<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
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.)
500 DALLAS STREET
HOUSTON, TEXAS 77002
(Address of principal executive offices)
(Zip Code)
(713) 654-1414
(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 |X| NO ______
At August 11, 1999, there were outstanding 20,059,239 Common Units, 1,307,190
Class B Common Units and 10,029,619 Subordinated Units.
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS:
Consolidated Balance Sheets:
June 30, 1999 and December 31, 1998.................................................. 3
Consolidated and Combined Statements of Income:
For the three and six months ended June 30, 1999 and 1998 (Predecessor) ............. 4
Consolidated and Combined Statements of Cash Flows:
For the six months ended June 30, 1999 and 1998 (Predecessor) ....................... 5
Notes to Consolidated and Combined Financial Statements................................. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS.......................................................... 10
PART II. OTHER INFORMATION .................................................................. 20
</TABLE>
Page 2 of 21
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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31,
1999 1998
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,133 $ 5,503
Accounts receivable 343,393 119,514
Inventory 55,707 37,711
Prepaid expenses and other 2,111 1,101
--------------- ----------------
Total current assets 413,344 163,829
--------------- ----------------
PROPERTY AND EQUIPMENT
Crude oil pipeline, gathering and terminal assets 507,770 378,254
Other property and equipment 2,209 581
--------------- ----------------
509,979 378,835
Less allowance for depreciation and amortization (6,432) (799)
--------------- ----------------
503,547 378,036
--------------- ----------------
OTHER ASSETS
Pipeline linefill 70,572 54,511
Other 19,323 10,810
--------------- ----------------
$ 1,006,786 $ 607,186
--------------- ----------------
--------------- ----------------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 370,500 $ 136,980
Due to affiliates 16,482 7,768
Notes payable and current maturities of long-term debt 22,650 9,750
--------------- ----------------
Total current liabilities 409,632 154,498
LONG-TERM LIABILITIES
Bank debt 289,350 175,000
Other 1,264 45
--------------- ----------------
Total liabilities 700,246 329,543
--------------- ----------------
PARTNERS' CAPITAL
Common unitholders (20,059,239 units outstanding at June 30, 1999
and December 31, 1998) 259,184 256,997
Class B Common unitholders (1,307,190 units outstanding at June 30, 1999) 25,295 -
Subordinated unitholders (10,029,619 units outstanding at June 30, 1999
and December 31, 1998) 20,546 19,454
General Partner 1,515 1,192
--------------- ----------------
306,540 277,643
--------------- ----------------
$ 1,006,786 $ 607,186
--------------- ----------------
--------------- ----------------
</TABLE>
See notes to consolidated and combined financial statements.
Page 3 of 21
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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
REVENUES $ 862,524 $ 163,222 $ 1,318,284 $ 330,683
COST OF SALES AND OPERATIONS 836,312 158,026 1,272,244 321,483
---------------- ---------------- ---------------- ----------------
Gross Margin 26,212 5,196 46,040 9,200
---------------- ---------------- ---------------- ----------------
EXPENSES
General and administrative 5,769 1,055 7,947 2,041
Depreciation and amortization 3,840 318 6,671 621
---------------- ---------------- ---------------- ----------------
Total expenses 9,609 1,373 14,618 2,662
---------------- ---------------- ---------------- ----------------
Operating income 16,603 3,823 31,422 6,538
Interest expense 4,720 179 7,913 328
Related party interest expense - 750 - 1,500
Other expense - - 410 -
Interest and other income (190) (404) (287) (581)
---------------- ---------------- ---------------- ----------------
Net income before provision
in lieu of income taxes 12,073 3,298 23,386 5,291
Provision in lieu of income taxes - 1,284 - 2,037
---------------- ---------------- ---------------- ----------------
NET INCOME $ 12,073 $ 2,014 $ 23,386 $ 3,254
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
NET INCOME - LIMITED PARTNERS $ 11,832 $ 1,974 $ 22,918 $ 3,189
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
NET INCOME - GENERAL PARTNER $ 241 $ 40 $ 468 $ 65
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
BASIC AND DILUTED NET INCOME
PER LIMITED PARTNER UNIT $ 0.38 $ 0.12 $ 0.75 $ 0.19
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
WEIGHTED AVERAGE UNITS
OUTSTANDING 30,807 17,004 30,450 17,004
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
See notes to consolidated and combined financial statements.
Page 4 of 21
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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------------
1999 1998
---------------- ----------------
(PREDECESSOR)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,386 $ 3,254
Items not affecting cash flows
from operating activities:
Depreciation and amortization 6,671 621
Change in payable in lieu of deferred taxes - 783
Other non cash items 182 -
Change in assets and liabilities:
Accounts receivable (74,788) 6,673
Inventory (1,176) (9,066)
Prepaid expenses and other 966 146
Accounts payable and other current liabilities 60,233 (5,395)
Pipeline linefill (3) -
---------------- ----------------
Net cash provided by (used in) operating activities 15,471 (2,984)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Costs incurred in connection with acquisitions (see Note 2) (141,971) -
Additions to property and equipment (4,832) (455)
Disposals of property and equipment 155 1
Additions to other assets (158) (52)
---------------- ----------------
Net cash used in investing activities (146,806) (506)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliates 8,731 4,166
Proceeds from issuance of Class B Common Units 25,000 -
Proceeds from long-term debt 187,621 -
Proceeds from short-term debt 24,150 17,900
Principal payments of long-term debt (72,621) -
Principal payments of short-term debt (11,900) (18,000)
Costs incurred for issuance of long-term debt in
connection with acquisitions (3,527) -
Capital contribution from General Partner 252 -
Capital contribution from parent - 28,701
Distributions to unitholders (19,741) -
---------------- ----------------
Net cash provided by financing activities 137,965 32,767
---------------- ----------------
Net increase in cash and cash equivalents 6,630 29,277
Cash and cash equivalents, beginning of period 5,503 2
---------------- ----------------
Cash and cash equivalents, end of period $ 12,133 $ 29,279
---------------- ----------------
---------------- ----------------
</TABLE>
See notes to consolidated and combined financial statements.
Page 5 of 21
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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND ACCOUNTING POLICIES
Plains All American Pipeline, L.P. (the "Partnership" or "PAA") is a
Delaware limited partnership formed in the third quarter of 1998, to acquire
and operate the midstream crude oil business and assets of Plains Resources
Inc. ("Plains Resources") and its wholly owned subsidiaries (the "Plains
Midstream Subsidiaries" or the "Predecessor"). On November 23, 1998, the
Partnership completed the initial public offering ("IPO") and the
transactions whereby the Partnership became the successor to the business of
the Predecessor. The operations of the Partnership are conducted through
Plains Marketing, L.P., All American Pipeline, L.P. and Plains Scurlock
Permian, L.P. ("Plains Scurlock"). Plains All American Inc. ("PAAI"), a
wholly owned subsidiary of Plains Resources, is the general partner ("General
Partner") of the Partnership. The Partnership is engaged in interstate and
intrastate crude oil pipeline transportation and crude oil gathering and
marketing activities and terminalling and storage activities. The
Partnership's operations are primarily conducted in California, Texas,
Oklahoma, Louisiana and the Gulf of Mexico.
The accompanying financial statements and related notes present the
consolidated financial position as of June 30, 1999, of the Partnership and
the results of its operations for the three and six months ended June 30,
1999 and its cash flows for the six months ended June 30, 1999. The combined
financial statements of the Predecessor include the accounts of the Plains
Midstream Subsidiaries.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for interim financial reporting as
prescribed by the Securities and Exchange Commission ("SEC"). For further
information, refer to the consolidated and combined financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1998, filed with the SEC. All material
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management were necessary for a fair statement of the results for
the interim periods, have been reflected. The results for the three and six
months ended June 30, 1999 are not necessarily indicative of the final
results to be expected for the full year. Certain reclassifications have been
made to the prior year statements to conform to the current year
presentation. All significant intercompany transactions have been eliminated.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 is
effective for fiscal years beginning after June 15, 2000. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if so, the type
of hedge transaction. For fair value hedge transactions in which the
Partnership is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash flow hedge transactions, in which the
Partnership is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in the
fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument that
are reported in other comprehensive income will be reclassified as earnings
in the periods in which earnings are affected by the variability of the cash
flows of the hedged item. The Partnership is required to adopt this statement
beginning in 2001. The Partnership has not yet determined the effect that the
adoption of SFAS 133 will have on its financial position or results of
operations.
NOTE 2 -- ACQUISITIONS
SCURLOCK ACQUISITION
On May 12, 1999, Plains Scurlock, a limited partnership of which PAAI is
the general partner and Plains Marketing, L.P. is the limited partner,
completed the acquisition of Scurlock Permian LLC ("Scurlock") and certain
other pipeline assets (the "Scurlock Acquisition") from Marathon Ashland
Petroleum LLC ("MAP"). Including working capital adjustments and associated
closing and financing costs, the cash purchase price was approximately $141
million.
Page 6 of 21
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Scurlock, previously a wholly owned subsidiary of MAP, is engaged in
crude oil transportation, trading and marketing, operating in 14 states with
more than 2,400 miles of active pipelines, numerous storage terminals and a
fleet of more than 225 trucks. Its largest asset is an 800-mile pipeline and
gathering system located in the Spraberry Trend in West Texas that extends
into Andrews, Glasscock, Martin, Midland, Regan and Upton Counties, Texas.
The assets acquired also include approximately 2.4 million barrels of crude
oil.
Financing for the Scurlock Acquisition was provided through (i) a
borrowing of approximately $92 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A. (the "Plains Scurlock Credit
Facility"), (ii) the sale to the General Partner of 1.3 million Class B
Common Units ("Class B Units") of PAA at $19.125 per unit, the price equal to
the market value of PAA's common units ("Common Units") on May 12, 1999, for
a total cash consideration of $25 million and (iii) a $25 million draw under
PAA's existing revolving credit agreement.
The Plains Scurlock Credit Facility consists of (i) a five-year $126.6
million term loan and (ii) a three-year $35 million revolving credit
facility. The Plains Scurlock Credit Facility is nonrecourse to PAA, Plains
Marketing, L.P. and All American Pipeline, L.P. and is secured by the assets
acquired. Borrowings under the term loan bear interest at the London
Interbank Offering Rate ("LIBOR") plus 3% and under the revolving credit
facility at LIBOR plus 2.75%. A commitment fee equal to one-half of one
percent per year is charged on the unused portion of the revolving credit
facility. The revolving credit facility, which may be used for borrowings or
letters of credit to support crude oil purchases, matures in May 2002. The
term loan provides for principal amortization of $0.7 million annually
beginning May 2000, with a final maturity of May 2004. As of June 30, 1999,
letters of credit of approximately $15.2 million were outstanding under the
revolver and borrowings of $90 million were outstanding under the term loan.
The Class B Units are initially pari passu with Common Units with
respect to distributions, and after six months are convertible into Common
Units upon approval of a majority of Common Unitholders. After such six month
period, the Class B Unitholder may request that PAA call a meeting of Common
Unitholders to consider approval of the conversion of Class B Units into
Common Units. If the approval of such conversion by the Common Unitholders is
not obtained within 120 days of such request (the "Initial Approval Period"),
the Class B Unitholders will be entitled to receive distributions, on a per
Unit basis, equal to 110% of the amount of distributions paid on a Common
Unit, with such distribution right increasing to 115% if such approval is not
secured within 90 days after the end of the Initial Approval Period. Except
for the vote to approve the conversion, Class B Units have the same voting
rights as the Common Units.
The assets, liabilities and results of operations of Scurlock are
included in the Consolidated Financial Statements of the Partnership
effective May 1, 1999. The Scurlock Acquisition has been accounted for using
the purchase method of accounting and the purchase price was allocated in
accordance with Accounting Principles Board Opinion No. 16, Business
Combinations ("APB 16") as follows:
<TABLE>
<CAPTION>
in thousands
<S> <C>
Crude oil pipeline, gathering and terminal assets $ 124,615
Other property and equipment 1,546
Pipeline linefill 16,057
Other assets (debt issue costs) 3,100
Environmental accrual (1,000)
Net working capital items (3,090)
-------------
Cash paid $ 141,228
-------------
-------------
</TABLE>
The purchase price allocation was based on preliminary estimates of fair
value and is subject to adjustment as additional information becomes
available and is evaluated. The purchase accounting entries include a $1.0
million accrual for estimated environmental remediation costs. Under the
agreement for the sale of Scurlock by MAP to Plains Scurlock, MAP has agreed
to indemnify and hold harmless Scurlock and Plains Scurlock for claims,
liabilities and losses (collectively "Losses") resulting from any act or
omission attributable to Scurlock's business or properties occurring prior to
the date of the closing of such sale to the extent the aggregate amount of
such Losses exceed $1.0 million; provided however, that claims for such
Losses must individually exceed $25,000 and must be asserted by Scurlock
against MAP on or before May 15, 2003.
Page 7 of 21
<PAGE>
CHEVRON ASSET ACQUISITION
On July 15, 1999, Plains Scurlock completed the acquisition of a West
Texas crude oil pipeline and gathering system from Chevron Pipe Line Company
for approximately $36.6 million, including transaction costs (the "Chevron
Asset Acquisition"). The principal assets acquired include approximately 450
miles of crude oil transmission mainlines, approximately 340 miles of
associated gathering and lateral lines and approximately three million
barrels of crude oil storage and terminalling capacity in Crane, Ector,
Midland, Upton, Ward and Winkler Counties, Texas. Financing for the Chevron
Asset Acquisition was provided by a draw of $36.6 million under the term loan
portion of the Plains Scurlock Credit Facility.
Chevron U.S.A Inc., which currently transports approximately 24,000
barrels of crude oil per day on the system, will continue to transport its
equity crude oil production from the region on the system under a twelve-year
contractual arrangement.
PRO FORMA RESULTS FOR THE SCURLOCK ACQUISITION AND ALL AMERICAN PIPELINE
ACQUISITION
The following unaudited pro forma data is presented to show pro forma
revenues, net income and basic and diluted net income per limited partner
unit as if the Scurlock Acquisition, which was effective May 1, 1999, and the
acquisition of the All American Pipeline and the Celeron Gathering System
(the "All American Acquisition"), which was effective July 30, 1998 had both
occurred on January 1, 1998. The results for the six month period 1998 do not
reflect certain pro forma adjustments as if the Partnership had been formed
on January 1, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ 2,367,672 $ 2,440,595
------------- -------------
------------- -------------
Net income $ 31,250 $ 6,401
------------- -------------
------------- -------------
Basic and diluted net income
per limited partner unit $ 0.98 $ 0.34
------------- -------------
------------- -------------
</TABLE>
NOTE 3 -- DISTRIBUTIONS
On February 12, 1999, the Partnership paid a cash distribution of $0.193
per unit on its outstanding Common Units and Subordinated Units. The
distribution was paid to Unitholders of record at the close of business on
January 29, 1999. The total distribution paid was approximately $5.9 million,
with approximately $2.5 million paid to the Partnership's public Unitholders,
and the remainder paid to the General Partner for its limited partner and
general partner interests. The distribution represented a partial quarterly
distribution for the 39-day period from November 23, 1998, the closing of the
IPO, through December 31, 1998.
On May 14, 1999, the Partnership paid a cash distribution of $0.45 per
unit on its outstanding Common Units and Subordinated Units. The distribution
was paid to holders of record of Common Units and Subordinated Units at the
close of business on May 3, 1999. The total distribution paid was
approximately $13.8 million, with approximately $5.9 million paid to the
Partnership's public Unitholders, and the remainder paid to the General
Partner for its limited partner and general partner interests. This
distribution was the first full quarterly distribution since the Partnership
was formed.
On July 22, 1999, the Partnership declared a cash distribution of
$0.4625 per Unit on its outstanding Common Units, Class B Units and
Subordinated Units. The distribution is payable on August 13, 1999, to
holders of record of such Units on August 3, 1999. The total distribution to
be paid is approximately $14.9 million, with approximately $6.1 million to be
paid to the Partnership's public Unitholders and the remainder to be paid to
the General Partner for its limited and general partner interests. This
distribution represents an increase of $.0125 per unit over the minimum
quarterly distribution of $0.45 per unit.
Page 8 of 21
<PAGE>
NOTE 4 -- OPERATING SEGMENTS
The Partnership's operations consist of two operating segments: (i)
Pipeline Operations - engages in interstate and intrastate crude oil pipeline
transportation and related gathering and marketing activities; (ii)
Marketing, Gathering, Terminalling and Storage Operations - engages in crude
oil marketing, gathering, terminalling and storage activities other than
related to Pipeline Operations. Prior to the July 1998 All American
Acquisition, the Predecessor had only marketing, gathering, terminalling and
storage operations; thus, no prior periods are presented. The Partnership
evaluates segment performance based on gross margin, gross profit and income
before income taxes and extraordinary items.
The following table summarizes segment revenues, gross margin, gross
profit and income before income taxes and extraordinary items:
<TABLE>
<CAPTION>
MARKETING,
GATHERING,
TERMINALLING
(IN THOUSANDS) PIPELINE & STORAGE TOTAL
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Revenues:
External Customers $ 223,128 $ 639,396 $ 862,524
Intersegment (a) 19,470 (55) 19,415
Other 29 161 190
---------------- ---------------- ---------------
Total revenues of reportable segments $ 242,627 $ 639,502 $ 882,129
---------------- ---------------- ---------------
---------------- ---------------- ---------------
Segment gross margin (b) $ 12,917 $ 13,295 $ 26,212
Segment gross profit (c) $ 12,189 $ 8,254 $ 20,443
Income before income taxes and
extraordinary items $ 6,035 $ 6,038 $ 12,073
- -----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
Revenues:
External Customers $ 377,615 $ 940,669 $ 1,318,284
Intersegment (a) 34,775 - 34,775
Other 95 192 287
---------------- ---------------- ---------------
Total revenues of reportable segments $ 412,485 $ 940,861 $ 1,353,346
---------------- ---------------- ---------------
---------------- ---------------- ---------------
Segment gross margin (b) $ 24,936 $ 21,104 $ 46,040
Segment gross profit (c) $ 23,413 $ 14,680 $ 38,093
Income before income taxes and
extraordinary items $ 11,509 $ 11,877 $ 23,386
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Intersegment sales were conducted on an arm's-length basis.
(b) Gross margin is calculated as revenues less cost of sales and operations
expenses.
(c) Gross profit is calculated as revenues less cost of sales and operations and
general and administrative expenses.
Page 9 of 21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Plains All American Pipeline, L.P. (the "Partnership" or "PAA") is a
limited partnership formed in the third quarter of 1998 to acquire and
operate the midstream crude oil business and assets of Plains Resources Inc.
("Plains Resources") and its wholly owned subsidiaries (the "Plains Midstream
Subsidiaries" or the "Predecessor"). On November 23, 1998, the Partnership
completed the initial public offering ("IPO") and the transactions whereby
the Partnership became the successor to the business of the Predecessor. The
operations of the Partnership are conducted through Plains Marketing, L.P.,
All American Pipeline, L.P. and Plains Scurlock Permian, L.P. ("Plains
Scurlock"). Plains All American Inc. ("PAAI"), a wholly owned subsidiary of
Plains Resources, is the general partner ("General Partner") of the
Partnership. The Partnership is engaged in interstate and intrastate crude
oil pipeline transportation and crude oil gathering and marketing activities
and terminalling and storage activities. The Partnership's operations are
conducted primarily in California, Texas, Oklahoma, Louisiana and the Gulf of
Mexico.
On May 12, 1999, Plains Scurlock completed the acquisition of Scurlock
Permian LLC ("Scurlock") and certain other pipeline assets (the "Scurlock
Acquisition") from Marathon Ashland Petroleum LLC ("MAP"). Including working
capital adjustments and associated closing and financing costs, the cash
purchase price was approximately $141 million. The assets, liabilities and
results of operations of the Scurlock Acquisition are included in the
Partnership's Consolidated Financial Statements effective May 1, 1999.
Scurlock, previously a wholly owned subsidiary of MAP, is engaged in
crude oil transportation, trading and marketing, operating in 14 states with
more than 2,400 miles of active pipelines, numerous storage terminals and a
fleet of more than 225 trucks. Its largest asset is an 800-mile pipeline and
gathering system located in the Spraberry Trend in West Texas that extends
into Andrews, Glasscock, Martin, Midland, Regan and Upton Counties, Texas.
The assets acquired also include approximately 2.4 million barrels of crude
oil.
The Partnership owns and operates a 1,233-mile seasonally heated,
30-inch, common carrier crude oil pipeline extending from California to West
Texas (the "All American Pipeline") and a 45-mile, 16-inch, crude oil
gathering system in the San Joaquin Valley of California (the "SJV Gathering
System"), both of which the Predecessor purchased from Wingfoot Ventures
Seven, Inc. ("Wingfoot"), a wholly owned subsidiary of The Goodyear Tire &
Rubber Company ("Goodyear") in July 1998 for approximately $400 million (the
"All American Acquisition"). Prior to the All American Acquisition, the
Predecessor had only gathering and marketing and terminalling and storage
activities. The Partnership also owns and operates a three million barrel,
above-ground crude oil terminalling and storage facility in Cushing,
Oklahoma, (the "Cushing Terminal"). See Note 2 to the accompanying
Consolidated and Combined Financial Statements for pro forma information
giving effect to the acquisitions as if such transactions occurred on January
1, 1998.
RESULTS OF OPERATIONS
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1999 (PARTNERSHIP) AND THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
(PREDECESSOR)
The historical results of operations discussed below are derived from
the historical financial statements of the Partnership for the three and six
months ended June 30, 1999, which include the results of the Scurlock
Acquisition effective May 1, 1999, and the combined financial statements of
the Predecessor for the three and six months ended June 30, 1998. The results
of operations of the Predecessor for the three and six months ended June 30,
1998, do not include the results of operations of the All American
Acquisition which was completed in July 1998.
PRO FORMA RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1998
The pro forma results of operations discussed below are derived from the
historical financial statements of Wingfoot (which reflect the historical
operating results of the All American Pipeline and the SJV Gathering System)
and the Predecessor. The pro forma results of operations reflect certain pro
forma adjustments to the historical results of operations as if the
Partnership had been formed and the All American Acquisition had taken place
on January 1, 1998. The pro forma adjustments include: (i) pro forma
depreciation and amortization expense based on the purchase price of the
Wingfoot assets by the Predecessor; (ii) the elimination of interest expense
on loans from Goodyear to Wingfoot as all such debt was extinguished in
connection with the All American Acquisition; (iii) the reduction in
compensation and benefits expense due
Page 10 of 21
<PAGE>
to the termination of personnel in connection with the All American
Acquisition; (iv) the elimination of interest expense of the Predecessor
related to debt owed to Plains Resources as such debt was extinguished in
connection with the IPO; (v) pro forma interest on debt assumed by the
Partnership on the closing date of the IPO and (vi) the elimination of income
tax expense as income taxes will be borne by the partners and not the
Partnership. The pro forma adjustments do not include additional general and
administrative expenses that the General Partner believes will be incurred by
the Partnership as a result of its being a separate public entity.
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
The following table sets forth certain financial and operating
information of the Partnership and the Predecessor for the periods presented
(unaudited) (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1999 1998 1998
-------------- -------------- ---------------
(PREDECESSOR) (PRO FORMA)
<S> <C> <C> <C>
Operating Results:
Revenues $ 862,524 $ 163,222 $ 346,404
-------------- -------------- ---------------
-------------- -------------- ---------------
Gross margin:
Pipeline $ 12,917 $ - $ 13,010
Gathering and marketing
and terminalling and storage 13,295 5,196 5,652
-------------- -------------- ---------------
Total 26,212 5,196 18,662
General and administrative expense (5,769) (1,055) (1,573)
-------------- -------------- ---------------
-------------- -------------- ---------------
Gross profit $ 20,443 $ 4,141 $ 17,089
-------------- -------------- ---------------
-------------- -------------- ---------------
Net Income $ 12,073 $ 2,014 $ 11,366
-------------- -------------- ---------------
-------------- -------------- ---------------
Average Daily Volumes (barrels):
Pipeline Activities:
All American
Tariff activities 101 - 130
Margin activities 63 - 34
Other 25 - -
-------------- -------------- ---------------
Total 189 - 164
-------------- -------------- ---------------
-------------- -------------- ---------------
Lease gathering 314 83 103
Bulk purchases 161 109 109
Terminal throughput 84 83 83
</TABLE>
For the three months ended June 30, 1999, the Partnership reported net
income of $12.1 million, or $0.38 per limited partner unit, on total revenues
of $862.5 million, compared to Predecessor net income of $2.0 million on
total revenues of $163.2 million. Pro forma net income was $11.4 million on
total revenues of $346.4 million for the 1998 second quarter.
PIPELINE OPERATIONS. Gross margin from pipeline operations was $12.9
million for the second quarter of 1999 compared to $13.0 million for the
comparative period of 1998 on a pro forma basis. The decrease from the prior
year resulted primarily from lower tariff transport volumes, partially due to
lower production from Exxon's Santa Ynez Field and the Point Arguello Field,
both offshore California. Such decrease was offset by an increase in gross
margin from PAA's pipeline merchant activities and approximately $0.8 million
of pipeline gross margin from the Scurlock Acquisition, for which two months
of operations are included in the current period's results. Pipeline tariff
revenues and tariff transport volumes from the All American Pipeline were
approximately $9.4 million and 101,000 barrels per day, respectively, for the
second quarter of 1999, compared to $16.4 million and 130,000 barrels per
day, respectively, for the comparative period of 1998. The decrease in tariff
volumes was offset by an increase in barrels shipped as part of PAA's
merchant activities. Volumes related to such activities were 63,000 barrels
per day in the current year period, which is an approximate 29,000 barrel per
day increase in the volumes from last year's quarter on a pro forma basis.
Operations and maintenance expenses were $6.8 million for the second quarter
of 1999 as compared to $6.5 million for the same period of 1998.
Page 11 of 21
<PAGE>
In July 1999, Arguello Inc., a wholly owned subsidiary of Plains
Resources, acquired Chevron USA's 26% working interest in the Point Arguello
Field and will be the operator of record. Plains Resources has an approximate
59% ownership interest in PAA through its ownership of the General Partner.
The following table sets forth the All American Pipeline average
deliveries per day within and outside California:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------
1999 1998 1998
------------ ----------- ------------
(PREDECESSOR) (PRO FORMA)
(IN THOUSANDS)
<S> <C> <C> <C>
DELIVERIES:
AVERAGE DAILY VOLUMES (BARRELS):
Within California 101 - 111
Outside California 63 - 57
------------ ----------- ------------
Total 164 - 168
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
GATHERING AND MARKETING ACTIVITIES AND TERMINALLING AND STORAGE
ACTIVITIES. Gross margin from gathering, marketing, terminalling and storage
activities was approximately $13.3 million for the second quarter of 1999.
Approximately $6.2 million of this gross margin is attributable to the
Scurlock Acquisition which was effective May 1, 1999. The Scurlock gross
margin was generated on gathering volumes of approximately 192,000 barrels
per day and bulk purchase volumes of approximately 71,000 barrels per day.
Scurlock daily volumes are a two month average of activity from the date of
acquisition through June 30, 1999.
Excluding the Scurlock Acquisition, gross margin from PAA's gathering,
marketing, terminalling and storage activities was approximately $7.1 million
for the second quarter of 1999, compared to $5.2 million and $5.7 million in
the prior year comparative period for the Predecessor and on a pro forma
basis, respectively. The increase is due to an increase in lease gathering
volumes and storage capacity leased at the Cushing Terminal. Lease gathering
volumes increased from an average of 103,000 barrels per day on a pro forma
basis for the second quarter of 1998 to approximately 122,000 barrels per day
in the current year quarter. Bulk purchase volumes declined from
approximately 109,000 barrels per day in last year's quarter to approximately
90,000 barrels per day in the second quarter of 1999. This decrease is
primarily due to a lesser volume of contango purchases and an increased
amount of tankage that was leased to third parties at the Cushing Terminal.
The one million barrel expansion of the Cushing Terminal was placed in
service during the second quarter of 1999. Throughput volumes at PAA's
terminals averaged approximately 84,000 barrels per day in the current year
quarter, about flat with the 1998 comparative period average of 83,000
barrels per day. Average leased terminal capacity increased significantly
from approximately 600,000 barrels per month in last year's quarter to 2.3
million barrels per month during the current year quarter.
General and administrative ("G&A") expenses were $5.8 million for the
three months ended June 30, 1999, compared to $1.1 million and $1.6 million
for the second quarter of 1998 for the Predecessor and on a pro forma basis,
respectively. The increase in 1999 as compared to the 1998 pro forma amount
is due to the Scurlock Acquisition (approximately $3.4 million), continued
expansion of the Partnership's activities and expenses related to the
operation of the Partnership as a public entity. These increases, in addition
to G&A associated with the All American Acquisition, account for the increase
in G&A from the 1998 second quarter Predecessor amount.
Depreciation and amortization expense was $3.8 million for the three
months ended June 30, 1999, compared to $0.3 million for the Predecessor and
$2.9 million on a pro forma basis, for the 1998 comparative period. The
increase in depreciation and amortization from the Predecessor amount is due
to the Scurlock Acquisition in May 1999 and the All American Acquisition in
July 1998. The increase from the 1998 pro forma amount is attributable to the
Scurlock Acquisition.
Interest expense was $4.7 million for the second quarter of 1999,
compared to $0.9 million reported by the Predecessor and $3.2 million on a
pro forma basis for the second quarter of 1998. The increase in interest
expense from the Predecessor level is due to interest associated with the
debt incurred for the Scurlock Acquisition and the All American Acquisition.
The increase from the 1998 pro forma amount is primarily attributable to the
Scurlock Acquisition and a slight increase in interest expense related to
hedged inventory transactions. During the second quarter of 1999, the
Partnership capitalized interest of approximately $69,000 related to the
expansion of the Cushing Terminal.
Page 12 of 21
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The following table sets forth certain financial and operating
information of the Partnership and the Predecessor for the periods presented
(unaudited) (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------
1999 1998 1998
------------- ------------- ------------
(PREDECESSOR) (PRO FORMA)
<S> <C> <C> <C>
Operating Results:
Revenues $ 1,318,284 $ 330,683 $ 706,239
------------- ------------- ------------
------------- ------------- ------------
Gross margin:
Pipeline $ 24,936 $ - $ 30,768
Gathering and marketing
and terminalling and storage 21,104 9,200 10,102
------------- ------------- ------------
Total 46,040 9,200 40,870
General and administrative expense (7,947) (2,041) (3,094)
------------- ------------- ------------
Gross profit $ 38,093 $ 7,159 $ 37,776
------------- ------------- ------------
------------- ------------- ------------
Net Income $ 23,386 $ 3,254 $ 26,247
------------- ------------- ------------
------------- ------------- ------------
Average Daily Volumes (barrels):
Pipeline activities:
All American
Tariff activities 113 - 143
Margin activities 55 - 35
Other 25 - -
------------- ------------- ------------
Total 193 - 178
------------- ------------- ------------
------------- ------------- ------------
Lease gathering 313 82 102
Bulk purchases 163 102 102
Terminal throughput 79 75 75
</TABLE>
For the six months ended June 30, 1999, the Partnership reported net
income of $23.4 million, or $0.75 per limited partner unit, on total revenues
of $1.3 billion compared to Predecessor net income of $3.3 million on total
revenues of $330.7 million. Pro forma net income was $26.2 million on total
revenues of $706.2 million for the six month period in 1998.
PIPELINE OPERATIONS. Gross margin from pipeline operations was $24.9
million for the first six months of 1999 compared to $30.8 million for the
comparative period of 1998 on a pro forma basis. The decrease from the prior
year resulted primarily from lower tariff transport volumes, partially due to
lower production from Exxon's Santa Ynez Field and the Point Arguello Field,
both offshore California. Such decrease was partially offset by an increase
in gross margin from PAA's pipeline merchant activities and approximately
$0.8 million of pipeline gross margin from the Scurlock Acquisition, for
which two months of operations are included in the current period's results.
Pipeline tariff revenues and tariff transport volumes from the All American
Pipeline were approximately $22.0 million and 113,000 barrels per day,
respectively, for the first half of 1999, compared to $33.9 million and
143,000 barrels per day, respectively, for the comparative period of 1998.
The decrease in tariff volumes was partially offset by an increase in barrels
shipped as part of PAA's merchant activities. Volumes related to such
activities were 55,000 barrels per day in the current year period, which is
an approximate 20,000 barrel per day increase in the volumes from last year's
period on a pro forma basis. Operations and maintenance expenses were $13.0
million for the first half of 1999 as compared to $14.4 million for the same
period of 1998.
In July 1999, Arguello Inc., a wholly owned subsidiary of Plains
Resources, acquired Chevron USA's 26% working interest in the Point Arguello
Field and will be the operator of record. Plains Resources has an approximate
59% ownership interest in PAA through its ownership of the General Partner.
Page 13 of 21
<PAGE>
The following table sets forth the All American Pipeline average
deliveries per day within and outside California.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------
1999 1998 1998
------------ ----------- ------------
(PREDECESSOR) (PRO FORMA)
(IN THOUSANDS)
<S> <C> <C> <C>
DELIVERIES:
AVERAGE DAILY VOLUMES (BARRELS):
Within California 106 - 117
Outside California 62 - 61
------------ ----------- ------------
Total 168 - 178
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
GATHERING AND MARKETING ACTIVITIES AND TERMINALLING AND STORAGE
ACTIVITIES. Gross margin from gathering, marketing, terminalling and storage
activities was approximately $21.1 million for the first half of 1999.
Approximately $6.2 million of this gross margin is attributable to the
Scurlock Acquisition which was effective May 1, 1999. The Scurlock gross
margin was generated on gathering volumes of approximately 192,000 barrels
per day and bulk purchase volumes of approximately 71,000 barrels per day.
Scurlock daily volumes are a two month average of activity from the date of
acquisition through June 30, 1999.
Excluding the Scurlock Acquisition, gross margin from PAA's gathering,
marketing, terminalling and storage activities was approximately $14.9
million for the first half 1999, compared to $9.2 million and $10.1 million
in the prior year comparative period for the Predecessor and on a pro forma
basis, respectively. The increase is due to an increase in per barrel lease
gathering margins, lease gathering volumes and storage capacity leased at
PAA's crude oil terminal facilities. Lease gathering volumes increased from
an average of 102,000 barrels per day on a pro forma basis for the first half
of 1998 to approximately 121,000 barrels per day in the current year period.
Bulk purchase volumes declined from approximately 102,000 barrels per day in
the first half of 1998 to approximately 92,000 barrels per day in the 1999
comparative period. This decrease is primarily due to a lesser volume of
contango purchases and an increased amount of tankage that was leased to
third parties at the Cushing Terminal. The one million barrel expansion of
the Cushing Terminal was placed in service during the second quarter of 1999.
Throughput volumes at PAA's terminals averaged approximately 79,000 barrels
per day in the current year period, up approximately 5% as compared to the
1998 first half average of 75,000 barrels per day. Average leased terminal
capacity increased significantly from approximately 935,000 barrels per month
in last year's first half to 2.0 million barrels per month during the current
year period.
G&A expenses were $7.9 million for the six months ended June 30, 1999,
compared to $2.0 million and $3.1 million for the same period in 1998 for the
Predecessor and on a pro forma basis, respectively. The increase in 1999 as
compared to the 1998 pro forma amount is due to the Scurlock Acquisition
(approximately $3.4 million), increased expenses as a result of the continued
expansion of the Partnership's activities and expenses related to the
operation of the Partnership as a public entity. These increases, in addition
to G&A associated with the All American Acquisition, account for the increase
in G&A from the 1998 Predecessor amount.
Depreciation and amortization expense was $6.7 million for the six
months ended June 30, 1999, compared to $0.6 million for the Predecessor and
$5.7 million on a pro forma basis, respectively, for the 1998 comparative
period. The increase in depreciation and amortization from the Predecessor
amount is due to the Scurlock Acquisition in May 1999 and the All American
Acquisition in July 1998. The increase from the 1998 pro forma amount is
attributable to the Scurlock Acquisition.
In March 1999, the Partnership adopted a plan to reduce staff in its
pipeline operations and to relocate certain functions. The Partnership
incurred a charge to first quarter earnings of approximately $410,000 in
connection with such plan. Such amount is reflected as other expense in the
accompanying consolidated income statement for the six months ended June 30,
1999.
Interest expense was $7.9 million for the first half of 1999 compared to
$1.8 million reported by the Predecessor and $6.4 million on a pro forma
basis for the same period in 1998. The increase in interest expense from the
Predecessor level is due to interest associated with the debt incurred for
the Scurlock Acquisition and the All American Acquisition. The increase from
the 1998 pro forma amount is primarily attributable to the Scurlock
Acquisition and a slight increase in interest expense
Page 14 of 21
<PAGE>
related to hedged inventory transactions. During the first half of 1999, the
Partnership capitalized interest of approximately $0.1 million related to the
expansion of the Cushing Terminal.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
ACQUISITIONS
Scurlock
On May 12, 1999, Plains Scurlock, a limited partnership of which PAAI is
the general partner and Plains Marketing, L.P. is the limited partner,
completed the Scurlock Acquisition. Including working capital adjustments and
associated closing and financing costs, the cash purchase price was
approximately $141 million.
Financing for the Scurlock Acquisition was provided through (i) a
borrowing of approximately $92 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A. (the "Plains Scurlock Credit
Facility"), (ii) the sale to the General Partner of 1.3 million Class B
Common Units ("Class B Units") of PAA at $19.125 per unit, the price equal to
the market value of PAA's common units ("Common Units") on May 12, 1999, for
a total cash consideration of $25 million and (iii) a $25 million draw under
PAA's existing revolving credit agreement.
The Class B Units are initially pari passu with Common Units with
respect to distributions, and after six months are convertible into Common
Units upon approval of a majority of Common Unitholders. After such six month
period, the Class B Unitholder may request that PAA call a meeting of Common
Unitholders to consider approval of the conversion of Class B Units into
Common Units. If the approval of such conversion by the Common Unitholders is
not obtained within 120 days of such request (the "Initial Approval Period"),
the Class B Unitholders will be entitled to receive distributions, on a per
Unit basis, equal to 110% of the amount of distributions paid on a Common
Unit, with such distribution right increasing to 115% if such approval is not
secured within 90 days after the end of the Initial Approval Period. Except
for the vote to approve the conversion, Class B Units have the same voting
rights as the Common Units.
Chevron
On July 15, 1999, Plains Scurlock completed the acquisition of a West
Texas crude oil pipeline and gathering system from Chevron Pipe Line Company
for approximately $36.6 million, including transaction costs (the "Chevron
Asset Acquisition"). The principal assets acquired include approximately 450
miles of crude oil transmission mainlines, approximately 340 miles of
associated gathering and lateral lines and approximately three million
barrels of crude oil storage and terminalling capacity in Crane, Ector,
Midland, Upton, Ward and Winkler Counties, Texas. Financing for the Chevron
Asset Acquisition was provided by a draw of $36.6 million under the term loan
portion of the Plains Scurlock Credit Facility.
Chevron U.S.A Inc., which currently transports approximately 24,000
barrels of crude oil per day on the system, will continue to transport its
equity crude oil production from the region on the system under a twelve-year
contractual arrangement.
CREDIT AGREEMENTS
The Plains Scurlock Credit Facility consists of (i) a five-year $126.6
million term loan and (ii) a three-year $35 million revolving credit
facility. The Plains Scurlock Credit Facility is nonrecourse to PAA, Plains
Marketing, L.P. and All American Pipeline, L.P. and is secured by the assets
acquired. Borrowings under the term loan bear interest at the London
Interbank Offering Rate ("LIBOR") plus 3% and under the revolving credit
facility at LIBOR plus 2.75%. A commitment fee equal to one-half of one
percent per year is charged on the unused portion of the revolving credit
facility. The revolving credit facility, which may be used for borrowings or
letters of credit to support crude oil purchases, matures in May 2002. The
term loan provides for principal amortization of $0.7 million annually
beginning May 2000, with a final maturity of May 2004. As of June 30, 1999,
letters of credit of approximately $15.2 million were outstanding under the
revolver and borrowings of $90 million were outstanding under the term loan.
Concurrently with the closing of the IPO, the Partnership entered into a
$225 million bank credit agreement (the "Bank Credit Agreement") that
includes a $175 million term loan facility (the "Term Loan Facility") and a
$50 million revolving credit facility (the "Revolving Credit Facility"). The
Partnership may borrow up to $50 million under the Revolving Credit Facility
for acquisitions, capital improvements, working capital and general business
purposes. At June 30, 1999, the
Page 15 of 21
<PAGE>
Partnership had $175 million outstanding under the Term Loan Facility,
representing indebtedness assumed from the General Partner and $25 million
outstanding under the Revolving Credit Facility. The Term Loan Facility
matures in 2005, and no principal is scheduled for payment prior to maturity.
The Term Loan Facility may be prepaid at any time without penalty. The
Revolving Credit Facility expires in November 2000.
The Partnership has a $175 million letter of credit and borrowing
facility (the "Letter of Credit Facility"), the purpose of which is to
provide (i) standby letters of credit to support the purchase and exchange of
crude oil for resale and (ii) borrowings to finance crude oil inventory which
has been hedged against future price risk or designated as working inventory.
Aggregate availability under the Letter of Credit Facility for direct
borrowings and letters of credit is limited to a borrowing base which is
determined monthly based on certain current assets and current liabilities of
the Partnership, primarily crude oil inventory and accounts receivable and
accounts payable related to the purchase and sale of crude oil. At June 30,
1999, the borrowing base under the Letter of Credit Facility was $175
million. The Letter of Credit Facility has a $40 million sublimit for
borrowings to finance crude oil purchased in connection with operations at
the Partnership's crude oil terminal and storage facilities. At June 30,
1999, there were letters of credit of approximately $90.1 million and
borrowings of $22 million outstanding under the Letter of Credit Facility.
PARTNERSHIP DISTRIBUTIONS
On July 22, 1999, the Partnership declared a cash distribution of
$0.4625 per Unit on its outstanding Common Units, Class B Units and
Subordinated Units. The distribution is payable on August 13, 1999, to
holders of record of such Units on August 3, 1999. The total distribution to
be paid is approximately $14.9 million, with approximately $6.1 million to be
paid to the Partnership's public Unitholders and the remainder to be paid to
the General Partner for its limited and general partner interests. This
distribution represents an increase of $.0125 per unit over the minimum
quarterly distribution of $0.45 per unit.
INVESTING AND FINANCING ACTIVITIES
Net cash flows used in investing activities were $146.8 million and $0.5
million for the six months ended June 30, 1999 and 1998, respectively.
Investing activities for the 1999 period include payments of approximately
$135.9 million related to the Scurlock Acquisition (net of Scurlock cash on
hand at the acquisition date) and a $6.0 million deposit on the Chevron Asset
Acquisition. Investing activities also include payments for expansion capital
of $4.8 million and maintenance capital of $0.4 million for the six months
ended June 30, 1999. Approximately $3.3 million related to the expansion of
the Cushing Terminal is included in 1999 payments. Maintenance capital
expenditures are capital expenditures made to replace partially or fully
depreciated assets to maintain the existing operating capacity of existing
assets or extend their useful lives. Capital expenditures made to expand
capacity, whether through construction or acquisition, are not considered
maintenance capital expenditures. Repair and maintenance expenditures
associated with existing assets that do not extend the useful life or expand
the operating capacity are charged to expense as incurred.
Net cash flows provided by financing activities were approximately
$138.0 million and $32.8 million for the six months ended June 30, 1999 and
1998, respectively. Financing activities for the six months ended June 30,
1999 include $25 million of proceeds from the Class B Units which were issued
in connection with the Scurlock Acquisition. Proceeds from borrowings under
the Revolving Credit Facility and the Plains Scurlock Credit Facility were
approximately $187.6 million for the six months ended June 30, 1999. Such
amounts include approximately $117.0 million borrowed to fund the Scurlock
Acquisition and approximately $6.0 million borrowed to fund a deposit paid on
the Chevron Asset Acquisition, which closed in July 1999. Repayments under
the Revolving Credit Facility and Plains Scurlock Credit Facility were
approximately $72.6 million during the first six months of 1999. Financing
activities include approximately $24.2 million and $17.9 million in
short-term borrowings for the six months ended June 30, 1999 and 1998,
respectively, and approximately $11.9 million and $18.0 million of repayments
for the respective periods, related to hedged crude oil inventory
transactions at the Cushing Terminal. Financing activities for the 1998
period include a $28.7 million capital contribution from Plains Resources to
the Predecessor.
Financing activities for the first six months of 1999 include cash
distributions paid to Unitholders of approximately $19.7 million.
Approximately $8.4 million of such amount was paid to the Partnership's
public Unitholders, with the remainder paid to the General partner for its
limited partner and general partner interests.
Page 16 of 21
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 is
effective for fiscal years beginning after June 15, 2000. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if so, the type
of hedge transaction. For fair value hedge transactions in which the
Partnership is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash flow hedge transactions, in which the
Partnership is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction, changes in the
fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument that
are reported in other comprehensive income will be reclassified as earnings
in the periods in which earnings are affected by the variability of the cash
flows of the hedged item. The Partnership is required to adopt this statement
beginning in 2001. The Partnership has not yet determined the effect that the
adoption of SFAS 133 will have on its financial position or results of
operations.
YEAR 2000
YEAR 2000 ISSUE. Some software applications, hardware and equipment, and
embedded chip systems identify dates using only the last two digits of the
year. These products may be unable to distinguish between dates in the year
2000 and dates in the year 1900. That inability, if not addressed, could
cause applications, equipment or systems to fail or provide incorrect
information after December 31, 1999, or when using dates after December 31,
1999. This in turn could have an adverse effect on the Partnership because
the Partnership directly depends on its own applications, equipment and
systems and indirectly depends on those of third parties with which it does
business. The Partnership's key applications, equipment, and automated
systems consist of:
- financial systems applications;
- computer hardware and equipment;
- embedded chip systems; and
- third-party developed software.
YEAR 2000 PROJECT. In order to address the year 2000 issue, the
Partnership is participating in the year 2000 project that Plains Resources
has implemented for all of its business units. As the Partnership evaluates
new properties for acquisition, it performs a pre-acquisition assessment to
determine year 2000 readiness. Upon acquisition, the Partnership has
incorporated these properties into the year 2000 project. Plains Resources
has formed a project team to coordinate the five phases of the year 2000
project. Those phases are:
- assessment;
- remediation;
- testing;
- implementation of the necessary modifications; and
- contingency planning.
The year 2000 project also includes the evaluation of the extent and
status of the year 2000 compliance efforts of third parties who are material
to the Partnership's operations and its business units. In conjunction with
internal efforts, Plains Resources retained a year 2000 consulting firm to
review certain operations of all of its business units and to assess the
potential impact of the year 2000 issue on such operations. The consulting
firm has completed its review, and Plains Resources is utilizing the
consultant's recommendations in its year 2000 project. Plains Resources has
retained a second year 2000 consulting firm to perform an assessment of
certain field equipment which has embedded chip systems. The Partnership and
the consulting firm are currently performing the necessary remediation,
testing and modification of embedded chip systems which are critical to the
Partnership's field operations.
Page 17 of 21
<PAGE>
YEAR 2000 PROJECT STATUS. The assessment phase for all key applications,
equipment, and automated systems is complete. The remaining phases of the
project involving remediation, testing, and implementation of necessary
modifications are proceeding concurrently. The following table sets forth the
estimated dates of completion of the Year 2000 project for the Partnership's
key applications, equipment, and automated systems:
<TABLE>
<CAPTION>
KEY APPLICATIONS, EQUIPMENT ESTIMATED COMPLETION
AND AUTOMATED SYSTEMS DATE
--------------------------- --------------------
<S> <C>
Third Party Developed Software September 1999
Computer Hardware and Equipment October 1999
Embedded Chip Systems October 1999
Financial Systems Applications October 1999
</TABLE>
An integral part of the year 2000 project is communication with the
Partnership's critical suppliers and key customers and partners to determine
whether their operations and/or services or products will be year 2000 ready.
The Partnership has contacted all of these third parties requesting
information on the status of their year 2000 efforts and is currently
evaluating responses and making additional inquiries as needed.
CONTINGENCY PLANNING. As the other phases of the year 2000 project near
completion, the Partnership is evaluating which of its business activities
may still be vulnerable to a year 2000 disruption. The Partnership is
developing appropriate contingency plans for each material "at risk" business
activity to provide an alternative means of functioning in an attempt to
minimize the effect of the potential year 2000 disruptions, both internally
and on third parties. The contingency plans are expected to be completed by
December 1, 1999. Communications with third parties that are critical to the
Partnership's business will continue throughout the remainder of 1999, and
the Partnership plans to develop contingency plans to the extent necessary to
address any concerns regarding the year 2000 readiness of such third parties.
COSTS OF THE YEAR 2000 PROJECT. From November 23, 1998, the date the
Partnership acquired the business of the Predecessor, through June 30, 1999,
the Partnership has incurred approximately $180,000 as its share of expenses
for Plains Resources' year 2000 project, of which approximately $35,000 are
costs paid to third parties. Prior to November 23, 1998, the Predecessor
incurred approximately $242,000 to address the year 2000 issue. While the
total cost of Plains Resources' year 2000 project is still being evaluated,
the Partnership currently estimates that its share of the costs of the
project to be incurred in the remainder of 1999 and 2000 is between $400,000
and $500,000. The Partnership anticipates that the majority of these
estimated costs will be internal costs. The Partnership expects to fund these
expenditures with cash from operations or borrowings.
RISK OF NON-COMPLIANCE. The items that pose the greatest year 2000 risks
for the Partnership if implementation of the year 2000 project is not
successful are its financial systems applications, its pipeline supervisory
control and data acquisition ("SCADA") systems and embedded chip systems in
its field equipment. The potential problems if the year 2000 project is not
successful with respect to the financial systems applications are disruptions
of the Partnership's revenue gathering from and distribution to its customers
and vendors and the inability to perform its other financial and accounting
functions. Failures of SCADA systems or embedded chip systems in the
Partnership's field equipment or its customers' equipment could disrupt the
Partnership's crude oil transportation, terminalling and storage activities
and its gathering and marketing activities.
While the Partnership believes that the year 2000 project will
substantially reduce the risks associated with the year 2000 issue, there can
be no assurance that it will be successful in completing each and every
aspect of the project on schedule, and if successful, that the project will
have the expected results. Due to the general uncertainty inherent in the
year 2000 issue, the Partnership cannot conclude that its failure or the
failure of third parties to achieve year 2000 compliance will not adversely
affect its financial position, results of operations or cash flows. Specific
factors that might affect the success of the Partnership's year 2000 efforts
and the occurrence of a year 2000 disruption or expense include:
- the Partnership's failure or the failure of its consultant to properly
identify deficient systems;
- the failure of the selected remedial action to adequately address any
deficiencies;
- the failure of the Partnership or its consultants to complete the
remediation in a timely manner, due to shortages of qualified labor or
other factors;
- unforeseen expenses related to the remediation of existing systems or
the transition to replacement systems; and
- the failure of third parties to become compliant or to adequately
notify us of potential non-compliance.
Page 18 of 21
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Partnership is exposed to various market risks, including volatility
in crude oil commodity prices and interest rates. To manage such exposure,
the Partnership monitors its inventory levels, current economic conditions
and its expectations of future commodity prices and interest rates when
making decisions with respect to risk management. The Partnership does not
enter into derivative transactions for speculative trading purposes.
Substantially all the Partnership's derivative contracts are exchanged or
traded with major financial institutions and the risk of credit loss is
considered remote.
COMMODITY PRICE RISK. The fair value of outstanding derivative commodity
instruments and the change in fair value that would be expected from a 10
percent adverse price change are shown in the table below:
<TABLE>
<CAPTION>
CHANGE IN FAIR
FAIR VALUE FROM 10%
AT JUNE 30, 1999 VALUE ADVERSE PRICE CHANGE
- ----------------------- ---------------- -----------------------
(IN MILLIONS)
<S> <C> <C>
Crude oil
futures contracts $ (2.3) $(2.0)
</TABLE>
INTEREST RATE RISK. The Partnership's debt instruments are sensitive to
market fluctuations in interest rates. The table below presents principal
cash flows and the related weighted average interest rates by expected
maturity dates for debt outstanding at June 30, 1999. The Partnership's
variable rate debt bears interest at LIBOR plus the applicable margin. The
average interest rates presented below are based upon rates in effect June
30, 1999. The carrying value of variable rate bank debt approximates fair
value as interest rates are variable, based on prevailing market rates.
<TABLE>
<CAPTION>
EXPECTED YEAR OF MATURITY
---------------------------------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- -------- ------------ ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Short-term debt - variable rate $ 22.0 $ - $ - $ - $ - $ - $ 22.0 $ 22.0
Average interest rate 6.30% 6.30%
Long-term debt - variable rate - 25.7 0.7 0.7 0.7 262.2 290.0 290.0
Average interest rate - 6.42% 8.17% 8.17% 8.17% 7.07% 7.07%
</TABLE>
Interest rate swaps and collars are used to hedge underlying debt
obligations. These instruments hedge specific debt issuances and qualify for
hedge accounting. The interest rate differential is reflected as an
adjustment to interest expense over the life of the instruments. At June 30,
1999, the Partnership had interest rate swap and collar arrangements for an
aggregate notional principal amount of $265 million. The Partnership would
receive approximately $8.9 million if such arrangements were terminated as of
such date.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
All statements, other than statements of historical fact, included in
this Report are forward-looking statements, including, but not limited to,
statements identified by the words "anticipate," "believe," "estimate,"
"expect," "plan," "intend" and "forecast" and similar expressions and
statements regarding the Partnership's business strategy, plans and
objectives of management of the Partnership for future operations. Such
statements reflect the current views of the Partnership and the General
Partner with respect to future events, based on what they believe are
reasonable assumptions. These statements, however, are subject to certain
risks, uncertainties and assumptions, including, but not limited to (i) the
availability of adequate supplies of and demand for crude oil in the areas in
which the Partnership operates, (ii) the impact of crude oil price
fluctuations, (iii) the effects of competition, (iv) the success of the
Partnership's risk management activities, (v) the availability (or lack
thereof) of acquisition or combination opportunities, (vi) the impact of
current and future laws and governmental regulations, (vii) environmental
liabilities that are not covered by an indemnity or insurance, (viii) general
economic, market or business conditions and (ix) uncertainties inherent in
the Year 2000 Issue. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, actual results may
vary materially from those in the forward-looking statements. Except as
required by applicable securities laws, the Partnership does not intend to
update these forward-looking statements and information.
Page 19 of 21
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<S> <C>
3.8 Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of Plains All American Pipeline L.P. dated
as of May 12, 1999.
10.19 First Amendment to Plains Scurlock Credit Agreement dated as
of July 29, 1999 between Plains Scurlock Permian, L.P., Bank
Boston, N.A. and certain financial institutions.
27. Financial Data Schedule
</TABLE>
B. Reports on Form 8-K
Amendment No. 1 to Current Report was filed on June 28, 1999, on Form
8-K/A which amends the financial statements, exhibits or other portion
of the Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 27, 1999, with respect to the Partnership's
acquisition of Scurlock Permian LLC and certain other pipeline assets
from Marathon Ashland Petroleum LLC.
A Current Report on Form 8-K was filed on May 27, 1999, with respect to
the Partnership's acquisition of Scurlock Permian LLC and certain other
pipeline assets from Marathon Ashland Petroleum LLC.
Page 20 of 21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
Its General Partner
Date: August 16, 1999 By: /s/ Cynthia A. Feeback
----------------------------------------
Cynthia A. Feeback, Treasurer
(Principal Accounting Officer) of the
General Partner
Page 21 of 21
<PAGE>
EXHIBIT 3.8
AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF PLAINS ALL
AMERICAN PIPELINE, L.P.
THIS AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF PLAINS ALL AMERICAN PIPELINE, L.P. (this "Amendment"), dated as
of May 12, 1999 entered into and effectuated by Plains All American Inc., a
Delaware corporation, as the General Partner, pursuant to authority granted to
it in Section 5.6 of the Second Amended and Restated Agreement of Limited
Partnership of Plains All American Pipeline, L.P., dated as of November 17,
1998, as amended (the "Partnership Agreement"). Capitalized terms used but not
defined herein are used as defined in the Partnership Agreement.
WHEREAS, Section 5.6 of the Partnership Agreement provides that the General
Partner, without the approval of any Limited Partners, may issue additional
Partnership Securities, or classes or series thereof, for any Partnership
purpose at any time and from time to time, and may issue such Partnership
Securities for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole discretion; and
WHEREAS, the General Partner deems it in the best interest of the
Partnership to effect this Amendment in order to provide for the issuance of the
Class B Common Units to Plains All American Inc. in order to facilitate the
financing for an expeditious closing of the acquisition by Plains Marketing,
L.P., or its affiliate, of a membership interest in Scurlock Permian LLC
pursuant to a Purchase and Sale Agreement dated March 17, 1999, between Plains
Marketing, L.P. and Marathon Ashland Petroleum LLC, and to further provide for
the exchange in accordance with the terms described herein of the Class B Common
Units created hereby for 1,307,190 Common Units; and
WHEREAS, the General Partner has determined that the creation of Class B
Common Units provided for in this Amendment and the exchange of Units
contemplated hereby will be in the best interest of the Partnership and
beneficial to the Limited Partners, including the holders of the Common Units,
because it should result in a cost savings to the Partnership and should have no
adverse impact on the holders of Common Units;
NOW, THEREFORE, the Partnership Agreement is hereby amended to create a new
class of Partnership Securities as follows:
Section 5.12 ESTABLISHMENT OF UNITS. (a) There is hereby created a series
of Units to be designated as "Class B Common Units," consisting of Class B
Common Units and having the following terms and conditions:
(i) Subject to the provisions of Section 6.1(d)(iii)(A), all allocations of
items of Partnership income, gain, loss, deduction and credit under Section 6.1
shall be allocated to
-1-
<PAGE>
the Class B Common Units on a basis that is pro rata with the Common Units, so
that the amount thereof allocated to each Common Unit will equal the amount
thereof allocated to each Class B Common Unit;
(ii) Except as provided in paragraph (f) of this Section 5.12, the Class B
Common Units shall have the right to share in partnership distributions on a pro
rata basis with the Common Units, so that the amount of any Partnership
distribution to each Common Unit will equal the amount of such distribution to
each Class B Common Unit;
(iii) The Class B Common Units shall have rights upon dissolution and
liquidation of the Partnership, including the right to share in any liquidating
distributions, that are pro rata with the Common Units, so that the amount of
any liquidating distribution to each Common Unit will equal the amount of such
distribution to each Class B Common Unit;
(iv) The Class B Common Units will not have the privilege of conversion
except as provided in paragraphs (c) or (d) of this Section 5.12;
(v) The Class B Common Units will have voting rights that are identical to
the voting rights of the Common Units and will vote with the Common Units as a
single class, so that each Class B Common Unit will be entitled to one vote on
each matter with respect to which each Common Unit is entitled to be voted;
provided, however, that the Class B Common Units shall not be entitled to vote,
and shall not be deemed outstanding for purposes of determining a quorum, with
respect to matters in which the requisite vote is determined by New York Stock
Exchange rules or New York Stock Exchange staff interpretations of such rules
for listing of the Common Units; each reference in the Partnership Agreement to
a vote of holders of Common Units shall be deemed to be a reference to the
holders of Common Units and Class B Common Units;
(vi) The Class B Common Units will be evidenced by certificates in such
form as the General Partner may approve and, subject to the satisfaction of any
applicable legal and regulatory requirements, may be assigned or transferred in
a manner identical to the assignment and transfer of other Units; the General
Partner will act as registrar and transfer agent for the Class B Common Units;
and
(vii) Except as otherwise provided in the Partnership Agreement and unless
the context otherwise requires, for purposes of allocations referred to in
paragraph (a)(i), the right to share in Partnership distributions referred to in
paragraph (a)(ii), rights upon dissolution and liquidation referred to in
paragraph (a)(iii), and voting rights referred to in paragraph (a)(v), and for
all other purposes, the Class B Common Units and the Common Units shall be
considered as a single class of Units, each Class B Common Unit shall be treated
in a manner that is identical, in all respects, to each Common Unit, and each
reference in the Partnership Agreement to Common Units shall also be deemed to
be a reference to Class B Common Units.
-2-
<PAGE>
(b) The terms and conditions upon which the Class B Common Units will be
issued are as follows: the Partnership will issue the Class B Common Units to
Plains All American, Inc., and Plains All American, Inc. will purchase such
Class B Common Units for $25,000,000 in cash; upon receipt of such purchase
price the Partnership will issue a certificate to Plains All American, Inc.
representing such Class B Common Units.
(c) At any time after six months from the date of this Amendment, upon
written notice to the General Partner, any holder of Class B Common Units will
have the right to require the Partnership to use its reasonable best efforts to
submit to a vote or consent of its securityholders the approval of a change in
the terms of the Class B Common Units to provide that each Class B Common Unit
is convertible into one Common Unit at the option of the holder of such Class B
Common Unit, such conversion option to be exercisable by any holder of Class B
Common Units in whole or in part at any time and from time to time. The vote or
consent required for such change will be the requisite vote required, under New
York Stock Exchange rules or New York Stock Exchange staff interpretations of
such rules, for listing of the Common Units that would be issued upon any such
conversion. Upon receipt of the required vote or consent, the terms of the Class
B Common Units will be changed so that they become convertible as described
above.
(d) Before any holder of Class B Common Units shall be entitled to convert
such holder's Class B Common Units into Common Units, he shall surrender the
Class B Common Unit Certificates therefor, duly endorsed, at the office of the
General Partner or of any transfer agent for the Class B Common Units. In the
case of any such conversion, the Partnership shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Class B Common
Units one or more Common Unit Certificates, registered in the name of such
holder, for the number of Common Units to which he shall be entitled as
aforesaid. Such conversion shall be deemed to have been made as of the date of
the surrender of the Class B Common Units to be converted, and the person
entitled to receive the Common Units issuable upon such conversion shall be
treated for all purposes as the record holder of such Common Units on said date.
(e) If at any time the rules of the New York Stock Exchange or the New York
Stock Exchange staff interpretations of such rules are changed so that no vote
or consent of securityholders of the Partnership is required as a condition to
the listing of the Common Units that would be issued upon such conversion, the
terms of the Class B Common Units will be changed so that each Class B Common
Unit is convertible (without any vote of any securityholders of the Partnership)
into one Common Unit at the option of the holder thereof, such conversion option
to be exercisable by any holder of Class B Common Units in whole or in part at
any time and from time to time.
(f) In the event that (i) any holder of Class B Common Units requires the
Partnership to submit to a vote or consent of its securityholders the approval
of a change in the terms of the Class B Common Units to provide that they are
convertible as provided in Section 5.12(c) above, and (ii) the securityholders
do not approve such change by the requisite vote within 120 days after the
notice given pursuant to Section 5.12(c), then the terms of the Class B Common
Units will be changed so that each Class B Common Unit will become entitled to
receive quarterly cash distributions in an amount equal to 110% of the quarterly
cash distribution amount payable to holders of the Common Units; provided,
however, that if the securityholders do not approve such change by the requisite
vote
-3-
<PAGE>
within 210 days after the notice given pursuant to Section 5.12(c), each Class B
Common Unit will become entitled to receive quarterly cash distributions equal
to 115% of the quarterly cash distribution payable to holders of Common Units.
Notwithstanding the foregoing, in no such case shall any holder of Class B
Common Units have the right to convert its Class B Common Units unless such
holder and its affiliates voted their Partnership Securities for approval of
such change (if and to the extent that such Partnership Securities were entitled
to be voted).
This Amendment will be governed by and construed in accordance with
the laws of the State of Delaware.
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first written above.
PLAINS ALL AMERICAN INC.,
General Partner
By: /s/ Michael R. Patterson
------------------------------
Name: Michael R. Patterson
Title: Senior Vice President
-4-
<PAGE>
EXHIBIT 10.19
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of the
29th day of June, 1999, by and among PLAINS SCURLOCK PERMIAN, L.P. ("Borrower")
and BANKBOSTON, N.A., as Administrative Agent (in such capacity, "Administrative
Agent"), and the Lenders party hereto.
W I T N E S S E T H:
WHEREAS, Borrower, Administrative Agent, and Lenders entered into that
certain Credit Agreement dated as of May 12, 1999 (as amended, restated, or
supplemented to the date hereof, the "Original Agreement") for the purposes and
consideration therein expressed, pursuant to which Lenders became obligated to
make and made loans to Borrower as therein provided; and
WHEREAS, Borrower, Administrative Agent, and the Lenders party hereto
desire to amend the Original Agreement for the purposes described herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, in consideration
of the loans which may hereafter be made by Lenders to Borrower, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. -- DEFINITIONS AND REFERENCES
Section 1.1. TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise requires,
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
"AMENDMENT" means this First Amendment to Credit Agreement.
"CREDIT AGREEMENT" means the Original Agreement as amended hereby.
ARTICLE II. -- AMENDMENTS
Section 2.1. MANDATORY PREPAYMENTS. The following Section 2.7(d) is
hereby added to the Original Agreement:
"(d) Without limitation of anything contained in this Section 2.7, on
the 12th day of May of each year, beginning May 12, 2000, Borrower shall
pay to Administrative Agent a principal payment on the Term Loans equal to
$650,000 to be distributed to the Term Lenders pro rata in accordance with
each Term Lender's ratable portion of the
-1-
<PAGE>
Terms loan then outstanding. The outstanding principal balance of, and
all accrued and unpaid interest on, the Term Loan shall be due and payable
on the Term Loan Maturity Date."
Section 2.2. ASSIGNMENTS. Section 10.5(c)(ii) of the Original Agreement
is hereby amended in its entirety to read as follows:
"(ii) In the case of an assignment by a Term Lender, after such
assignment is made the outstanding Term Loans of both the assignor and
assignee shall equal or exceed $5,000,000, except with respect to an
assignment of all such Lender's Term Loans or such lesser amount as may be
agreed to by the Administrative Agent and Borrower (except that no such
minimum shall be applicable with respect to an assignment to a Lender);
provided, however, that (A) any Term Lender may assign all or any portion
of its outstanding Term Loan made as part of the Scurlock Permian Advance
without assigning any commitment of such Term Lender to make any subsequent
advance of its Term Loan as part of the Chevron Advance and (B) the
assignee of any Term Loan described in the immediately preceding
subparagraph (A) shall be deemed to be a 'Lender' and a 'Term Lender'
hereunder for all purposes except for the obligations of Term Lenders to
make an advance as part of the Chevron Advance under Section 2.1(b)."
Section 2.3. ASSIGNMENT AND ACCEPTANCE. Paragraphs 1 and 5 of the
Assignment and Acceptance attached to the Original Agreement as Exhibit H are
hereby amended in their entirety to read as follows:
"1. The Assignor hereby sells and assigns to the Assignee, without
recourse and without representation or warranty except as expressly set
forth herein, and the Assignee hereby purchases and assumes from the
Assignor, an interest in and to the Assignor's rights and obligations under
the Agreement and the other Loan Documents as of the date hereof equal to
[$____________ of its Revolving Loan Commitments which is the Revolver
Percentage Share specified on Schedule 1. After giving effect to such sale
and assignment, the Assignee's Revolver Commitment and the amount of the
Revolver Loans owing to the Assignee will be as set forth on Schedule
1.][$____________ of its Term Loan arising from the Scurlock Permian
Advance.][$______________ of its Term Loan which includes $__________ of
the Scurlock Permian Advance and $_____________ of the commitment to make
the Chevron Advance.]"
"5. Upon such acceptance and recording by Administrative Agent, as of
the Effective Date, (i) the Assignee shall be a party to the Agreement and,
to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Agreement [; provided,
however, that notwithstanding anything to the contrary contained herein,
Assignor has not assigned to Assignee any obligation to make, and Assignee
shall have no obligation to make, any advance of the Term Loan as part of
the Chevron Advance]."
ARTICLE III. -- CONDITIONS OF EFFECTIVENESS
-2-
<PAGE>
Section 3.1. EFFECTIVE DATE. This Amendment shall become effective as of
the date first above written when and only when Administrative Agent shall have
received, at Administrative Agent's office, a counterpart of this Amendment
executed and delivered by Borrower and Majority Lenders.
ARTICLE IV. -- REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce Administrative Agent and Lenders to enter into this Amendment, Borrower
represents and warrants to Administrative Agent and each Lender that:
(a) The representations and warranties contained in Article V of the
Original Agreement, are true and correct at and as of the time of the
effectiveness hereof except to the extent that such representation and
warranty was made as of a specific date.
(b) Each Restricted Person is duly authorized to execute and deliver
this Amendment to the extent a party thereto, and Borrower is and will
continue to be duly authorized to borrow and perform its obligations under
the Credit Agreement. Each Restricted Person has duly taken all action
necessary to authorize the execution and delivery of this Amendment, to the
extent a party thereto, and to authorize the performance of its respective
obligations hereunder.
(c) The execution and delivery by each Restricted Person of this
Amendment, to the extent a party hereto, the performance by each Restricted
Person of its respective obligations hereunder, and the consummation of the
transactions contemplated hereby, do not and will not conflict with any
provision of law, statute, rule or regulation or of the constituent
documents of any Restricted Person, or of any material agreement, judgment,
license, order or permit applicable to or binding upon any Restricted
Person, or result in the creation of any lien, charge or encumbrance upon
any assets or properties of any Restricted Person, except in favor of
Administrative Agent for the benefit of Lenders. Except for those which
have been duly obtained, no consent, approval, authorization or order of
any court or governmental authority or third party is required in
connection with the execution and delivery by any Restricted Person of this
Amendment, to the extent a party thereto, or to consummate the transactions
contemplated hereby.
(d) When this Amendment has been duly executed and delivered, each of
the Loan Documents, as amended by this Amendment, will be a legal and
binding instrument and agreement of each Restricted Person, to the extent a
party thereto, enforceable in accordance with its terms, (subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency and similar
laws applicable to creditors' rights generally and to general principles of
equity).
ARTICLE V. -- MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement, as
hereby amended, is hereby ratified and confirmed in all respects. The Loan
Documents, as they may be amended or affected by this Amendment, are hereby
ratified and confirmed in all respects. Any reference to the Credit Agreement
in any Loan Document shall be deemed to refer to this Amendment also.
-3-
<PAGE>
The execution, delivery and effectiveness of this Amendment shall not, except
as expressly provided herein or therein, operate as a waiver of any right,
power or remedy of Administrative Agent or any Lender under the Credit
Agreement or any other Loan Document nor constitute a waiver of any provision
of the Credit Agreement or any other Loan Document.
Section 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of the Restricted Persons herein shall survive the
execution and delivery of this Amendment and the performance hereof, including
without limitation the making or granting of each Loan, and shall further
survive until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by any
Restricted Person hereunder or under the Credit Agreement to Administrative
Agent or any Lender shall be deemed to constitute representations and warranties
by, or agreements and covenants of, such Restricted Person under this Amendment
and under the Credit Agreement.
Section 5.3. LOAN DOCUMENTS. This Amendment is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply hereto and
thereto.
Section 5.4. GOVERNING LAW. THIS AMENDMENT AND THE OTHER AMENDMENT
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL
RESPECTS, INCLUDING CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section 5.5. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
-4-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
PLAINS SCURLOCK PERMIAN, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By: /s/ Michael R. Patterson
-------------------------------------
Name: Michael R. Patterson
Title: Senior Vice President
BANKBOSTON, N.A.,
Administrative Agent, LC Issuer and Lender
By: /s/ Terrence Ronan
-------------------------------------
Terrence Ronan
Director
-5-
<PAGE>
CONSENT AND ACKNOWLEDGMENT
Each of the undersigned hereby consents to the provisions of this Amendment
and the transactions contemplated herein, and hereby ratifies and confirms its
respective Guaranty dated as of May 12, 1999, made by it for the benefit of
Administrative Agent, and agrees that its obligations and covenants thereunder
are unimpaired hereby and shall remain in full force and effect.
Date: June 29, 1999
SCURLOCK PERMIAN LLC
By: /s/ Michael R. Patterson
-------------------------------------
Name: Michael R. Patterson
Title: Senior Vice President
SCURLOCK PERMIAN PIPE LINE LLC
By: /s/ Michael R. Patterson
-------------------------------------
Name: Michael R. Patterson
Title: Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS ALL
AMERICAN PIPELINE, L.P. CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001070423
<NAME> PLAINS ALL AMERICAN PIPELINE, L.P.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,133
<SECURITIES> 0
<RECEIVABLES> 343,393
<ALLOWANCES> 0
<INVENTORY> 55,707
<CURRENT-ASSETS> 413,344
<PP&E> 509,979
<DEPRECIATION> 6,432
<TOTAL-ASSETS> 1,006,786
<CURRENT-LIABILITIES> 409,632
<BONDS> 0
0
0
<COMMON> 284,479
<OTHER-SE> 22,061
<TOTAL-LIABILITY-AND-EQUITY> 1,006,786
<SALES> 1,318,284
<TOTAL-REVENUES> 1,318,571
<CGS> 1,272,244
<TOTAL-COSTS> 1,278,915
<OTHER-EXPENSES> 410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,913
<INCOME-PRETAX> 23,386
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,386
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.75
</TABLE>
