UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13603
TE Products Pipeline Company, Limited Partnership
(Exact name of Registrant as specified in its charter)
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Delaware |
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76-0329620 |
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(State of Incorporation or Organization) |
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(I.R.S. Employer Identification Number) |
2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(Address of principal executive offices, including zip code)
(713) 759-3636
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on |
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6.45% Senior Notes, due January 15, 2008 |
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New York Stock Exchange |
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7.51% Senior Notes, due January 15, 2028 |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý
Documents Incorporated by Reference: None
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
TE Products Pipeline Company, Limited Partnership (the “Partnership”), a Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P. (the “Parent Partnership”) owns a 99.999% interest in us as the sole limited partner. TEPPCO GP, Inc. (“TEPPCO GP” or “General Partner”), a subsidiary of the Parent Partnership, holds a 0.001% General Partner interest in us. Texas Eastern Products Pipeline Company, LLC (the “Company”), a Delaware limited liability company, serves as the general partner of our Parent Partnership. The Company is an indirect wholly owned subsidiary of Duke Energy Field Services, LLC (“DEFS”), a joint venture between Duke Energy Corporation (“Duke Energy”) and ConocoPhillips. Duke Energy holds an interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining interest of approximately 30%. TEPPCO GP, as general partner, performs all of the management and operating functions required for us in accordance with the Agreement of Limited Partnership of TE Products Pipeline Company, Limited Partnership (the “Partnership Agreement”). We reimburse our General Partner and the Company for all reasonable direct and indirect expenses that they incur in managing us.
As used in this Report, “we,” “us,” and “our” means TE Products Pipeline Company, Limited Partnership.
We operate and report in one business segment: transportation and storage of refined products, liquefied petroleum gases (“LPGs”) and petrochemicals. Our interstate transportation operations, including rates charged to customers, are subject to regulations prescribed by the Federal Energy Regulatory Commission (“FERC”). We refer to refined products, LPGs and petrochemicals in this Report, collectively, as “petroleum products” or “products.”
Effective January 1, 2002, our Parent Partnership realigned its business segments to reflect its entry into the natural gas gathering business and the expanded scope of its natural gas liquids (“NGLs”) operations. As part of this realignment, on May 31, 2002, we transferred our investment in TEPPCO Colorado, LLC (“TEPPCO Colorado”), which fractionates NGLs, to TEPPCO Midstream Companies, L.P. (“TEPPCO Midstream”) for the book value of TEPPCO Colorado’s net assets, which was $4.1 million. In connection with the transfer, we received $4.1 million in cash from TEPPCO Midstream. As a result of the transfer, the results of operations of TEPPCO Colorado for the periods presented are reflected as discontinued operations (see Note 18. Discontinued Operations). We have reclassified prior periods presented to reflect the current presentation.
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Our strategy is to expand and improve service in our current markets, maintain the integrity of our pipeline systems and pursue growth initiatives that are balanced between internal projects and acquisitions. We intend to leverage the advantages inherent in our pipeline systems to maintain our status as a preferred provider in our market areas. We also intend to grow by acquiring assets, from both third parties and affiliates, which complement existing businesses or by establishing new core businesses. We routinely evaluate opportunities to acquire assets and businesses that will complement existing operations with a view to increasing earnings and cash available for distribution. We may fund additional acquisitions with cash flow from operations, borrowings and capital contributions from our Parent Partnership, the issuance of debt in the capital markets or any combination thereof.
We own, operate or have investments in properties located in 14 states. We also conduct business through our 50% owned equity investments in Centennial Pipeline LLC (“Centennial”) and Mont Belvieu Storage Partners, L.P. (“MB Storage”). Our operations consist of interstate transportation, storage and terminaling of petroleum products; short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas, complex through MB Storage; intrastate transportation of petrochemicals and other ancillary services.
As an interstate common carrier, our pipeline offers interstate transportation services, pursuant to tariffs filed with the FERC, to any shipper of refined petroleum products and LPGs who requests these services, provided that the products tendered for transportation satisfy the conditions and specifications contained in the applicable tariff. In addition to the revenues received by our pipeline system from our interstate tariffs, we also provide storage and other related services at key points along our pipeline systems. Substantially all of the petroleum products transported and stored in our pipeline systems are owned by our customers. Petroleum products are received at terminals located principally on the southern end of the pipeline system, stored, scheduled into the pipeline in accordance with customer nominations and shipped to delivery terminals for ultimate delivery to the final distributor (including gas stations and retail propane distribution centers) or to other pipelines. Pipelines are generally the lowest cost method for intermediate and long-haul overland transportation of petroleum products. Our pipeline system is the only pipeline that transports LPGs from the upper Texas Gulf Coast to the Northeast.
We depend in large part on the level of demand for refined petroleum products and LPGs in the geographic locations that we serve and the ability and willingness of customers having access to the pipeline system to supply this demand. We cannot predict the impact of future fuel conservation measures, alternate fuel requirements, governmental regulation or technological advances in fuel economy and energy-generation devices, all of which could reduce the demand for refined petroleum products and LPGs in the areas we serve.
The following table lists the material properties and investments of and ownership percentages in our assets as of December 31, 2004:
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Our |
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Refined products and LPGs pipelines |
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100 |
% |
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Mont Belvieu, Texas, to Port Arthur, Texas, petrochemical pipelines |
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100 |
% |
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Centennial Pipeline LLC (1) |
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50 |
% |
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Mont Belvieu Storage Partners, L.P. (2) |
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50 |
% |
(1) Accounted for as an equity investment. Effective February 10, 2003, we acquired an additional 16.7% interest in Centennial, bringing our ownership percentage to 50%.
(2) Accounted for as an equity investment. Effective January 1, 2003, we contributed substantially all of our Mont Belvieu LPG assets to MB Storage, a partnership formed with Louis Dreyfus Energy Services L.P. (“Louis Dreyfus”).
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In August 2000, we entered into agreements with Panhandle Eastern Pipeline Company (“PEPL”), a former subsidiary of CMS Energy Corporation, and Marathon Ashland Petroleum LLC (“Marathon”) to form Centennial. Each participant originally owned a one-third interest in Centennial. Centennial, which commenced operations in April 2002, owns an interstate refined petroleum products pipeline extending from the upper Texas Gulf Coast to central Illinois. Centennial constructed a 74-mile, 24-inch diameter pipeline connecting our facility in Beaumont, Texas, with an existing 720-mile, 26-inch diameter pipeline extending from Longville, Louisiana, to Bourbon, Illinois. The Centennial pipeline intersects our existing mainline pipeline near Creal Springs, Illinois, where Centennial constructed a two million barrel refined petroleum products storage terminal. Marathon operates the mainline Centennial pipeline, and we operate the Beaumont origination point and the Creal Springs terminal.
Our interest in Centennial is not subject to any encumbrances from mortgages or other secured debt. Centennial has unsecured debt, one third of which, up to $50.0 million in principal, was originally guaranteed by each owner, including us. On February 10, 2003, we and Marathon each acquired an additional 16.7% interest in Centennial from PEPL for $20.0 million each, increasing our percentage ownerships in Centennial to 50% each. We and Marathon have each guaranteed one-half of Centennial’s debt, up to a maximum of $75.0 million each. Through December 31, 2004, including the amount paid for the acquisition of the additional ownership interest in February 2003, we have invested $104.8 million in Centennial. We have not received any distributions from Centennial since its formation.
On January 1, 2003, we and Louis Dreyfus formed MB Storage, and we each own a 50% ownership interest in MB Storage. The purpose of MB Storage is to expand services to the upper Texas Gulf Coast energy marketplace by increasing pipeline throughput and the mix of products handled through the existing system and establishing new receipt and delivery connections. MB Storage is a service-oriented, fee-based venture with no commodity trading activity. We operate the facilities for MB Storage. Effective January 1, 2003, we contributed property and equipment with a net book value of $67.1 million to MB Storage. Additionally, as of the contribution date, Louis Dreyfus had invested $6.1 million for expansion projects for MB Storage that we were required to reimburse if the original joint development and marketing agreement was terminated by either party. This deferred liability was also contributed and credited to the capital account of Louis Dreyfus in MB Storage.
Our interest in MB Storage is not subject to any encumbrances from mortgages or other secured debt. We receive the first $1.8 million per quarter (or $7.15 million on an annual basis) of MB Storage’s income before depreciation expense, as defined in the operating agreement. Any amount of MB Storage’s annual income before depreciation expense in excess of $7.15 million is allocated evenly between Louis Dreyfus and us. Depreciation expense on assets each originally contributed to MB Storage is allocated between Louis Dreyfus and us based upon the net book value of the assets contributed. Depreciation expense on assets constructed or acquired by MB Storage subsequent to formation is allocated evenly between Louis Dreyfus and us. For the years ended December 31, 2004 and 2003, our sharing ratio in the earnings of MB Storage was approximately 69.4% and 70.4%, respectively. For the years ended December 31, 2004 and 2003, excluding the contribution of property and equipment upon formation of the partnership, we have contributed $21.4 million and $2.5 million, respectively, to MB Storage. The 2004 amount includes a contribution of $16.5 million for the acquisition of storage and pipeline assets in April 2004. The remaining contributions have been for capital expenditures in both periods. During the years ended December 31, 2004 and 2003, we received distributions of $10.3 million and $5.3 million, respectively, from MB Storage.
MB Storage’s asset base in the Mont Belvieu fractionation and storage complex, which is the largest complex of its kind in the United States, serving the fractionation, refining and petrochemical industries, provides substantial capacity and flexibility for the transportation, terminaling and storage of NGLs, LPGs and refined products. MB Storage receives revenue from the shuttling of product from refineries and fractionators to pipelines, refineries and petrochemical facilities on the upper Texas Gulf Coast.
On April 1, 2004, MB Storage acquired storage and pipeline assets at Mont Belvieu from ConocoPhillips for approximately $34.0 million. The acquisition included three salt dome storage wells with a total storage capacity of 5.6 million barrels, various pipeline assets and a 200-acre parcel of property for future expansion. The acquisition
3
also included 2.6 million barrels of brine storage capacity. The acquisition supports MB Storage’s strategy of increasing the productivity of the Mont Belvieu assets by expanding its product and service base to include the storage and transportation of ethane and the storage of ethylene.
Including the capacity acquired from ConocoPhillips, MB Storage has approximately 36 million barrels of LPGs storage capacity and approximately 7 million barrels of refined products storage capacity, including storage capacity leased to outside parties, at the Mont Belvieu fractionation and storage complex. MB Storage includes a short-haul transportation shuttle system, consisting of a complex system of pipelines and interconnects, that ties Mont Belvieu to virtually every refinery and petrochemical facility on the upper Texas Gulf Coast. MB Storage also provides truck and rail car loading capability. Total shuttle volumes for the three years ended December 31, 2004, 2003 and 2002, were 39.3 million barrels, 33.1 million barrels and 28.9 million barrels, respectively.
We are one of the largest pipeline common carriers of refined petroleum products and LPGs in the United States. We own and operate an approximately 4,500-mile pipeline system (together with the receiving, storage and terminaling facilities mentioned below, the “Pipeline System”) extending from southeast Texas through the central and midwestern United States to the northeastern United States. Our Pipeline System includes delivery terminals for outloading product to other pipelines, tank trucks, rail cars or barges, and substantial storage facilities at numerous locations. We also own one active marine receiving terminal at Providence, Rhode Island. The Providence terminal is not physically connected to our Pipeline System. Our Pipeline System also includes three parallel 12-inch diameter petrochemical pipelines between Mont Belvieu and Port Arthur, each approximately 70 miles in length.
All properties comprising our Pipeline System are wholly owned by us and none are mortgaged or encumbered to secure funded debt. We have guaranteed up to $75.0 million of Centennial’s unsecured debt (see Centennial Pipeline Equity Investment above) and have also guaranteed the unsecured debt of our Parent Partnership (see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition and Liquidity).
Products are transported in liquid form from the upper Texas Gulf Coast through two parallel underground pipelines that extend to Seymour, Indiana. From Seymour, segments of the Pipeline System extend to the Chicago, Illinois; Lima, Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas. Our Pipeline System east of Todhunter, Ohio, is dedicated solely to LPGs transportation and storage services, primarily for propane.
Excluding the storage facilities of Centennial and MB Storage, our Pipeline System includes 27 storage facilities with an aggregate storage capacity of 16 million barrels of refined petroleum products and 6 million barrels of LPGs including storage capacity leased to outside parties. Our Pipeline System makes deliveries to customers at 56 locations including 19 truck racks, rail car facilities and marine facilities that we own. Deliveries to other pipelines occur at various facilities owned by third parties or us.
Our Pipeline System is comprised of a 20-inch diameter line extending in a generally northeasterly direction from Baytown, Texas (located approximately 30 miles east of Houston), to a point in southwest Ohio near Lebanon and Todhunter. A second line, which also originates at Baytown, is 16 inches in diameter until it reaches Beaumont, at which point it reduces to a 14-inch diameter line. This second line extends along the same path as the 20-inch diameter line to our Pipeline System’s terminal in El Dorado, Arkansas, before continuing as a 16-inch diameter line to Seymour. Our Pipeline System also has smaller diameter lines that extend laterally from El Dorado to Helena, Arkansas, from Shreveport, Louisiana, to El Dorado and from McRae, Arkansas, to West Memphis, Arkansas. The line from El Dorado to Helena has a 10-inch diameter. The line from Shreveport to El Dorado varies in diameter from 8 inches to 10 inches. The line from McRae to West Memphis has a 12-inch diameter. Our Pipeline System also includes a 14-inch diameter line from Seymour to Chicago, Illinois, and a 10-inch diameter line running from Lebanon to Lima, Ohio. This 10-inch diameter pipeline connects to the Buckeye Pipe Line Company system that serves, among others, markets in Michigan and eastern Ohio. Our Pipeline System also has a 6-inch diameter pipeline connection to the Greater Cincinnati/Northern Kentucky International Airport and an 8-inch diameter pipeline connection to the George Bush Intercontinental Airport in Houston. In addition, our Pipeline System contains numerous lines, ranging in size from 6 inches to 20 inches in diameter, associated with the
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gathering and distribution system, extending from Baytown to Beaumont; Texas City to Baytown; Pasadena, Texas to Baytown and Baytown to Mont Belvieu.
Our Pipeline System continues eastward from Todhunter, Ohio, to Greensburg, Pennsylvania, at which point it branches into two segments, one ending in Selkirk, New York (near Albany), and the other ending at Marcus Hook, Pennsylvania (near Philadelphia). Our Pipeline System east of Todhunter and ending in Selkirk is an 8-inch diameter line, and the line starting at Greensburg and ending at Marcus Hook varies in diameter from 6 inches to 8 inches.
In 2003, we increased the delivery capability between Todhunter, Ohio, and Coshocton, Ohio, by 8,000 to 10,000 barrels per day and increased storage and improved loading capability at Oneonta, New York. In 2004, we also completed a Phase II project to further extend beyond Coshocton our delivery capacity of LPGs to the Northeast by 8,000 to 10,000 barrels per day. The Phase II expansion included the construction of three pump stations between Coshocton and Greensburg, Pennsylvania, and two stations from Greensburg to Watkins Glen, New York. Additional work on the pipeline segment between Greensburg and Philadelphia, Pennsylvania, to increase delivery rates to the Philadelphia area has been completed. Improvements were also completed during the fourth quarter of 2004 at our Dubois, Pennsylvania, terminal, and additional improvements are expected to be completed during the first quarter of 2005 at our Eagle, Pennsylvania, terminal.
We also own three 12-inch diameter common carrier petrochemical pipelines between Mont Belvieu and Port Arthur. Each of these pipelines is approximately 70 miles in length. The pipelines transport ethylene, propylene and natural gasoline. We entered into a 20-year agreement in 2002 with a major petrochemical producer for guaranteed throughput commitments. During the years ended December 31, 2004, 2003, and 2002, we recognized $12.0 million, $11.9 million and $11.9 million, respectively, of revenue under the throughput and deficiency contract.
We believe that our Pipeline System is in compliance with applicable federal, state and local laws and regulations and accepted industry standards and practices. We perform regular maintenance on all the facilities of our Pipeline System and have an ongoing process of inspecting our Pipeline System and making repairs and replacements when necessary or appropriate. In addition, we conduct periodic air patrols of our Pipeline System to monitor pipeline integrity and third-party right of way encroachments.
Our major operations are the transportation, storage and terminaling of refined petroleum products and LPGs along our mainline system. Product deliveries, in millions of barrels (MMBbls) on a regional basis, for the years ended December 31, 2004, 2003 and 2002, were as follows:
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Years Ended December 31, |
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||||
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2004 |
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2003 |
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2002 |
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Refined Products Mainline Transportation: |
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|
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Central (1) |
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69.0 |
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67.0 |
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62.9 |
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Midwest (2) |
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53.5 |
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57.7 |
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49.6 |
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Ohio and Kentucky |
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29.9 |
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29.4 |
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25.7 |
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Subtotal |
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152.4 |
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154.1 |
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138.2 |
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LPGs Mainline Transportation: |
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|
|
|
|
|
|
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Central, Midwest and Kentucky (1)(2) |
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27.0 |
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23.4 |
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25.4 |
|
|
Ohio and Northeast (3) |
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17.0 |
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19.1 |
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15.1 |
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Subtotal |
|
44.0 |
|
42.5 |
|
40.5 |
|
|
Total Product Deliveries |
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196.4 |
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196.6 |
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178.7 |
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(1) Arkansas, Louisiana, Missouri and Texas.
(2) Illinois and Indiana.
(3) New York and Pennsylvania.
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The mix of products delivered varies seasonally. Gasoline demand is generally stronger in the spring and summer months and LPGs demand is generally stronger in the fall and winter months. Weather and economic conditions in the geographic areas served by our Pipeline System also affect the demand for, and the mix of, the products delivered.
Refined products and LPGs deliveries in MMBbls for the years ended December 31, 2004, 2003 and 2002, were as follows:
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Years Ended December 31, |
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||||
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2004 |
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2003 |
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2002 |
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Refined Products Mainline Transportation: |
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|
|
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|
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Gasoline |
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89.3 |
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89.8 |
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81.9 |
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Jet Fuels |
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25.6 |
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26.4 |
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25.3 |
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Distillates (1) |
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37.5 |
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37.9 |
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31.0 |
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Subtotal |
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152.4 |
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154.1 |
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138.2 |
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LPGs Mainline Transportation: |
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|
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Propane |
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34.3 |
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34.5 |
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32.9 |
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Butanes |
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9.7 |
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8.0 |
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7.6 |
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