridor system and the income
contribution from the Rocky Mountain Products Pipeline that was
part of the Valero L.P. acquisition. The decrease in Rangeland's
third quarter 2006 income was due in part to the absence of an
unusual item that benefited the 2005 quarter: the correction of an
error in the procedures used to properly account for inventory and
cost of goods sold that resulted in an increase in Rangeland's
pre-tax income in the third quarter 2005 of $1.2 million ($0.7
million after tax). Two major profit generating capital projects,
the Salt Lake City pipeline expansion project and the Cheyenne
pipeline project are proceeding on schedule and on budget.
Construction of the first phase of the Salt Lake City pipeline
expansion began in October 2006 and is scheduled to be completed
around the end of this year. The second phase is expected to be
completed in the fourth quarter of 2007. Total cost of this
93-mile,16-inch pipeline, with a capacity of 95,000 barrels per
day, is approximately $77 million and is supported by firm,
ten-year transportation agreements with four Salt Lake City
refiners. The Cheyenne Pipeline consists of a 24-inch crude oil
pipeline, approximately 10 miles in length, from Guernsey, Wyoming,
to Pacific Energy's Fort Laramie, Wyoming tank farm and a 16-inch
crude oil pipeline, approximately 85 miles in length, from Fort
Laramie to the Frontier Oil and Refining Company Cheyenne refinery.
The project is on schedule to be completed in the second quarter of
2007 at a cost of approximately $59 million and is supported by a
firm ten-year commitment by Frontier Oil to ship 35,000 barrels per
day on the pipeline, and lease approximately 300,000 barrels of
storage capacity at Fort Laramie. The new pipeline system's initial
capacity will be 55,000 barrels per day, expandable to a capacity
of 90,000 barrels per day. CORPORATE ITEMS General and
administrative expenses were $5.6 million in the third quarter of
2006, approximately $1.5 million higher than in the third quarter
of 2005. This increase was associated with support of newly
acquired assets, the Partnership's long term incentive plan, and an
expense for the LB Pacific, LP ("LB Pacific") option plan
introduced in the first quarter of 2006, the cost of which is
required by generally accepted accounting principles to be recorded
as a Pacific Energy expense even though the plan is funded by LB
Pacific not the Partnership. Interest expense was $10.9 million for
the third quarter of 2006, $4.6 million greater than in the
comparable period in 2005, due to the increase in debt for the
Valero L.P. asset acquisition. Income tax expense was $1.2 million
lower compared to the third quarter of 2005, as a result of reduced
Rangeland earnings. NINE MONTH RESULTS For the nine months ended
September 30, 2006, net income was $52.3 million, or $1.31 per
limited partner unit, compared to $27.8 million, or $0.96 per
limited partner unit, for the nine months ended September 30, 2005.
Recurring net income for the nine months ended September 30, 2006,
was $52.3 million, or $1.31 per limited partner unit, compared with
$34.7 million, or $1.13 per limited partner unit, for the nine
months ended September 30, 2005. Recurring net income for the first
nine months of 2006 reflects the benefit of nine months of
operations in 2006 from the assets acquired from Valero L.P.,
increased margins from crude oil marketing activities, higher
revenue and lower pipeline repair expenses for the California
pipeline operations, increased pipeline revenue in the U.S. Rocky
Mountain region, and higher Los Angeles area storage revenue.
Partially offsetting these increases were increased interest and
general and administrative expenses. In addition, there were
approximately 31% more units outstanding in the nine months ended
September 30, 2006 versus the comparable period of 2005. Recurring
net income for the nine months ended September 30, 2006 excludes
$4.5 million of costs associated with the pending Plains merger
transaction, and a $4.6 million deferred tax benefit. Due to
legislation enacted in the second quarter of 2006, both federal and
Alberta corporate tax rates in Canada are being reduced, and
Pacific Energy's deferred tax liability balance was required by
accounting rules to be adjusted to reflect the new rates. Recurring
net income for the nine months ended September 30, 2005 excludes a
$2.0 million expense for the insurance deductible associated with
remediation of the March 2005 Line 63 oil release, a $3.1 million
expense related to accelerated vesting of restricted units under
Pacific Energy's long-term incentive plan as a result of the change
in control attributable to the purchase of Pacific Energy's general
partner by LB Pacific, and $1.8 million of expense from this
general partner transaction required to be recorded as a
partnership expense even though it was paid by the general partner,
not the Partnership. For the nine months ended September 30, 2006,
total capital spending was $67.5 million: $57.5 million of
expansion capital, $4.1 million of sustaining capital (including
$1.5 million in the third quarter), and $5.9 million of transition
capital. LOOKING FORWARD For the quarter ending December 31, 2006,
Pacific Energy is forecasting recurring net income of $0.34 to
$0.40 per unit and EBITDA of $34 million to $38 million. Major
maintenance expenses budgeted for 2006 but not yet incurred will
increase costs in the fourth quarter of 2006 and are reflected in
the guidance for the quarter and full year. Sustaining capital
expenditures for the fourth quarter of 2006 are expected to be $2
million to $3 million. For full year 2006, Pacific Energy is
forecasting recurring net income of $1.65 to $1.71 per unit and
EBITDA of $144 million to $148 million. Capital expenditures for
the full year are projected to be $119 million, including $105
million for expansion projects, $7 million for transition capital
projects and $7 million for sustaining capital projects. The
reduction in expansion capital spending over prior guidance
reflects a change in timing of certain project expenditures from
2006 to 2007. The guidance for recurring net income for the fourth
quarter and full year 2006 does not include expenses related to the
Plains merger transaction or the deferred tax benefit resulting
from the change in Canadian tax rates. The guidance for EBITDA
reflects $1.3 million and $5.8 million, for the fourth quarter and
full year, respectively, for estimated merger expenses to be
incurred prior to closing. For more information about non-GAAP
("generally accepted accounting principles") measures, see the
schedules accompanying this press release. MERGER WITH PLAINS ALL
AMERICAN PIPELINE, L.P. On June 12, 2006, Pacific Energy announced
that it had entered into an Agreement and Plan of Merger with
Plains, pursuant to which the Partnership will be merged with and
into Plains. A special meeting of unitholders of the Partnership to
consider approval of the merger is scheduled to occur on November
9, 2006. The parties expect to complete the merger on November 15,
2006 assuming the proposals are approved by the unitholders and all
other conditions to closing are satisfied. OTHER MATTERS Pacific
Energy will host a conference call at 2:00 p.m. EDT (11:00 a.m.
PDT) on Thursday, November 2, 2006, to discuss the results of the
third quarter of 2006. Please join us at www.PacificEnergy.com for
the live broadcast or dial in at 800-446-1671 or 847-413-3362
passcode 16033900. The call, with questions and answers, will
continue to be available on Pacific Energy's web site following the
call. About Pacific Energy: Pacific Energy is a master limited
partnership headquartered in Long Beach, California, engaged
principally in the business of gathering, transporting, storing and
distributing crude oil, refined products and other related
products. The Partnership generates revenues by transporting such
commodities on its pipelines, by leasing capacity in its storage
facilities and by providing other terminaling services. Pacific
Energy also buys and sells crude oil, activities that are generally
complementary to its crude oil operations. Pacific Energy conducts
its business through two business units, the West Coast Business
Unit, which includes activities in California and the Philadelphia,
PA area, and the Rocky Mountain Business Unit, which includes
activities in five Rocky Mountain states and Alberta, Canada. For
additional information about the Partnership, please visit
www.PacificEnergy.com. Investor Notice: Pacific Energy and Plains
All American Pipeline, L.P. have filed a joint proxy
statement/prospectus and other documents with the Securities and
Exchange Commission ("SEC") with respect to the proposed merger of
Pacific Energy with and into Plains, which joint proxy
statement/prospectus has been declared effective by the SEC. The
definitive joint proxy statement/prospectus has been sent to
security holders of Pacific Energy and Plains seeking their
approval of the merger and related transactions. Investors and
security holders are urged to carefully read the joint proxy
statement/prospectus because it contains important information,
including detailed risk factors, regarding Pacific Energy, Plains
and the merger. Investors and security holders may obtain a free
copy of the definitive joint proxy statement/prospectus and other
documents containing information about Pacific Energy and Plains,
without charge, at the SEC's web site at www.sec.gov. Copies of the
definitive joint proxy statement/prospectus and the SEC filings
that are incorporated by reference in the joint proxy
statement/prospectus may also be obtained free of charge by
directing a request to Pacific Energy or Plains. Pacific Energy or
Plains and the officers and directors of the respective general
partners of Pacific Energy or Plains may be deemed to be
participants in the solicitation of proxies from their security
holders in connection with the proposed transaction. Information
about these persons can be found in Pacific Energy's or Plains'
respective Annual Reports on Form 10-K filed with the SEC, and
additional information about such persons may be obtained from the
joint proxy statement/prospectus. Cautionary Statement Regarding
Forward-Looking Statements: This news release may include
"forward-looking" statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included or incorporated herein
may constitute forward-looking statements. Although Pacific Energy
believes that the forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct.
The forward-looking statements involve risks and uncertainties that
may affect Pacific Energy's operations and financial performance.
Among the factors that could cause results to differ materially are
those risks discussed in Pacific Energy's filings with the
Securities and Exchange Commission, including our Annual Report on
Form 10-K for the year ended December 31, 2005, and including the
definitive joint proxy statement/prospectus referred to in this
press release. -0- *T PACIFIC ENERGY PARTNERS, L.P. CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in
thousands, except per unit amounts) Three Months Ended Nine Months
Ended September 30, September 30, -------------------
------------------ 2006 2005 2006 2005 ---------- --------
--------- -------- Operating revenues: Pipeline transportation
revenue $36,995 $27,283 $105,652 $83,067 Storage and terminaling
revenue 23,467 9,731 65,420 30,923 Pipeline buy/sell transportation
revenue 10,010 11,683 31,136 28,905 Crude oil sales, net of
purchases 9,924 5,823 27,453 13,647 ---------- -------- ---------
-------- Net revenues 80,396 54,520 229,661 156,542 ----------
-------- --------- -------- Expenses: Operating 34,046 25,019
99,120 72,065 General and administrative 5,649 4,115 18,236 12,987
Depreciation and amortization 10,398 6,560 30,692 19,695 Merger
costs(1) 1,112 -- 4,529 -- Accelerated long-term incentive plan
compensation expense(2) -- -- -- 3,115 Line 63 oil release costs(3)
-- -- -- 2,000 Reimbursed general partner transaction costs(4) --
-- -- 1,807 ---------- -------- --------- -------- Total expenses
51,205 35,694 152,577 111,669 ---------- -------- ---------
-------- Share of net income of Frontier 373 516 1,246 1,363
---------- -------- --------- -------- Operating income 29,564
19,342 78,330 46,236 Net interest expense (10,853) (6,237) (30,029)
(17,679) Other income 720 494 1,455 1,387 ---------- --------
--------- -------- Income before income tax expense 19,431 13,599
49,756 29,944 ---------- -------- --------- -------- Income tax
benefit (expense): Current (485) (1,411) (2,288) (1,898)
Deferred(5) 289 (22) 4,824 (239) ---------- -------- ---------
-------- (196) (1,433) 2,536 (2,137) ---------- -------- ---------
-------- Net income $19,235 $12,166 $52,292 $27,807 ==========
======== ========= ======== Net income (loss) for the general
partner interest(6) $347 $243 $720 $(1,215) ========== ========
========= ======== Net income for the limited partner interests(6)
$18,888 $11,923 $51,572 $29,022 ========== ======== =========
======== Basic net income per limited partner unit $0.48 $0.39
$1.31 $0.97 ========== ======== ========= ======== Diluted net
income per limited partner unit $0.48 $0.39 $1.31 $0.96 ==========
======== ========= ======== Weighted average units outstanding:
Basic 39,307 30,761 39,305 30,051 Diluted 39,321 30,762 39,332
30,089 *T -0- *T PACIFIC ENERGY PARTNERS, L.P. (Unaudited) (Amounts
in thousands) CONDENSED CONSOLIDATED BALANCE SHEETS September 30,
December 31, 2006 2005 ------------- -------------- Assets Current
assets $265,226 $192,115 Property and equipment, net 1,252,750
1,185,534 Intangible assets 67,639 69,180 Investment in Frontier
Pipeline Company 8,651 8,156 Other assets 17,957 21,467
------------- -------------- Total assets $1,612,223 $1,476,452
============= ============== Liabilities and Partners' Capital
Current liabilities $204,160 $156,187 Long-term debt 669,163
565,632 Deferred income taxes 32,560 35,771 Environmental and other
long-term liabilities 17,416 20,623 Partners' capital 688,924
698,239 ------------- -------------- Total liabilities and
partners' capital $1,612,223 $1,476,452 =============
============== *T -0- *T CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Nine Months Ended September 30, ------------------ 2006 2005
-------- --------- Cash flows from operating activities: Net income
$52,292 $27,807 Depreciation, amortization, non-cash employee
compensation under long-term incentive plan, deferred income taxes
and Frontier adjustment 27,458 24,256 Working capital adjustments
(30,259) 13,592 -------- --------- Net cash provided by operating
activities 49,491 65,655 -------- --------- Cash flows from
investing activities: Acquisition (2,365) (461,165) Net additions
to property and equipment (67,522) (27,265) Additions to pipeline
linefill and minimum tank inventory (16,106) -- Other 181 --
-------- --------- Net cash used in investing activities (85,812)
(488,430) -------- --------- Cash flows from financing activities:
Issuance of common units, net of fees and offering expenses --
289,122 Capital contribution from the general partner -- 8,569 Net
proceeds from senior notes offering -- 170,997 Proceeds from bank
credit facilities 182,094 203,291 Repayment of bank credit
facilities (81,463) (195,661) Deferred financing costs -- (4,676)
Distributions to partners (68,714) (46,224) Issuance of common
units pursuant to exercise of unit option -- 707 Related parties
(28) (1,171) -------- --------- Net cash provided by financing
activities 31,889 424,954 -------- --------- Effect of exchange
rate changes on cash 83 213 -------- --------- Net increase in cash
and cash equivalents (4,349) 2,392 Cash and cash equivalents,
beginning of period 18,064 23,383 -------- --------- Cash and cash
equivalents, end of period $13,715 $25,755 ======== ========= *T
-0- *T PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND OPERATING HIGHLIGHTS BY SEGMENT Three
Months Ended September 30, 2006 and 2005 (Unaudited) (Amounts in
thousands) West Rocky Intersegment Coast Mountain and Business
Business Intrasegment Unit Unit Eliminations Total --------
--------- ------------- -------- Three Months Ended September 30,
2006: Revenues: Pipeline transportation revenue $18,224 $21,500
$(2,729) $36,995 Storage and terminaling revenue 23,467 -- 23,467
Pipeline buy/sell transportation revenue -- 10,010 10,010 Crude oil
sales, net of purchases 9,494 572 (142) 9,924 -------- ---------
-------- Net revenue 51,185 32,082 80,396 -------- ---------
-------- Expenses: Operating expenses 21,505 15,412 (2,871) 34,046
Depreciation and amortization 5,528 4,870 10,398 -------- ---------
-------- Total expenses 27,033 20,282 44,444 -------- ---------
-------- Share of net income of Frontier -- 373 373 --------
--------- -------- Operating income(7) $24,152 $12,173 $36,325
======== ========= ======== Operating Data (barrels per day, in
thousands) Line 2000 and Line 63 pipeline systems 111.0 Rangeland
pipeline system: Sundre - North 19.7 Sundre - South 48.5 Western
Corridor system 26.6 Salt Lake City Core system 126.7 Frontier
Pipeline 46.2 Rocky Mountain Products Pipeline(8) 59.2 Three Months
Ended September 30, 2005: Revenues: Pipeline transportation revenue
$13,887 $14,887 $(1,491) $27,283 Storage and terminaling revenue
9,731 -- 9,731 Pipeline buy/sell transportation revenue -- 11,683
11,683 Crude oil sales, net of purchases 5,690 163 (30) 5,823
-------- --------- -------- Net revenue 29,308 26,733 54,520
-------- --------- -------- Expenses: Operating expenses 16,004
10,536 (1,521) 25,019 Depreciation and amortization 3,491 3,069
6,560 -------- --------- -------- Total expenses 19,495 13,605
31,579 -------- --------- -------- Share of net income of Frontier
-- 516 516 -------- --------- -------- Operating income(7) $9,813
$13,644 $23,457 ======== ========= ======== Operating Data (barrels
per day, in thousands) Line 2000 and Line 63 pipeline systems 104.4
Rangeland pipeline system: Sundre - North 19.3 Sundre - South 48.1
Western Corridor system 26.8 Salt Lake City Core system 125.6
Frontier Pipeline 49.6 Rocky Mountain Products Pipeline(8) -- *T
-0- *T PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND OPERATING HIGHLIGHTS BY SEGMENT Nine
Months Ended September 30, 2006 and 2005 (Unaudited) (Amounts in
thousands) West Rocky Intersegment Coast Mountain and Business
Business Intrasegment Unit Unit Eliminations Total --------
--------- ------------- --------- Nine Months Ended September 30,
2006: Revenues: Pipeline transportation revenue $52,083 $60,790
$(7,221) $105,652 Storage and terminaling revenue 65,420 -- 65,420
Pipeline buy/sell transportation revenue -- 31,136 31,136 Crude oil
sales, net of purchases 26,000 1,860 (407) 27,453 --------
--------- --------- Net revenue 143,503 93,786 229,661 --------
--------- --------- Expenses: Operating expenses 63,200 43,548
(7,628) 99,120 Depreciation and amortization 16,534 14,158 30,692
-------- --------- --------- Total expenses 79,734 57,706 129,812
-------- --------- --------- Share of net income of Frontier --
1,246 1,246 -------- --------- --------- Operating income(7)
$63,769 $37,326 $101,095 ======== ========= ========= Operating
Data (barrels per day, in thousands) Line 2000 and Line 63 pipeline
systems 112.6 Rangeland pipeline system: Sundre - North 21.9 Sundre
- South 44.5 Western Corridor system 26.3 Salt Lake City Core
system 125.3 Frontier Pipeline 46.6 Rocky Mountain Products
Pipeline(8) 60.3 Nine Months Ended September 30, 2005: Revenues:
Pipeline transportation revenue $46,525 $41,348 $(4,806) $83,067
Storage and terminaling revenue 31,073 -- (150) 30,923 Pipeline
buy/sell transportation revenue -- 28,905 28,905 Crude oil sales,
net of purchases 13,368 369 (90) 13,647 -------- ---------
--------- Net revenue 90,966 70,622 156,542 -------- ---------
--------- Expenses: Operating expenses 46,507 30,604 (5,046) 72,065
Line 63 oil release costs(3) 2,000 -- 2,000 Depreciation and
amortization 10,497 9,198 19,695 -------- --------- --------- Total
expenses 59,004 39,802 93,760 -------- --------- --------- Share of
net income of Frontier -- 1,363 1,363 -------- --------- ---------
Operating income(7) $31,962 $32,183 $64,145 ======== =========
========= Operating Data (barrels per day, in thousands) Line 2000
and Line 63 pipeline systems 120.8 Rangeland pipeline system:
Sundre - North 21.3 Sundre - South 45.3 Western Corridor system
24.0 Salt Lake City Core system 119.8 Frontier Pipeline 46.4 Rocky
Mountain Products Pipeline(8) -- *T -0- *T PACIFIC ENERGY PARTNERS,
L.P. (Unaudited) (Amounts in thousands) RECONCILIATION OF OPERATING
INCOME BY SEGMENT TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended September 30, September 30,
------------------- ----------------- 2006 2005 2006 2005
---------- -------- -------- -------- Operating income by Business
Unit: West Coast Business Unit $24,152 $9,813 $63,769 $31,962 Rocky
Mountain Business Unit 12,173 13,644 37,326 32,183 ----------
-------- -------- -------- 36,325 23,457 101,095 64,145 General
expenses and other income (expense):(7) General and administrative
expense (5,649) (4,115) (18,236) (12,987) Merger costs(1) (1,112)
-- (4,529) -- Accelerated long-term incentive plan compensation
expense(2) -- -- -- (3,115) Reimbursed general partner transaction
costs(4) -- -- -- (1,807) Interest expense (10,853) (6,237)
(30,029) (17,679) Other income 720 494 1,455 1,387 Income tax
benefit (expense)(5) (196) (1,433) 2,536 (2,137) ----------
-------- -------- -------- Net income $19,235 $12,166 $52,292
$27,807 ========== ======== ======== ======== *T -0- *T LIMITED
PARTNERS AND GENERAL PARTNER ALLOCATION OF NET INCOME Three Months
Ended Nine Months Ended September 30, September 30,
------------------ ----------------- 2006 2005 2006 2005 ---------
-------- -------- -------- Net income for the limited partner
interests: Net income $19,235 $12,166 $52,292 $27,807 Costs
allocated to general partner: LBP Option Plan costs(9) 370 -- 1,250
-- Senior Notes consent solicitation and other costs -- -- -- 893
Severance costs -- -- -- 914 --------- -------- -------- --------
Total costs allocated to general partner 370 -- 1,250 1,807
--------- -------- -------- -------- Income before costs allocated
to general partner 19,605 12,166 53,542 29,614 Less: General
partner incentive distribution rights paid (331) -- (917) --
--------- -------- -------- -------- Subtotal 19,274 12,166 52,625
29,614 Less: General partner 2% ownership (386) (243) (1,053) (592)
--------- -------- -------- -------- Net income allocated to
limited partners $18,888 $11,923 $51,572 $29,022 ========= ========
======== ======== Net income for the general partner interest:
General partner 2% ownership $386 $243 $1,053 $592 Incentive
distribution payments to general partner 331 -- 917 -- Costs
allocated to general partner (370) -- (1,250) (1,807) ---------
-------- -------- -------- Net income (loss) allocated to general
partner $347 $243 $720 $(1,215) ========= ======== ========
======== *T -0- *T PACIFIC ENERGY PARTNERS, L.P. (Unaudited)
(Amounts in thousands, except per unit amounts) RECONCILIATION OF
NET INCOME TO RECURRING NET INCOME(10) Three Months Ended Nine
Months Ended September 30, September 30, -------------------
----------------- 2006 2005 2006 2005 ---------- -------- --------
-------- Net income $19,235 $12,166 $52,292 $27,807 Add: Merger
costs(1) 1,112 -- 4,529 -- Add: Accelerated long-term incentive
plan compensation expense(2) -- -- -- 3,115 Add: Line 63 oil
release costs(3) -- -- -- 2,000 Add: Reimbursed general partner
transaction costs(4) -- -- -- 1,807 Less: Deferred tax rate
adjustment(5) -- -- (4,560) -- ---------- -------- --------
-------- Recurring net income $20,347 $12,166 $52,261 $34,729
========== ======== ======== ======== Recurring net income for the
general partner interest $369 $243 $719 $695 ========== ========
======== ======== Recurring net income for the limited partner
interest $19,978 $11,923 $51,542 $34,034 ========== ========
======== ======== Basic and diluted recurring net income per
limited partner unit $0.51 $0.39 $1.31 $1.13 ========== ========
======== ======== *T -0- *T RECONCILIATION OF NET INCOME TO
EBITDA(11) Three Months Ended Nine Months Ended September 30,
September 30, ------------------ ------------------ 2006 2005 2006
2005 --------- -------- --------- -------- Net income $19,235
$12,166 $52,292 $27,807 Interest expense 10,853 6,237 30,029 17,679
Depreciation and amortization 10,398 6,560 30,692 19,695 Income tax
(benefit) expense 196 1,433 (2,536) 2,137 --------- --------
--------- -------- EBITDA $40,682 $26,396 $110,477 $67,318
========= ======== ========= ======== *T -0- *T PACIFIC ENERGY
PARTNERS, L.P. RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH
FLOW(12) (Unaudited) (Amounts in thousands) Three Months Ended Nine
Months Ended September 30, September 30, -------------------
----------------- 2006 2005 2006 2005 ---------- -------- --------
-------- Net income $19,235 $12,166 $52,292 $27,807 Depreciation
and amortization 10,398 6,560 30,692 19,695 Amortization of debt
issue costs and accretion of discount on long-term debt 625 487
1,847 1,424 Non-cash employee compensation under long-term
incentive plan 236 -- 732 1,429 Costs allocated to general
partner(6) 370 -- 1,250 1,807 Deferred income tax expense
(benefit)(5) (289) 22 (4,824) 239 Sustaining capital expenditures
(1,502) (2,243) (4,148) (3,070) ---------- -------- --------
-------- Distributable cash flow 29,073 16,992 77,841 49,331 Less:
net (increase) decrease in operating assets and Liabilities
(22,783) 165 (30,259) 13,592 Less: share of income of Frontier
(373) (516) (1,246) (1,363) Add: distributions from Frontier -- 667
622 1,317 Less: non-cash employee compensation under long-term
incentive plan added (deducted) above (236) -- (732) (1,429) Add:
employee compensation under long-term incentive plan 236 -- 782
2,886 Less: costs reimbursed by general partner -- -- -- (1,807)
Add: other non-cash adjustments (16) (40) (1,665) 58 Add:
sustaining capital expenditures 1,502 2,243 4,148 3,070 ----------
-------- -------- -------- Net cash provided by operating
activities $7,403 $19,511 $49,491 $65,655 ========== ========
======== ======== Total distributable cash flow $29,073 $16,992
$77,841 $49,331 General partner interest in distributable cash flow
(2,192) (458) (4,423) (1,659) ---------- -------- -------- --------
Limited partner interest in distributable cash flow $26,881 $16,534
$73,418 $47,672 ========== ======== ======== ======== *T -0- *T
PACIFIC ENERGY PARTNERS, L.P. RECONCILIATION OF RECURRING NET
INCOME GUIDANCE TO NET INCOME GUIDANCE AND EBITDA GUIDANCE(13)
(Unaudited) (Amounts in millions) Three Months Ending Year Ending
December 31, 2006 December 31, 2006 --------------------
----------------- Low High Low High ---------- --------- ---------
------- Recurring net income guidance(14) $13.7 $16.0 $65.9 $68.2
Less: Merger costs (1.4) (1.2) (5.9) (5.7) Add: Deferred tax rate
adjustment -- -- 4.6 4.6 ---------- --------- --------- ------- Net
income guidance(15) $12.3 $14.8 $64.6 $67.1 Add: Depreciation and
amortization 10.6 11.0 41.3 41.7 Add: Interest expense 10.8 11.5
40.8 41.5 Add: Income tax expense (benefit)(16) -- 0.2 (2.5) (2.3)
---------- --------- --------- ------- Earnings before interest,
tax, depreciation and amortization (EBITDA) $33.7 $37.5 $144.2
$148.0 ========== ========= ========= ======= *T -0- *T PACIFIC
ENERGY PARTNERS, L.P. NOTES TO FINANCIAL SCHEDULES (Unaudited)
(Amounts in millions, except volume data) *T (1) On June 12, 2006,
we announced that we had entered into a merger agreement with
Plains All American Pipeline, L.P. ("PAA"), pursuant to which we
will be merged into PAA. PAA will acquire common units (except for
common units purchased from LB Pacific, LP) of Pacific Energy
through a tax-free unit-for-unit merger in which each unitholder of
Pacific Energy will receive 0.77 newly issued PAA common units for
each Pacific Energy common unit. Under the terms of a separate
agreement, PAA will acquire from LB Pacific, LP and its affiliates
("LB Pacific") the general partner interest and incentive
distribution rights of the Partnership as well as 5.2 million
common units and 5.2 million subordinated units for a total of $700
million in cash. For the three and nine months ended September 30,
2006, we incurred $1.1 million and $4.5 million, respectively, in
professional fees and other costs directly related to the merger.
(2) On March 3, 2005, in connection with a change in control of the
Partnership's general partner, all restricted units outstanding
under the Long-Term Incentive Plan immediately vested pursuant to
the terms of the grants. The Partnership recognized compensation
expense of $3.1 million relating to the accelerated vesting. Of
this compensation expense, $0.6 million was considered operating
expense and $2.5 million was general and administrative expense.
(3) On March 23, 2005, there was an oil release of approximately
3,400 barrels in northern Los Angeles County. Although this event
involved an outlay of cash, we believe these costs are unusual and
are not indicative of the Partnership's recurring earnings. (4) In
2005, our general partner reimbursed us $1.8 million for
transaction costs incurred in connection with the change in control
of our general partner. Generally accepted accounting principles
require us to record an expense with the reimbursement shown as a
partner's capital contribution. (5) During the nine months ended
September 30, 2006, we recognized into earnings a $4.6 million
deferred tax benefit to adjust our deferred tax liability for
recently enacted reductions in the Canadian provincial and federal
income tax rates. (6) See "Limited Partners and General Partner
Allocation of Net Income" schedule included herein. (7) General and
administrative expenses, merger costs, accelerated long-term
incentive plan expense, reimbursed general partner transaction
costs, net interest expense, other income and income tax expense
are not allocated among the West Coast and Rocky Mountain business
units. (8) The Rocky Mountain Products Pipeline was purchased on
September 30, 2005. (9) In January 2006, LB Pacific, LP ("LBP"),
the owner of our General Partner, granted options under its LBP
Option Plan (the "Plan") to certain of our officers and key
employees. Under the Plan, participants are granted options to
acquire partnership interests in LBP. We are not obligated to pay
any amounts to LBP for the benefits granted or paid to our officers
and key employees under the Plan, although generally accepted
accounting principles require that we record an expense in the
Partnership's financial statements with a corresponding increase in
the general partner's capital account. For the three and nine
months ended September 30, 2006, we recorded compensation expense
of $0.4 million and $1.3 million, respectively, relating to the LBP
Option Plan. (10) Recurring net income is a non-GAAP financial
measure. This measure is used to more precisely compare year over
year net income by eliminating one-time, non-recurring charges. You
should not consider recurring net income as an alternative to net
income, income before taxes, cash flow from operations, or any
other measure of financial performance presented in accordance with
accounting principles generally accepted in the United States. Our
recurring net income may not be comparable to similarly titled
measures of other entities. (11) EBITDA (earnings before interest,
taxes, depreciation and amortization expense) is used as a
supplemental performance measure by management to assess (i) the
financial performance of our assets without regard to financing
methods, capital structures or historical cost basis, (ii) the
ability of our assets to generate cash sufficient to pay interest
cost and support our indebtedness, (iii) our operating performance
and return on capital as compared to those of other companies in
the midstream energy sector, without regard to financing and
capital structure, and (iv) the viability of projects and the
overall rates of return on alternative investment opportunities.
You should not consider EBITDA as an alternative to net income,
income before taxes, cash flow from operations, or any other
measure of financial performance presented in accordance with
accounting principles generally accepted in the United States. Our
EBITDA may not be comparable to similarly titled measures of other
entities. Additional information regarding EBITDA is included in
our annual report on Form 10-K for the year ended December 31,
2005. For the three and nine months ended September 30, 2006,
EBITDA has been reduced by $1.1 million and $4.5 million,
respectively, for costs directly related to the proposed merger
with Plains All American Pipeline, L.P. For the nine months ended
September 30, 2005, EBITDA was reduced by $3.1 million of
compensation expense relating to the accelerated vesting of our
long term incentive compensation plan, $2.0 million of oil release
costs and $1.8 million of general partner costs that was required
by GAAP to be recorded in our income statement. There was no
unusual impact on EBITDA for the three months ended September 30,
2005. (12) Distributable Cash Flow provides additional information
for evaluating our ability to make the minimum quarterly
distribution and is presented solely as a supplemental measure. You
should not consider Distributable Cash Flow as an alternative to
net income, income before taxes, cash flow from operations, or any
other measure of financial performance presented in accordance with
accounting principles generally accepted in the United States. Our
Distributable Cash Flow may not be comparable to similarly titled
measures of other entities. Additional information regarding
distributable cash flow is included in our annual report on Form
10-K for the year ended December 31, 2005. (13) The guidance for
the three months ending December 31, 2006 and for the twelve months
ending December 31, 2006 are based on assumptions and estimates
that we believe are reasonable given our assessment of historical
trends, business cycles and other information reasonably available.
However, our assumptions and future performance are both subject to
a wide range of business risks and uncertainties so no assurance
can be provided that actual performance will fall within the
guidance ranges. Please see "Forward-Looking Statements" above.
These risks and uncertainties, as well as other unforeseeable risks
and uncertainties, could cause our actual results to differ
materially from those in the table. This financial guidance is
given as of the date hereof, based on information known to us as of
November 1, 2006. We undertake no obligation to publicly update or
revise any forward-looking statements. (14) Recurring net income
guidance for the twelve months ending December 31, 2006 excludes
$4.5 million of merger costs and a $4.6 million deferred tax
benefit to adjust our deferred tax liability for reductions in the
Canadian provincial and federal income tax rates that were enacted
into law in the second quarter of 2006. (15) Included in the net
income guidance for the year ending December 31, 2006 is forecast
general and administrative expense of $23 million to $24 million.
(16) Included for the year ending December 31, 2006 is forecast
cash tax expense of $2.7 million and forecast deferred tax benefit
of $5.1 million.
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