Pacific Energy Partners, L.P. (NYSE:PPX) ("Pacific Energy" or the
"Partnership") announced that net income for the three months ended
June 30, 2006, was $21.4 million, or $0.54 per limited partner
unit, compared to net income of $12.2 million, or $0.40 per limited
partner unit, for the three months ended June 30, 2005. Recurring
net income for the three months ended June 30, 2006 was $20.3
million, or $0.51 per limited partner unit compared to recurring
net income of $12.2 million, or $0.40 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 June 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 margins from the crude oil marketing
activities conducted by the Partnership's Pacific Marketing and
Transportation subsidiary ("PMT"), higher crude oil pipeline
deliveries to Bakersfield, California refineries, lower repair and
maintenance costs associated with the California pipelines, and
higher margins and increased volumes on the Rangeland pipeline
system in Alberta, Canada. Partially offsetting these increases
were higher interest expense attributable to the financing of the
Valero L.P. acquisition and increased general and administrative
costs. In addition, there were approximately 32% more units
outstanding compared to the 2005 quarter. Recurring net income for
the second quarter of 2006 excludes $3.4 million of transaction
costs related to the recently announced merger with Plains All
American Pipeline, L.P. ("Plains"), expected to close later this
year and a $4.6 million deferred tax benefit. Due to recent
legislation, both federal and Alberta corporate tax rates in Canada
are being reduced, and Pacific Energy's deferred tax liability
balance is required by accounting rules to be adjusted to the new
rates. For the six months ended June 30, 2006, net income was $33.1
million, or $0.83 per limited partner unit, compared to $15.6
million, or $0.58 per limited partner unit, for the six months
ended June 30, 2005. Recurring net income for the six months ended
June 30, 2006, was $31.9 million, or $0.80 per limited partner
unit, compared with $22.6 million, or $0.74 per limited partner
unit, for the six months ended June 30, 2005. Recurring net income
for the first six months of 2006 reflects the benefit of six months
of operations in 2006 from the assets acquired from Valero L.P.,
increased margins from crude oil marketing activities, increased
volumes and higher margins for the Rangeland pipeline system,
higher revenue due to increased Bakersfield refinery deliveries,
and lower pipeline repair expenses in California. Partially
offsetting these increases were increased interest and general and
administrative expenses. In addition, there were approximately 32%
more units outstanding in the first half of 2006 versus 2005.
Recurring net income for the six months ended June 30, 2006,
excludes the previously mentioned merger costs and deferred tax
benefit. Recurring net income for the six months ended June 30,
2005, excludes a $2.0 million expense for the insurance deductible
associated with the remediation of the Pyramid Lake oil release, a
$3.1 million expense related to the 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
the Pacific Energy's general partner by LB Pacific, LP ("LB
Pacific"), and $1.8 million of expense from this general partner
transaction required to be recorded as a partnership expense, with
the general partner's payment of it recorded as a capital
contribution. "We are very pleased with our second quarter results.
Our core transportation and storage business performed well and
continued to grow. In addition the Partnership was able to realize
the benefit of favorable marketing margins for both PMT and
Rangeland, which enabled us to exceed previously announced
guidance," stated Irv Toole, President and CEO of Pacific Energy.
"Organic growth projects in each of our two business units continue
to progress and remain a primary focus of the Partnership." On July
17, 2006, Pacific Energy announced a cash distribution of $0.5675
per unit for the second quarter of 2006, or $2.27 per unit
annualized. This is unchanged from the first quarter 2006
distribution level but is 10.7% higher than the second quarter 2005
distribution level. The distribution will be paid on August 14,
2006, to holders of record as of July 31, 2006. Distributable cash
flow available to the limited partners' interest for the second
quarter of 2006 was $25.1 million after deducting $3.4 million in
merger costs. On a diluted, weighted average basis, there were
39,314,000 limited partner units outstanding during the second
quarter of 2006. Earnings before interest, tax, depreciation and
amortization expenses ("EBITDA") were $38.8 million in the second
quarter of 2006. Pursuant to the terms of the partnership
agreement, on August 14, 2006, 2,616,250 subordinated units owned
by LB Pacific are expected to convert on a one-for-one basis to
common units. The conversion of the subordinated units will not
affect future cash distributions. OPERATING RESULTS BY SEGMENT WEST
COAST BUSINESS UNIT Operating income was $22.0 million for the
three months ended June 30, 2006, compared to $12.4 million in the
corresponding period in 2005. This increase was primarily due to
the addition of the Northern California and East Coast terminals
that were acquired on September 30, 2005, from Valero L.P.,
improved operating income from California pipeline operations, and
increased margins from crude oil marketing activities. The Northern
California terminals are operating at capacity, with 450,000
barrels of additional storage capacity currently under construction
at Martinez. This storage is scheduled to be operational in the
third quarter of 2006. Due to strong customer demand, Pacific
Energy has increased its capital budget to provide for the
construction of an additional 850,000 barrels of storage capacity
at Martinez. It is projected that $1.0 million of this increase
will be expended in 2006, with an additional $27.2 million expended
in 2007 to complete the project. The East Coast terminals are also
operating at capacity. East Coast terminal income increased due to
the expansion of ethanol facilities, which began operations in the
second quarter of 2006, and are expected to be fully operational in
the fourth quarter of 2006 and the start up of ultra low sulfur
diesel and jet fuel handling facilities. The impact of the
long-haul pipeline volume decline in California was more than
offset by tariff increases on Line 2000 and Line 63, lower repair
and maintenance costs and a substantial increase in Bakersfield
delivery volumes. Volumes transported to Los Angeles for the three
months ended June 30, 2006, were approximately 10% lower than in
the second quarter of 2005. The primary reasons for the reduction
were natural production declines and a shift in some light crude
oil volumes north to the San Francisco area. Partially offsetting
this impact was a May 1, 2006 increase of $0.10 per barrel on Line
2000, a temporary surcharge of $0.10 per barrel on Line 63
long-haul movements that was implemented on August 1, 2005, to
recover the costs of the Pyramid Lake oil release and other rain
related damages experienced in the first quarter of 2005, and the
absence of $1.4 million of rain related pipeline repair expenses
incurred in the second quarter of 2005. In addition, deliveries to
Bakersfield refineries more than doubled from the prior year's
quarter as a result of pipeline modifications in the San Joaquin
Valley that were completed on October 1, 2005, which increased
delivery capacity to those refineries. The Partnership's crude oil
marketing income in the second quarter of 2006 was significantly
higher than in the prior year quarter. Favorable margins, crude oil
contracts acquired on July 1, 2005, and increased crude oil volumes
in the 2006 quarter contributed to the improvement. Income for the
Pacific Terminals' subsidiary remained unchanged compared to the
corresponding period in 2005. The reactivation of 300,000 barrels
of storage at the Alamitos terminal, completed in July 2006, and
reactivation of a second 300,000 barrel tank scheduled to be
completed in the fourth quarter of 2006, are expected to increase
revenue in the second half of the year. The Partnership continues
to advance the development of the Pier 400 deepwater import
terminal in the Port of Los Angeles. During the quarter, efforts
were focused on finalizing environmental mitigation factors with
the Port of Los Angeles and the Partnership's customers. Due to the
complexity of the environmental review process, the Partnership now
expects to receive the permits necessary to begin construction
mid-year 2007, and start-up is expected in the first quarter of
2009. As previously announced, the total investment is estimated at
$315 million and provides for 4,000,000 barrels of storage capacity
that will be constructed in two phases. Long term volume
commitments have been signed by 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
$15.4 million for the three months ended June 30, 2006, compared to
$9.0 million in the corresponding period in 2005. The $6.4 million
increase was primarily due to increased volumes on the Rangeland
Pipeline, Western Corridor and Salt Lake City Core systems, income
contribution from the Rocky Mountain Products Pipeline that was
part of the Valero L.P. acquisition, and favorable crude oil
marketing margins. In March 2006, the Partnership completed
construction of its Edmonton, Alberta, initiating terminal, which
provides direct access to synthetic crude oil for delivery through
the Partnership's pipeline systems to U.S. Rocky Mountain
refineries. During the second quarter of 2006, construction was
also completed on additional tankage along this corridor to
facilitate the movement of the synthetic crude oil. However, the
transportation of synthetic crude oil was significantly lower than
anticipated in the second quarter of 2006 due to maintenance
shutdowns at two major synthetic crude oil facilities in Alberta.
With these facilities now ramping up to full capacity, synthetic
crude oil movements in the third quarter of 2006 are expected to
increase. In the Rocky Mountain Business Unit, two major profit
generating capital projects, the Salt Lake City pipeline project
and the Cheyenne pipeline project, are proceeding on schedule and
on budget. The first phase of the Salt Lake City pipeline is
scheduled to be completed in December of 2006, and the second phase
is expected to be completed in the fourth quarter of 2007. Total
cost of the project is approximately $77 million and is supported
by firm, 10-year transportation agreements with four Salt Lake City
refiners. The Cheyenne pipeline 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 and
Refining Company to ship 35,000 barrels per day and lease
approximately 300,000 barrels of storage capacity at Fort Laramie.
CORPORATE ITEMS General and administrative expenses were $5.7
million in the second quarter of 2006, approximately $2.0 million
higher than in the second quarter of 2005. This increase was
associated with support of newly acquired assets, professional
fees, and the cost of the 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 $10.1 million for the second
quarter of 2006, $4.2 million greater than in the comparable period
in 2005, due to the increase in debt for the Valero asset
acquisition. For the six months ended June 30, 2006 total capital
spending was $42.5 million: $35.0 million was spent on expansion
capital, $2.6 million was spent on sustaining capital (including
$1.8 million in the second quarter), and $4.9 million was spent on
transition capital. LOOKING FORWARD For the quarter ending
September 30, 2006, Pacific Energy is forecasting recurring net
income of $0.35 to $0.41 per unit and EBITDA of $34 million to $38
million. Sustaining capital expenditures for the third quarter of
2006 are expected to be $3 million to $4 million. For full year
2006, Pacific Energy is forecasting recurring net income of $1.58
to $1.68 per unit and EBITDA of $140 million to $146 million. Total
capital expenditures for the full year are projected to be $162
million, including $148 million for expansion projects, $7 million
for transition capital projects, and $7 million for sustaining
capital projects. The guidance for recurring net income for the
third 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 $1.0 million and $6.5 million, for the third
quarter and full year, respectively, of estimated Plains merger
related expenses to be incurred prior to closing. For more
information about these 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 and Plains announced the signing of definitive
agreements that provide for the merger of the two partnerships and
Plains' acquisition of Pacific Energy's general partner. The
partnerships recently announced that the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
had expired on July 31, 2006. In addition, Plains has received a
"no issues" letter from the Canadian Competition Bureau and notice
that the accompanying waiting period under the Competition Act has
expired. The completion of the transaction remains subject to the
approval of unitholders of both partnerships as well as approvals
of certain state utility commissions and the Investment Review
Division of Industry Canada. All required filings have been
submitted. This transaction is expected to close near the end of
2006. As a result of this pending transaction, the CEO search
previously initiated by the Board of Directors of Pacific Energy's
general partner has been terminated, and Irv Toole, President and
Chief Executive Officer of Pacific Energy, will continue to serve
until management of the Partnership is assumed by Plains following
the closing of the merger transaction. OTHER MATTERS Pacific Energy
will host a conference call at 2:00 p.m. EDT (11:00 a.m. PDT) on
Thursday, August 3, 2006, to discuss the results of the second
quarter of 2006. Please join us at www.PacificEnergy.com for the
live broadcast or dial in at 800-446-2782 or 847-413-3235 passcode
14511288. 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 Partners, L.P. is a master limited
partnership headquartered in Long Beach, California. Pacific Energy
is engaged principally in the business of gathering, transporting,
storing and distributing crude oil, refined products and other
related products. Pacific Energy 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. ("Plains") 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. Upon being declared
effective by the SEC, a definitive joint proxy statement/prospectus
will be 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, when it becomes available, 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, when it becomes
available, 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 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 Six Months Ended Ended June 30, June 30,
----------------- ----------------- 2006 2005 2006 2005 --------
-------- -------- -------- Operating revenues: Pipeline
transportation revenue $34,800 $27,747 $68,657 $55,784 Storage and
distribution revenue 21,867 10,870 41,953 21,192 Pipeline buy/sell
transportation revenue 11,427 8,116 21,126 17,222 Crude oil sales,
net of purchases 10,720 6,042 17,529 7,824 -------- --------
-------- -------- Net revenues 78,814 52,775 149,265 102,022
-------- -------- -------- -------- Expenses: Operating 31,655
25,292 65,074 47,046 Line 63 oil release costs(1) -- -- -- 2,000
General and administrative 5,714 3,700 12,587 8,872 Depreciation
and amortization 10,292 6,606 20,294 13,135 Merger costs(2) 3,417
-- 3,417 -- Accelerated long-term incentive plan compensation
expense(3) -- -- -- 3,115 Reimbursed general partner transaction
costs(4) -- -- -- 1,807 -------- -------- -------- -------- Total
expenses 51,078 35,598 101,372 75,975 -------- -------- --------
-------- Share of net income of Frontier 475 490 873 847 --------
-------- -------- -------- Operating income 28,211 17,667 48,766
26,894 Net interest expense (10,088) (5,844) (19,176) (11,442)
Other income 292 540 735 893 -------- -------- -------- --------
Income before income tax expense 18,415 12,363 30,325 16,345
-------- -------- -------- -------- Income tax benefit (expense):
Current (1,409) 245 (1,803) (487) Deferred(5) 4,437 (388) 4,535
(217) -------- -------- -------- -------- 3,028 (143) 2,732 (704)
-------- -------- -------- -------- Net income $21,443 $12,220
$33,057 $15,641 ======== ======== ======== ======== Net income
(loss) for the general partner interest(6) $392 $244 $373 $(1,458)
======== ======== ======== ======== Net income for the limited
partner interests(6) $21,051 $11,976 $32,684 $17,099 ========
======== ======== ======== Weighted average units outstanding:
Basic 39,307 29,723 39,304 29,689 Diluted 39,314 29,742 39,322
29,708 Basic and Diluted net income per limited partner unit $0.54
$0.40 $0.83 $0.58 ======== ======== ======== ======== PACIFIC
ENERGY PARTNERS, L.P. (Unaudited) (Amounts in thousands) CONDENSED
CONSOLIDATED BALANCE SHEETS June 30, December 31, 2006 2005
------------ ------------ Assets Current assets $254,689 $192,115
Property and equipment, net 1,237,794 1,185,534 Intangible assets
69,354 69,180 Investment in Frontier Pipeline Company 8,322 8,156
Other assets 17,791 21,467 ------------ ------------ Total assets
$1,587,950 $1,476,452 ============ ============ Liabilities and
Partners' Capital Current liabilities $205,138 $156,187 Long-term
debt 635,368 565,632 Deferred income taxes 32,833 35,771
Environmental and other long-term liabilities 22,578 20,623
Partners' capital 692,033 698,239 ------------ ------------ Total
liabilities and partners' capital $1,587,950 $1,476,452
============ ============ CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Six Months Ended June 30, ----------------- 2006 2005
-------- -------- Cash flows from operating activities: Net income
$33,057 $15,641 Depreciation, amortization, non-cash employee
compensation under long-term incentive plan, deferred income taxes
and Frontier adjustment 16,507 17,076 Working capital adjustments
(7,476) 13,427 -------- -------- Net cash provided by operating
activities 42,088 46,144 Cash flows from investing activities:
Acquisition (2,365) -- Net additions to property and equipment
(42,524) (9,877) Additions to pipeline linefill and minimum tank
inventory (16,419) -- Other 168 (98) -------- -------- Net cash
used in investing activities (61,140) (9,975) Cash flows from
financing activities: Distributions to partners (45,614) (30,658)
Capital contribution from the general partner -- 2,438 Proceeds
from bank credit facilities 130,409 66,283 Repayment of bank credit
facilities (60,950) (64,326) Deferred financing costs -- (600)
Related parties (141) (686) -------- -------- Net cash provided by
(used in) financing activities 23,704 (27,549) Effect of exchange
rate changes on cash 107 74 Net increase in cash and cash
equivalents 4,759 8,694 Cash and cash equivalents, beginning of
period 18,064 23,383 -------- -------- Cash and cash equivalents,
end of period $22,823 $32,077 ======== ======== PACIFIC ENERGY
PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
OPERATING HIGHLIGHTS BY SEGMENT Three Months Ended June 30, 2006
and 2005 (Unaudited) (Amounts in thousands) West Rocky Intersegment
Coast Mountains and Business Business Intrasegment Unit Unit
Eliminations Total -------- ---------- ------------- -------- Three
Months Ended June 30, 2006: Revenues: Pipeline transportation
revenue $16,696 $20,422 $(2,318) $34,800 Storage and terminaling
revenue 21,867 -- 21,867 Pipeline buy/sell transportation revenue
-- 11,427 11,427 Crude oil sales, net of purchases 9,195 1,648
(123) 10,720 -------- ---------- -------- Net revenue 47,758 33,497
78,814 -------- ---------- -------- Expenses: Operating expenses
20,263 13,833 (2,441) 31,655 Depreciation and amortization 5,507
4,785 10,292 -------- ---------- -------- Total expenses 25,770
18,618 41,947 -------- ---------- -------- Share of net income of
Frontier -- 475 475 -------- ---------- -------- Operating
income(7) $21,988 $15,354 $37,342 ======== ========== ========
Operating Data (barrels per day, in thousands) Line 2000 and Line
63 pipeline systems 108.2 Rangeland pipeline system: Sundre - North
21.5 Sundre - South 44.2 Western Corridor system 27.9 Salt Lake
City Core system 125.2 Frontier pipeline 45.2 Rocky Mountain
Products Pipeline(8) 60.1 Three Months Ended June 30, 2005:
Revenues: Pipeline transportation revenue $15,194 $14,006 $(1,453)
$27,747 Storage and terminaling revenue 10,870 -- 10,870 Pipeline
buy/sell transportation revenue -- 8,116 8,116 Crude oil sales, net
of purchases 5,866 206 (30) 6,042 -------- ---------- -------- Net
revenue 31,930 22,328 52,775 -------- ---------- -------- Expenses:
Operating expenses 15,996 10,779 (1,483) 25,292 Depreciation and
amortization 3,529 3,077 6,606 -------- ---------- -------- Total
expenses 19,525 13,856 31,898 -------- ---------- -------- Share of
net income of Frontier -- 490 490 -------- ---------- --------
Operating income(7) $12,405 $8,962 $21,367 ======== ==========
======== Operating Data (barrels per day, in thousands) Line 2000
and Line 63 pipeline systems 120.0 Rangeland pipeline system:
Sundre - North 23.1 Sundre - South 39.7 Western Corridor system
22.2 Salt Lake City Core system 124.4 Frontier pipeline 51.3 Rocky
Mountain Products Pipeline(8) -- PACIFIC ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OPERATING
HIGHLIGHTS BY SEGMENT Six Months Ended June 30, 2006 and 2005
(Unaudited) (Amounts in thousands) West Rocky Intersegment Coast
Mountain and Business Business Intrasegment Unit Unit Eliminations
Total -------- ---------- ------------- -------- Six Months Ended
June 30, 2006: Revenues: Pipeline transportation revenue $33,859
$39,290 $(4,492) $68,657 Storage and terminaling revenue 41,953 --
41,953 Pipeline buy/sell transportation revenue -- 21,126 21,126
Crude oil sales, net of purchases 16,506 1,288 (265) 17,529
-------- ---------- -------- Net revenue 92,318 61,704 149,265
-------- ---------- -------- Expenses: Operating expenses 41,695
28,136 (4,757) 65,074 Depreciation and amortization 11,006 9,288
20,294 -------- ---------- -------- Total expenses 52,701 37,424
85,368 -------- ---------- -------- Share of net income of Frontier
-- 873 873 -------- ---------- -------- Operating income(7) $39,617
$25,153 $64,770 ======== ========== ======== Operating Data
(barrels per day, in thousands) Line 2000 and Line 63 pipeline
systems 113.4 Rangeland pipeline system: Sundre - North 23.1 Sundre
- South 42.5 Western Corridor system 26.2 Salt Lake City Core
system 124.5 Frontier pipeline 46.7 Rocky Mountain Products
Pipeline(8) 60.8 Six Months Ended June 30, 2005: Revenues: Pipeline
transportation revenue $32,638 $26,461 $(3,315) $55,784 Storage and
terminaling revenue 21,342 -- (150) 21,192 Pipeline buy/sell
transportation revenue -- 17,222 17,222 Crude oil sales, net of
purchases 7,678 206 (60) 7,824 -------- ---------- -------- Net
revenue 61,658 43,889 102,022 -------- ---------- --------
Expenses: Operating expenses 30,503 20,068 (3,525) 47,046 Line 63
oil release costs(1) 2,000 -- 2,000 Depreciation and amortization
7,006 6,129 13,135 -------- ---------- -------- Total expenses
39,509 26,197 62,181 -------- ---------- -------- Share of net
income of Frontier -- 847 847 -------- ---------- --------
Operating income(7) $22,149 $18,539 $40,688 ======== ==========
======== Operating Data (barrels per day, in thousands) Line 2000
and Line 63 pipeline systems 129.2 Rangeland pipeline system:
Sundre - North 22.2 Sundre - South 43.9 Western Corridor system
22.4 Salt Lake City Core system 116.7 Frontier pipeline 44.8 Rocky
Mountain Products Pipeline(8) -- PACIFIC ENERGY PARTNERS, L.P.
(Unaudited) (Amounts in thousands) RECONCILIATION OF OPERATING
INCOME BY SEGMENT TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Six Months Ended Ended June 30, June 30,
----------------- ----------------- 2006 2005 2006 2005 --------
-------- -------- -------- Operating income by Business Unit: West
Coast Business Unit $21,988 $12,405 $39,617 $22,149 Rocky Mountain
Business Unit 15,354 8,962 25,153 18,539 -------- -------- --------
-------- 37,342 21,367 64,770 40,688 General expenses and other
income (expense):(7) General and administrative expense (5,714)
(3,700) (12,587) (8,872) Merger costs(2) (3,417) -- (3,417) --
Accelerated long-term incentive plan compensation expense(3) -- --
-- (3,115) Reimbursed general partner transaction costs(4) -- -- --
(1,807) Interest expense (10,088) (5,844) (19,176) (11,442) Other
income 292 540 735 893 Income tax benefit (expense)(5) 3,028 (143)
2,732 (704) -------- -------- -------- -------- Net income $21,443
$12,220 $33,057 $15,641 ======== ======== ======== ======== LIMITED
PARTNERS AND GENERAL PARTNER ALLOCATION OF NET INCOME Three Months
Six Months Ended Ended June 30, June 30, -----------------
----------------- 2006 2005 2006 2005 -------- -------- --------
-------- Net income for the limited partner interests: Net income
$21,443 $12,220 $33,057 $15,641 Costs allocated to general partner:
LBP Option Plan costs(9) 369 -- 880 -- Senior Notes consent
solicitation and other costs -- -- -- 893 Severance costs -- -- --
914 -------- -------- -------- -------- Total costs allocated to
general partner 369 -- 880 1,807 -------- -------- --------
-------- Income before costs allocated to general partner 21,812
12,220 33,937 17,448 Less: General partner incentive distribution
rights paid (331) -- (586) -- -------- -------- -------- --------
Subtotal 21,481 12,220 33,351 17,448 Less: General partner 2%
ownership (430) (244) (667) (349) -------- -------- --------
-------- Net income allocated to limited partners $21,051 $11,976
$32,684 $17,099 ======== ======== ======== ======== Net income for
the general partner interest: General partner 2% ownership $430
$244 $667 $349 Incentive distribution payments to general partner
331 -- 586 -- Costs allocated to general partner (369) -- (880)
(1,807) -------- -------- -------- -------- Net income (loss)
allocated to general partner $392 $244 $373 $(1,458) ========
======== ======== ======== PACIFIC ENERGY PARTNERS, L.P.
(Unaudited) (Amounts in thousands, except per unit amounts)
RECONCILIATION OF NET INCOME TO RECURRING NET INCOME(10) Three
Months Six Months Ended Ended June 30, June 30, -----------------
----------------- 2006 2005 2006 2005 -------- -------- --------
-------- Net income $21,443 $12,220 $33,057 $15,641 Add: Line 63
oil release costs(1) -- -- -- 2,000 Add: Merger costs(2) 3,417 --
3,417 -- Add: Accelerated long-term incentive plan compensation
expense(3) -- -- -- 3,115 Add: Reimbursed general partner
transaction costs(4) -- -- -- 1,807 Less: Deferred tax rate
adjustment(5) (4,560) -- (4,560) -- -------- -------- --------
-------- Recurring net income $20,300 $12,220 $31,914 $22,563
======== ======== ======== ======== Recurring net income for the
general partner interest $369 $244 $350 $451 ======== ========
======== ======== Recurring net income for the limited partner
interest $19,931 $11,976 $31,564 $22,112 ======== ======== ========
======== Basic and diluted recurring net income per limited partner
unit $0.51 $0.40 $0.80 $0.74 ======== ======== ======== ========
RECONCILIATION OF NET INCOME TO EBITDA(11) Three Months Six Months
Ended Ended June 30, June 30, ----------------- -----------------
2006 2005 2006 2005 -------- -------- -------- -------- Net income
$21,443 $12,220 $33,057 $15,641 Interest expense 10,088 5,844
19,176 11,442 Depreciation and amortization 10,292 6,606 20,294
13,135 Income tax (benefit) expense (3,028) 143 (2,732) 704
-------- -------- -------- -------- EBITDA $38,795 $24,813 $69,795
$40,922 ======== ======== ======== ======== PACIFIC ENERGY
PARTNERS, L.P. RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH
FLOW(12) (Unaudited) (Amounts in thousands) Three Months Six Months
Ended Ended June 30, June 30, ----------------- -----------------
2006 2005 2006 2005 -------- -------- -------- -------- Net income
$21,443 $12,220 $33,057 $15,641 Depreciation and amortization
10,292 6,606 20,294 13,135 Amortization of debt issue costs and
accretion of discount on long-term debt 616 478 1,222 937 Non-cash
employee compensation under long-term incentive plan 190 -- 496
1,429 Costs allocated to general partner(6) 369 -- 880 1,807
Deferred income tax expense (benefit)(5) (4,437) 388 (4,535) 217
Sustaining capital expenditures (1,829) (587) (2,646) (827)
-------- -------- -------- -------- Distributable cash flow(13)
26,644 19,105 48,768 32,339 Less: net (increase) decrease in
operating assets and liabilities 9,524 10,336 (7,476) 13,427 Less:
share of income of Frontier (475) (490) (873) (847) Add:
distributions from Frontier 200 650 622 650 Less: non-cash employee
compensation under long-term incentive plan added (deducted) above
(190) -- (496) (1,429) Add: employee compensation under long-term
incentive plan 190 -- 546 2,886 Less: costs reimbursed by general
partner -- -- -- (1,807) Add: other non-cash adjustments (1,649) 98
(1,649) 98 Add: sustaining capital expenditures 1,829 587 2,646 827
-------- -------- -------- -------- Net cash provided by operating
activities $36,073 $30,286 $42,088 $46,144 ======== ========
======== ======== Total distributable cash flow $26,644 $19,105
$48,768 $32,339 General partner interest in distributable cash flow
(1,585) (936) (2,231) (1,201) -------- -------- -------- --------
Limited partner interest in distributable cash flow $25,059 $18,169
$46,537 $31,138 ======== ======== ======== ======== PACIFIC ENERGY
PARTNERS, L.P. RECONCILIATION OF RECURRING NET INCOME GUIDANCE TO
NET INCOME GUIDANCE AND EBITDA GUIDANCE(14) (Unaudited) (Amounts in
millions) Three Months Year Ended Ended September 30, December 31,
2006 2006 ------------- --------------- Low High Low High ------
------ ------- ------- Recurring net income guidance(15) $14.2
$16.5 $63.0 $66.8 Less: Merger costs (1.2) (0.8) (7.0) (6.0) Add:
Deferred tax rate adjustment -- -- 4.6 4.6 ------ ------ -------
------- Net income guidance(16) $13.0 $15.7 $60.6 $65.4 Add:
Depreciation and amortization 10.2 10.6 41.2 41.7 Add: Interest
expense 10.5 11.5 40.5 41.5 Add: Income tax expense (benefit)(17)
-- 0.2 (2.5) (2.2) ------ ------ ------- ------- Earnings before
interest, tax, depreciation and amortization (EBITDA) $33.7 $38.0
$139.8 $146.4 ====== ====== ======= ======= PACIFIC ENERGY
PARTNERS, L.P. NOTES TO FINANCIAL SCHEDULES (Unaudited) (Amounts in
millions, except volume data) (1) 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. (2) 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 2.6 million common units and 7.8 million subordinated units
for a total of $700 million in cash. For the three and six months
ended June 30, 2006, we incurred $3.4 million in professional fees
and other costs directly related to the merger. (3) 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. (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 quarter ended June
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 "General Partner and Limited Partners 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 six months ended June 30, 2006,
we recorded compensation expense of $0.4 million and $0.9 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 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 six months ended June 30,
2006, EBITDA has been reduced by $3.4 million for costs directly
related to the proposed merger with Plains All American Pipeline,
L.P. For the six months ended June 30, 2005, EBITDA has been
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 June 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)In September 2005, we changed the
presentation of Distributable Cash Flow. The previously reported
amount of $36.2 million for Distributable Cash Flow for the six
months ended June 30, 2005 has been reduced by $2.0 million of oil
release costs and $1.9 million of cash costs associated with the
accelerated vesting of units. The change in presentation had no
effect on the three months ended June 30, 2005. For the three and
six months ended June 30, 2006, Distributable Cash Flow has been
reduced by $3.4 million for costs directly related to the proposed
merger with Plain All American Pipeline, L.P. (14)The guidance for
the three months ending September 30, 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
August 1, 2006. We undertake no obligation to publicly update or
revise any forward-looking statements. (15)Recurring net income
excludes $3.4 million of merger costs and 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. (16)Included in the net income guidance for the year
ended December 31, 2006 is forecast general and administrative
expense of $23 million to $24 million. (17)Included for the year
ended December 31, 2006 is forecast cash tax expense of $2.7
million and forecast deferred tax benefit of $0.4 million. *T
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