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EX-32.1 - EX-32.1 - PLAINS ALL AMERICAN PIPELINE LPpaa-20150630ex3210dbc64.htm
EX-12.1 - EX-12.1 - PLAINS ALL AMERICAN PIPELINE LPpaa-20150630ex121413ba9.htm
EX-32.2 - EX-32.2 - PLAINS ALL AMERICAN PIPELINE LPpaa-20150630ex322e7af25.htm
EX-31.2 - EX-31.2 - PLAINS ALL AMERICAN PIPELINE LPpaa-20150630ex3125a5cfd.htm
EX-31.1 - EX-31.1 - PLAINS ALL AMERICAN PIPELINE LPpaa-20150630ex311a968ca.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 1-14569

 


 

PLAINS ALL AMERICAN PIPELINE, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware

 

76-0582150

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

333 Clay Street, Suite 1600, Houston, Texas

 

77002

(Address of principal executive offices)

 

(Zip Code)

 

(713) 646-4100

(Registrant’s telephone number, including area code)

 


 

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 12 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   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  

 

Accelerated filer  

 

 

 

Non-accelerated filer  

 

Smaller reporting company  

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No

 

As of July 31, 2015, there were 397,680,214 Common Units outstanding.

 

 

 

 

 


 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

 

 

 

 

    

Page

 

PART I. FINANCIAL INFORMATION 

 

 

 

Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: 

 

 

 

Condensed Consolidated Balance Sheets: As of June 30, 2015 and December 31, 2014 

 

 

Condensed Consolidated Statements of Operations: For the three and six months ended June 30, 2015 and 2014 

 

 

Condensed Consolidated Statements of Comprehensive Income/(Loss): For the three and six months ended June 30, 2015 and 2014 

 

 

Condensed Consolidated Statements of Changes in Accumulated Other Comprehensive Income/(Loss): For the six months ended June 30, 2015 and 2014 

 

 

Condensed Consolidated Statements of Cash Flows: For the six months ended June 30, 2015 and 2014 

 

 

Condensed Consolidated Statements of Changes in Partners’ Capital: For the six months ended June 30, 2015 and 2014 

 

 

Notes to the Condensed Consolidated Financial Statements: 

 

 

 

1. Organization and Basis of Consolidation and Presentation 

 

 

2. Recent Accounting Pronouncements 

 

 

3. Net Income Per Limited Partner Unit 

 

10 

 

4. Accounts Receivable 

 

12 

 

5. Inventory, Linefill and Base Gas and Long-term Inventory 

 

13 

 

6. Debt 

 

14 

 

7. Partners’ Capital and Distributions 

 

15 

 

8. Derivatives and Risk Management Activities 

 

16 

 

9. Equity-Indexed Compensation Plans 

 

25 

 

10. Commitments and Contingencies 

 

26 

 

11. Operating Segments 

 

31 

 

12. Related Party Transactions 

 

32 

 

 

 

 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

34 

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

 

55 

 

Item 4. CONTROLS AND PROCEDURES 

 

57 

 

 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

Item 1. LEGAL PROCEEDINGS 

 

58 

 

Item 1A. RISK FACTORS 

 

58 

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 

 

58 

 

Item 3. DEFAULTS UPON SENIOR SECURITIES 

 

58 

 

Item 4. MINE SAFETY DISCLOSURES 

 

58 

 

Item 5. OTHER INFORMATION 

 

58 

 

Item 6. EXHIBITS 

 

58 

 

SIGNATURES 

 

59 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

Item 1.UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in

(in millions, except unit data)

 

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28

 

$

403

 

Trade accounts receivable and other receivables, net

 

 

2,688

 

 

2,615

 

Inventory

 

 

941

 

 

891

 

Other current assets

 

 

287

 

 

270

 

Total current assets

 

 

3,944

 

 

4,179

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

15,077

 

 

14,178

 

Accumulated depreciation

 

 

(2,049)

 

 

(1,906)

 

Property and equipment, net

 

 

13,028

 

 

12,272

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

Goodwill

 

 

2,442

 

 

2,465

 

Investments in unconsolidated entities

 

 

1,841

 

 

1,735

 

Linefill and base gas

 

 

976

 

 

930

 

Long-term inventory

 

 

159

 

 

186

 

Other long-term assets, net

 

 

494

 

 

489

 

Total assets

 

$

22,884

 

$

22,256

 

 

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

3,117

 

$

2,986

 

Short-term debt

 

 

915

 

 

1,287

 

Other current liabilities

 

 

442

 

 

482

 

Total current liabilities

 

 

4,474

 

 

4,755

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Senior notes, net of unamortized discount of $16 and $18, respectively

 

 

8,759

 

 

8,757

 

Other long-term debt

 

 

378

 

 

5

 

Other long-term liabilities and deferred credits

 

 

568

 

 

548

 

Total long-term liabilities

 

 

9,705

 

 

9,310

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARTNERS’ CAPITAL

 

 

 

 

 

 

 

Common unitholders (397,680,214 and 375,107,793 units outstanding, respectively)

 

 

8,280

 

 

7,793

 

General partner

 

 

367

 

 

340

 

Total partners’ capital excluding noncontrolling interests

 

 

8,647

 

 

8,133

 

Noncontrolling interests

 

 

58

 

 

58

 

Total partners’ capital

 

 

8,705

 

 

8,191

 

Total liabilities and partners’ capital

 

$

22,884

 

$

22,256

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per unit data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

    

2015

    

2014

    

2015

    

2014

    

 

 

(unaudited)

 

(unaudited)

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

Supply and Logistics segment revenues

 

$

6,346

 

$

10,856

 

$

11,978

 

$

22,201

 

Transportation segment revenues

 

 

180

 

 

195

 

 

366

 

 

376

 

Facilities segment revenues

 

 

137

 

 

144

 

 

261

 

 

301

 

Total revenues

 

 

6,663

 

 

11,195

 

 

12,605

 

 

22,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases and related costs

 

 

5,848

 

 

10,280

 

 

10,890

 

 

20,950

 

Field operating costs

 

 

417

 

 

360

 

 

763

 

 

696

 

General and administrative expenses

 

 

79

 

 

90

 

 

157

 

 

179

 

Depreciation and amortization

 

 

110

 

 

100

 

 

217

 

 

196

 

Total costs and expenses

 

 

6,454

 

 

10,830

 

 

12,027

 

 

22,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

209

 

 

365

 

 

578

 

 

857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME/(EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity earnings in unconsolidated entities

 

 

52

 

 

23

 

 

89

 

 

44

 

Interest expense (net of capitalized interest of $13,  $10,  $27 and $22, respectively)

 

 

(105)

 

 

(82)

 

 

(207)

 

 

(161)

 

Other income/(expense), net

 

 

1

 

 

4

 

 

(3)

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE TAX

 

 

157

 

 

310

 

 

457

 

 

742

 

Current income tax expense

 

 

(19)

 

 

(16)

 

 

(61)

 

 

(52)

 

Deferred income tax benefit/(expense)

 

 

(14)

 

 

(6)

 

 

12

 

 

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

124

 

 

288

 

 

408

 

 

672

 

Net income attributable to noncontrolling interests

 

 

 —

 

 

(1)

 

 

(1)

 

 

(1)

 

NET INCOME ATTRIBUTABLE TO PAA

 

$

124

 

$

287

 

$

407

 

$

671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO PAA:

 

 

 

 

 

 

 

 

 

 

 

 

 

LIMITED PARTNERS

 

$

(22)

 

$

166

 

$

116

 

$

435

 

GENERAL PARTNER

 

$

146

 

$

121

 

$

291

 

$

236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME/(LOSS) PER LIMITED PARTNER UNIT

 

$

(0.06)

 

$

0.45

 

$

0.29

 

$

1.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED NET INCOME/(LOSS) PER LIMITED PARTNER UNIT

 

$

(0.06)

 

$

0.45

 

$

0.29

 

$

1.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC WEIGHTED AVERAGE LIMITED PARTNER UNITS OUTSTANDING

 

 

397

 

 

365

 

 

390

 

 

363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED WEIGHTED AVERAGE LIMITED PARTNER UNITS OUTSTANDING

 

 

400

 

 

367

 

 

393

 

 

365

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

    

2015

    

2014

    

2015

    

2014

    

 

 

 

(unaudited)

 

(unaudited)

 

 

Net income

 

$

124

 

$

288

 

$

408

 

$

672

 

 

Other comprehensive income/(loss)

 

 

170

 

 

91

 

 

(206)

 

 

(45)

 

 

Comprehensive income

 

 

294

 

 

379

 

 

202

 

 

627

 

 

Comprehensive income attributable to noncontrolling interests

 

 

 —

 

 

(1)

 

 

(1)

 

 

(1)

 

 

Comprehensive income attributable to PAA

 

$

294

 

$

378

 

$

201

 

$

626

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Derivative

    

Translation

    

 

 

 

 

 

Instruments

 

Adjustments

 

Total

 

 

 

(unaudited)

 

Balance at December 31, 2014

 

$

(159)

 

$

(308)

 

$

(467)

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments

 

 

19

 

 

 —

 

 

19

 

Deferred gain on cash flow hedges, net of tax

 

 

20

 

 

 —

 

 

20

 

Currency translation adjustments

 

 

 —

 

 

(245)

 

 

(245)

 

Total period activity

 

 

39

 

 

(245)

 

 

(206)

 

Balance at June 30, 2015

 

$

(120)

 

$

(553)

 

$

(673)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Derivative

    

Translation

    

 

 

 

 

 

Instruments

 

Adjustments

 

Total

 

 

 

(unaudited)

 

Balance at December 31, 2013

 

$

(77)

 

$

(20)

 

$

(97)

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustments

 

 

10

 

 

 —

 

 

10

 

Deferred loss on cash flow hedges, net of tax

 

 

(51)

 

 

 —

 

 

(51)

 

Currency translation adjustments

 

 

 —

 

 

(4)

 

 

(4)

 

Total period activity

 

 

(41)

 

 

(4)

 

 

(45)

 

Balance at June 30, 2014

 

$

(118)

 

$

(24)

 

$

(142)

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

    

2015

    

2014

    

 

 

(unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

 

$

408

 

$

672

 

Reconciliation of net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

217

 

 

196

 

Equity-indexed compensation expense

 

 

36

 

 

68

 

Inventory valuation adjustments

 

 

24

 

 

37

 

Deferred income tax (benefit)/expense

 

 

(12)

 

 

18

 

Gain on sales of linefill and base gas

 

 

 —

 

 

(8)

 

Gain on foreign currency revaluation

 

 

(26)

 

 

(5)

 

Settlement of terminated interest rate hedging instruments

 

 

(29)

 

 

(7)

 

Equity earnings in unconsolidated entities

 

 

(89)

 

 

(44)

 

Distributions from unconsolidated entities

 

 

102

 

 

51

 

Other

 

 

(11)

 

 

5

 

Changes in assets and liabilities, net of acquisitions

 

 

40

 

 

(20)

 

Net cash provided by operating activities

 

 

660

 

 

963

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Cash paid in connection with acquisitions, net of cash acquired

 

 

(64)

 

 

(2)

 

Additions to property, equipment and other

 

 

(1,031)

 

 

(918)

 

Investment in unconsolidated entities

 

 

(119)

 

 

(67)

 

Cash received for sales of linefill and base gas

 

 

 —

 

 

23

 

Cash paid for purchases of linefill and base gas

 

 

(125)

 

 

(140)

 

Proceeds from sales of assets

 

 

2

 

 

3

 

Other investing activities

 

 

(6)

 

 

 —

 

Net cash used in investing activities

 

 

(1,343)

 

 

(1,101)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Net borrowings/(repayments) under commercial paper program (Note 6)

 

 

151

 

 

(344)

 

Proceeds from the issuance of senior notes (Note 6)

 

 

 —

 

 

698

 

Repayments of senior notes (Note 6)

 

 

(149)

 

 

 —

 

Net proceeds from the issuance of common units (Note 7)

 

 

1,099

 

 

444

 

Contributions from general partner

 

 

23

 

 

9

 

Distributions paid to common unitholders (Note 7)

 

 

(526)

 

 

(450)

 

Distributions paid to general partner (Note 7)

 

 

(284)

 

 

(222)

 

Distributions paid to noncontrolling interests

 

 

(1)

 

 

(1)

 

Other financing activities

 

 

(4)

 

 

(10)

 

Net cash provided by financing activities

 

 

309

 

 

124

 

 

 

 

 

 

 

 

 

Effect of translation adjustment on cash

 

 

(1)

 

 

 —

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(375)

 

 

(14)

 

Cash and cash equivalents, beginning of period

 

 

403

 

 

41

 

Cash and cash equivalents, end of period

 

$

28

 

$

27

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

190

 

$

161

 

Income taxes, net of amounts refunded

 

$

30

 

$

104

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

Partners’ Capital

    

    

 

    

    

 

 

 

 

 

 

 

 

 

 

 

 

Excluding

 

 

 

 

Total

 

 

 

Common Units

 

General

 

Noncontrolling

 

Noncontrolling

 

Partners’

 

 

 

Units

 

Amount

 

Partner

 

Interests

 

Interests

 

Capital

 

 

 

(unaudited)

 

Balance at December 31, 2014

 

375.1

 

$

7,793

 

$

340

 

$

8,133

 

$

58

 

$

8,191

 

Net income

 

 —

 

 

116

 

 

291

 

 

407

 

 

1

 

 

408

 

Distributions

 

 —

 

 

(526)

 

 

(284)

 

 

(810)

 

 

(1)

 

 

(811)

 

Issuance of common units

 

22.1

 

 

1,099

 

 

22

 

 

1,121

 

 

 —

 

 

1,121

 

Issuance of common units under LTIP

 

0.5

 

 

 —

 

 

1

 

 

1

 

 

 —

 

 

1

 

Settlement of employee income tax withholding obligations under LTIP

 

 —

 

 

(13)

 

 

 —

 

 

(13)

 

 

 —

 

 

(13)

 

Equity-indexed compensation expense

 

 —

 

 

16

 

 

1

 

 

17

 

 

 —

 

 

17

 

Distribution equivalent right payments

 

 —

 

 

(3)

 

 

 —

 

 

(3)

 

 

 —

 

 

(3)

 

Other comprehensive loss

 

 —

 

 

(202)

 

 

(4)

 

 

(206)

 

 

 —

 

 

(206)

 

Balance at June 30, 2015

 

397.7

 

$

8,280

 

$

367

 

$

8,647

 

$

58

 

$

8,705

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

 

    

    

 

    

Partners’ Capital

    

    

 

    

    

 

 

 

 

 

 

 

 

 

 

 

 

Excluding

 

 

 

 

Total

 

 

 

Common Units

 

General

 

Noncontrolling

 

Noncontrolling

 

Partners’

 

 

 

Units

 

Amount

 

Partner

 

Interests

 

Interests

 

Capital

 

 

 

(unaudited)

 

Balance at December 31, 2013

 

359.1

 

$

7,349

 

$

295

 

$

7,644

 

$

59

 

$

7,703

 

Net income

 

 —

 

 

435

 

 

236

 

 

671

 

 

1

 

 

672

 

Distributions

 

 —

 

 

(450)

 

 

(222)

 

 

(672)

 

 

(1)

 

 

(673)

 

Issuance of common units

 

8.1

 

 

444

 

 

9

 

 

453

 

 

 —

 

 

453

 

Issuance of common units under LTIP

 

0.6

 

 

1

 

 

1

 

 

2

 

 

 —

 

 

2

 

Settlement of employee income tax withholding obligations under LTIP

 

 —

 

 

(19)

 

 

 —

 

 

(19)

 

 

 —

 

 

(19)

 

Equity-indexed compensation expense

 

 —

 

 

19

 

 

4

 

 

23

 

 

 —

 

 

23

 

Distribution equivalent right payments

 

 —

 

 

(3)

 

 

 —

 

 

(3)

 

 

 —

 

 

(3)

 

Other comprehensive loss

 

 —

 

 

(44)

 

 

(1)

 

 

(45)

 

 

 —

 

 

(45)

 

Other

 

 —

 

 

(1)

 

 

 —

 

 

(1)

 

 

 —

 

 

(1)

 

Balance at June 30, 2014

 

367.8

 

$

7,731

 

$

322

 

$

8,053

 

$

59

 

$

8,112

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1—Organization and Basis of Consolidation and Presentation

 

Organization

 

Plains All American Pipeline, L.P. (“PAA”) is a Delaware limited partnership formed in 1998. Our operations are conducted directly and indirectly through our primary operating subsidiaries. As used in this Form 10-Q and unless the context indicates otherwise, the terms “Partnership,” “we,” “us,” “our,” “ours” and similar terms refer to PAA and its subsidiaries.

 

We own and operate midstream energy infrastructure and provide logistics services for crude oil, natural gas liquids (“NGL”), natural gas and refined products. We own an extensive network of pipeline transportation, terminalling, storage and gathering assets in key crude oil and NGL producing basins and transportation corridors and at major market hubs in the United States and Canada. Our business activities are conducted through three operating segments: Transportation, Facilities and Supply and Logistics. See Note 11 for further discussion of our operating segments.

 

Our 2% general partner interest is held by PAA GP LLC, a Delaware limited liability company, whose sole member is Plains AAP, L.P. (“AAP”), a Delaware limited partnership. In addition to its ownership of PAA GP LLC, AAP also owns all of our incentive distribution rights (“IDRs”). Plains All American GP LLC (“GP LLC”), a Delaware limited liability company, is AAP’s general partner. Plains GP Holdings, L.P. (“PAGP”) is the sole member of GP LLC, and at June 30, 2015, owned an approximate 37% limited partner interest in AAP.

 

GP LLC manages our operations and activities and employs our domestic officers and personnel. Our Canadian officers and personnel are employed by our subsidiary, Plains Midstream Canada ULC (“PMC”). References to our “general partner,” as the context requires, include any or all of PAA GP LLC, AAP and GP LLC.

 

Definitions

 

Additional defined terms are used in this Form 10-Q and shall have the meanings indicated below:

 

AOCI

=

Accumulated other comprehensive income/(loss)

Bcf

=

Billion cubic feet

Btu

=

British thermal unit

CAD

=

Canadian dollar

DERs

=

Distribution equivalent rights

EPA

=

United States Environmental Protection Agency

FASB

=

Financial Accounting Standards Board

GAAP

=

Generally accepted accounting principles in the United States

ICE

=

Intercontinental Exchange

LIBOR

=

London Interbank Offered Rate

LTIP

=

Long-term incentive plan

Mcf

=

Thousand cubic feet

MLP

=

Master limited partnership

NGL

=

Natural gas liquids, including ethane, propane and butane

NYMEX

=

New York Mercantile Exchange

Oxy

=

Occidental Petroleum Corporation or its subsidiaries

PLA

=

Pipeline loss allowance

SEC

=

United States Securities and Exchange Commission

USD

=

United States dollar

WTI

=

West Texas Intermediate

 

8


 

Basis of Consolidation and Presentation

 

The accompanying unaudited condensed consolidated interim financial statements and related notes thereto should be read in conjunction with our 2014 Annual Report on Form 10-K. The accompanying condensed consolidated financial statements include the accounts of PAA and all of its wholly owned subsidiaries and those entities that it controls. Investments in entities over which we have significant influence but not control are accounted for by the equity method. The financial statements have been prepared in accordance with the instructions for interim reporting as set forth by the SEC. All adjustments (consisting only of normal recurring adjustments) that in the opinion of management were necessary for a fair statement of the results for the interim periods have been reflected. All significant intercompany transactions have been eliminated in consolidation, and certain reclassifications have been made to information from previous years to conform to the current presentation. These reclassifications do not affect net income attributable to PAA. The condensed consolidated balance sheet data as of December 31, 2014 was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three and six months ended June 30, 2015 should not be taken as indicative of results to be expected for the entire year.

 

Subsequent events have been evaluated through the financial statements issuance date and have been included in the following footnotes where applicable.

 

Note 2—Recent Accounting Pronouncements

 

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs in entities’ financial statements. Under this revised guidance, an entity will present such costs as a direct reduction from the related debt liability (rather than as an asset under current guidance). Additionally, amortization of the debt issuance costs will be reported as interest expense. This guidance will become effective for interim and annual periods beginning after December 15, 2015 and will be adopted retrospectively to all prior periods. Early adoption is permitted for financial statements that have not been previously issued. We expect to adopt this guidance on January 1, 2016, and we are currently evaluating the effect that adopting this guidance will have on our financial position, results of operations and cash flows.

 

In February 2015, the FASB issued guidance that revises the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Among other things, this guidance (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) affects the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships. This guidance will become effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We expect to adopt this guidance on January 1, 2016, and we are currently evaluating the effect that adopting this guidance will have on our financial position, results of operations and cash flows.

 

In January 2015, as part of its initiative to reduce complexity in accounting standards, the FASB issued guidance to eliminate the concept of extraordinary items from GAAP. This guidance will become effective for interim and annual periods beginning after December 15, 2015. We expect to adopt this guidance on January 1, 2016. We do not believe our adoption will have a material impact on our financial position, results of operations or cash flows.

 

In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers with the underlying principle that an entity will recognize revenue to reflect amounts expected to be received in exchange for the provision of goods and services to customers upon the transfer of those goods or services. The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and the related cash flows. This guidance can be adopted either with a full retrospective approach or a modified retrospective approach with a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to approve a one-year deferral of the effective date of this standard, with final guidance expected to be issued by the end of the third quarter of 2015. This deferral would make the guidance effective for interim and annual periods beginning after December 15, 2017. Therefore, we  currently expect to adopt this guidance on January 1, 2018, and we are evaluating which transition

9


 

approach to apply and the effect that adopting this guidance will have on our financial position, results of operations and cash flows. 

 

In April 2014, the FASB issued guidance that modifies the criteria under which assets to be disposed of are evaluated to determine if such assets qualify as a discontinued operation and requires new disclosures for both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This guidance is effective prospectively for annual and interim reporting periods beginning after December 15, 2014. We adopted this guidance on January 1, 2015. Our adoption did not have a material impact on our financial position, results of operations or cash flows.

 

Note 3—Net Income Per Limited Partner Unit

 

Basic and diluted net income per limited partner unit is determined pursuant to the two-class method for MLPs as prescribed in FASB guidance. The two-class method is an earnings allocation formula that is used to determine earnings to our general partner, common unitholders and participating securities according to distributions pertaining to the current period’s net income and participation rights in undistributed earnings. Under this method, all earnings are allocated to our general partner, common unitholders and participating securities based on their respective rights to receive distributions, regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective.

 

We calculate basic and diluted net income per limited partner unit by dividing net income attributable to PAA (after deducting the amount allocated to the general partner’s interest, IDRs and participating securities) by the basic and diluted weighted-average number of limited partner units outstanding during the period. Participating securities include LTIP awards that have vested DERs, which entitle the grantee to a cash payment equal to the cash distribution paid on our outstanding common units.

 

Diluted net income per limited partner unit is computed based on the weighted average number of limited partner units plus the effect of dilutive potential limited partner units outstanding during the period using the two-class method. Our LTIP awards that contemplate the issuance of common units are considered dilutive unless (i) vesting occurs only upon the satisfaction of a performance condition and (ii) that performance condition has yet to be satisfied.  LTIP awards that are deemed to be dilutive are reduced by a hypothetical limited partner unit repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in guidance issued by the FASB. See Note 16 to our Consolidated Financial Statements included in Part IV of our 2014 Annual Report on Form 10-K for a complete discussion of our LTIP awards including specific discussion regarding DERs.

 

10


 

The following table sets forth the computation of basic and diluted net income/(loss) per limited partner unit for the periods indicated (in millions, except per unit data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Basic Net Income per Limited Partner Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to PAA

 

$

124

 

$

287

 

$

407

 

$

671

 

Less: General partner’s incentive distribution (1)

 

 

(146)

 

 

(117)

 

 

(289)

 

 

(227)

 

Less: General partner 2% ownership (1)

 

 

 —

 

 

(4)

 

 

(2)

 

 

(9)

 

Net income/(loss) attributable to limited partners

 

 

(22)

 

 

166

 

 

116

 

 

435

 

Less: Undistributed earnings allocated and distributions to participating securities (1)

 

 

(1)

 

 

(1)

 

 

(3)

 

 

(3)

 

Net income/(loss) attributable to limited partners in accordance with application of the two-class method for MLPs

 

$

(23)

 

$

165

 

$

113

 

$

432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

397

 

 

365

 

 

390

 

 

363

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income/(loss) per limited partner unit

 

$

(0.06)

 

$

0.45

 

$

0.29

 

$

1.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Net Income per Limited Partner Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to PAA

 

$

124

 

$

287

 

$

407

 

$

671

 

Less: General partner’s incentive distribution (1)

 

 

(146)

 

 

(117)

 

 

(289)

 

 

(227)

 

Less: General partner 2% ownership (1)

 

 

 —

 

 

(4)

 

 

(2)

 

 

(9)

 

Net income/(loss) attributable to limited partners

 

 

(22)

 

 

166

 

 

116

 

 

435

 

Less: Undistributed earnings allocated and distributions to participating securities (1)

 

 

(1)

 

 

(1)

 

 

(3)

 

 

(3)

 

Net income/(loss) attributable to limited partners in accordance with application of the two-class method for MLPs

 

$

(23)

 

$

165

 

$

113

 

$

432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average limited partner units outstanding

 

 

397

 

 

365

 

 

390

 

 

363

 

Effect of dilutive securities: Weighted average LTIP units

 

 

3

 

 

2

 

 

3

 

 

2

 

Diluted weighted average limited partner units outstanding

 

 

400

 

 

367

 

 

393

 

 

365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income/(loss) per limited partner unit

 

$

(0.06)

 

$

0.45

 

$

0.29

 

$

1.18

 

 


(1)

We calculate net income attributable to limited partners based on the distributions pertaining to the current period’s net income. After adjusting for the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, limited partners and participating securities in accordance with the contractual terms of the partnership agreement and as further prescribed under the two-class method.

 

Pursuant to the terms of our partnership agreement, the general partner’s incentive distribution is limited to a percentage of available cash, which, as defined in the partnership agreement, is net of reserves deemed appropriate. As such, IDRs are not allocated undistributed earnings or distributions in excess of earnings in the calculation of net income per limited partner unit. If, however, undistributed earnings were allocated to our IDRs beyond amounts distributed to them under the terms of our partnership agreement, basic and diluted net income/(loss) per limited partner unit as reflected in the table above would not have been impacted, as we did not have undistributed earnings for any of the periods presented.

 

11


 

Note 4—Accounts Receivable

 

Our accounts receivable are primarily from purchasers and shippers of crude oil and, to a lesser extent, purchasers of NGL and natural gas. These purchasers include, but are not limited to, refiners, producers, marketing and trading companies and financial institutions that are active in the physical and financial commodity markets. The majority of our accounts receivable relate to our crude oil supply and logistics activities that can generally be described as high volume and low margin activities, in many cases involving exchanges of crude oil volumes.

 

To mitigate credit risk related to our accounts receivable, we utilize a rigorous credit review process. We closely monitor market conditions to make a determination with respect to the amount, if any, of open credit to be extended to any given customer and the form and amount of financial performance assurances we require. Such financial assurances are commonly provided to us in the form of advance cash payments, standby letters of credit or parental guarantees. As of June 30, 2015 and December 31, 2014, we had received $115 million and $180 million, respectively, of advance cash payments from third parties to mitigate credit risk. We also received $77 million and $198 million, as of June 30, 2015 and December 31, 2014, respectively, of standby letters of credit to support obligations due from third parties, a portion of which applies to future business. The decrease in standby letters of credit and advance cash payments from third parties as of June 30, 2015 compared to December 31, 2014 is largely due to a decrease in exposure to various customers requiring letters of credit. Additionally, in an effort to mitigate credit risk, a significant portion of our transactions with counterparties are settled on a net-cash basis. Furthermore, we also enter into netting agreements (contractual agreements that allow us to offset receivables and payables with those counterparties against each other on our balance sheet) for a majority of such arrangements.

 

We review all outstanding accounts receivable balances on a monthly basis and record a reserve for amounts that we expect will not be fully recovered. We do not apply actual balances against the reserve until we have exhausted substantially all collection efforts. At June 30, 2015 and December 31, 2014, substantially all of our trade accounts receivable (net of allowance for doubtful accounts) were less than 30 days past their scheduled invoice date. Our allowance for doubtful accounts receivable totaled $4 million as of both June 30, 2015 and December 31, 2014.  Although we consider our allowance for doubtful accounts receivable to be adequate, actual amounts could vary significantly from estimated amounts.

12


 

Note 5—Inventory, Linefill and Base Gas and Long-term Inventory

 

Inventory, linefill and base gas and long-term inventory consisted of the following as of the dates indicated (barrels and natural gas volumes in thousands and carrying value in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015