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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-14569
PLAINS ALL AMERICAN PIPELINE, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0582150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Dallas Street
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 654-1414
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Title of each class Name of each exchange on which registered
------------------------ ---------------------------------------------
Common Units New York Stock Exchange
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 [_]
The aggregate value of the Common Units held by non-affiliates of the registrant
(treating all executive officers and directors of the registrant, for this
purpose, as if they may be affiliates of the registrant) was approximately
$375,808,346 on March 22, 2000, based on $16 3/8 per unit, the closing price of
the Common Units as reported on the New York Stock Exchange on such date.
At March 22, 2000, there were outstanding 23,049,239 Common Units, 1,307,190
Class B Common Units and 10,029,619 Subordinated Units.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
Part I
Items 1. and 2. Business and Properties.................................. 3
Item 3. Legal Proceedings........................................ 21
Item 4. Submission of Matters to a Vote of Security Holders...... 21
PART II
Item 5. Market for Registrant's Common Units and Related
Unitholder Matters....................................... 22
Item 6. Selected Financial and Operating Data.................... 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 25
Item 7a. Quantitative and Qualitative Disclosures About
Market Risks............................................. 37
Item 8. Financial Statements and Supplementary Data.............. 37
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 37
PART III
Item 10. Directors and Executive Officers of
Our General Partner...................................... 38
Item 11. Executive Compensation................................... 40
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................... 43
Item 13. Certain Relationships and Related Transactions........... 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...................................... 46
FORWARD-LOOKING STATEMENTS
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 our business strategy, plans and objectives of our management for
future operations. These statements reflect our current views and those of our
general partner with respect to future events, based on what we believe are
reasonable assumptions. These statements, however, are subject to certain risks,
uncertainties and assumptions, including, but not limited to:
. the availability of adequate supplies of and demand for crude oil in the
areas in which we operate;
. the impact of crude oil price fluctuations;
. the effects of competition;
. the success of our risk management activities;
. the availability (or lack thereof) of acquisition or combination
opportunities;
. the impact of current and future laws and governmental regulations;
. environmental liabilities that are not covered by an indemnity or
insurance; and
. general economic, market or business conditions.
If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, actual results may vary materially from the results
anticipated in the forward-looking statements. Except as required by applicable
securities laws, we do not intend to update these forward-looking statements and
information.
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
We are a publicly traded Delaware limited partnership engaged in interstate
and intrastate crude oil transportation, terminalling and storage, as well as
crude oil gathering and marketing activities. We were formed in September 1998
to acquire and operate the midstream crude oil business and assets of Plains
Resources Inc., whose wholly-owned subsidiary, Plains All American, Inc., is our
general partner. In 1999, we grew through acquisitions and internal development
to become one of the largest transporters, terminal operators, gatherers and
marketers of crude oil in the United States. We currently transport, terminal,
gather and market an aggregate of approximately 650,000 barrels of crude oil per
day.
Our operations are concentrated in California, Texas, Oklahoma, Louisiana and
the Gulf of Mexico and can be categorized into two primary business activities:
. CRUDE OIL PIPELINE TRANSPORTATION. Our activities from pipeline operations
generally consist of transporting third-party volumes of crude oil for a
tariff, as well as merchant activities designed to capture location and
quality price differentials. We own and operate several pipeline systems
including:
. a segment of the All American Pipeline that extends approximately 140
miles from Las Flores, California to Emidio, California. In March 2000,
we sold the 1,089-mile segment of the All American Pipeline that extends
from Emidio, California to McCamey, Texas. See "All American Pipeline
Linefill Sale and Asset Disposition";
. the San Joaquin Valley Gathering System in California;
. the West Texas Gathering System, the Spraberry Pipeline System, and the
East Texas Pipeline System, which are all located in Texas;
. the Sabine Pass Pipeline System in southwest Louisiana and southeast
Texas;
. the Ferriday Pipeline System in eastern Louisiana and western
Mississippi; and
. the Illinois Basin Pipeline System in southern Illinois.
. TERMINALLING AND STORAGE ACTIVITIES AND GATHERING AND MARKETING ACTIVITIES
We own and operate a state-of-the- art, 3.1 million barrel, above-ground
crude oil terminalling and storage facility at Cushing, Oklahoma, the
largest crude oil trading hub in the United States and the designated
delivery point for New York Mercantile Exchange ("NYMEX") crude oil futures
contracts. We also have an additional 6.6 million barrels of terminalling
and storage capacity in our other facilities, including tankage associated
with our pipeline and gathering systems. Our terminalling and storage
operations generate revenue through a combination of storage and throughput
fees. Our storage facilities also complement our merchant activities.
We own or lease approximately 280 trucks, 325 tractor-trailers and 290
injection stations, which we use in our gathering and marketing activities.
Our gathering and marketing operations include:
. the purchase of crude oil at the wellhead and the bulk purchase of crude
oil at pipeline and terminal facilities;
. the transportation of crude oil on trucks, barges or pipelines; and
. the subsequent resale or exchange of crude oil at various points along
the crude oil distribution chain.
PARTNERSHIP STRUCTURE AND MANAGEMENT
Our operations are conducted through, and our operating assets are owned by,
our subsidiaries. We own our interests in our subsidiaries through three
operating partnerships, Plains Marketing, L.P., All American Pipeline, L.P. and
Plains Scurlock Permian, L.P.
Our general partner has sole responsibility for conducting our business and
managing our operations and owns all of the incentive distribution rights. Some
of the senior executives who currently manage our business also manage and
operate the business of Plains Resources. Our general partner does not receive
any management fee or other compensation in connection with its management of
our business, but it is reimbursed for all direct and indirect expenses incurred
on our behalf.
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The chart below depicts the organization and ownership of Plains All American
Pipeline, the operating partnerships and the subsidiaries. As is reflected in
the chart, a subsidiary of our general partner owns 6,904,795 common units and
10,029,619 subordinated units, representing a 19.7% and 28.6% interest in the
partnership and our subsidiaries. In addition, our general partner owns
1,307,190 Class B common units representing a 3.7% interest in the partnership
and our subsidiaries. The percentages reflected in the organization chart
represent the approximate ownership interest in Plains All American Pipeline,
the operating partnerships and their subsidiaries individually and not on a
combined basis.
[CHART APPEARS HERE]
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UNAUTHORIZED TRADING LOSSES
In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). A full investigation into the unauthorized trading activities by
outside legal counsel and independent accountants and consultants determined
that the vast majority of the losses occurred from March through November 1999,
and the impact warranted a restatement of previously reported financial
information for 1999 and 1998 (see Note 3 in the Notes to the Consolidated and
Combined Financial Statements appearing elsewhere in this report).
Normally, as we purchase crude oil, we establish a margin by selling crude oil
for physical delivery to third-party users or by entering into a future delivery
obligation with respect to futures contracts. The employee in question violated
our policy of maintaining a position that is substantially balanced between
crude oil purchases and sales or future delivery obligations. The unauthorized
trading and associated losses resulted in a default of certain covenants under
our credit facilities and significant short-term cash and letter of credit
requirements. See Item 7. - "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Capital Resources, Liquidity and Financial
Condition."
In December 1999, we executed amended credit facilities and obtained default
waivers from all of our lenders. The amended credit facilities:
. waived defaults under covenants contained in the existing credit
facilities;
. increased availability under our letter of credit and borrowing facility
from $175.0 million in November 1999 to $295.0 million in December 1999,
$315.0 million in January 2000, and thereafter decreasing to $239.0 million
in February through April 2000, to $225.0 million in May and June 2000 and
to $200.0 million in July 2000 through July 2001;
. required the lenders' consent prior to the payment of distributions to
unitholders;
. prohibited contango inventory transactions subsequent to January 20, 2000;
and
. increased interest rates and fees under certain of the facilities.
We paid approximately $13.7 million to our lenders in connection with the
amended credit facilities. This amount was capitalized as debt issue costs and
will be amortized over the remaining term of the amended facilities. In
connection with the amendments, our general partner loaned us approximately
$114.0 million. This subordinated debt is due not later than November 30, 2005.
In the period immediately following the disclosure of the unauthorized trading
losses, a significant number of our suppliers and trading partners reduced or
eliminated the open credit previously extended to us. Consequently, the amount
of letters of credit we needed to support the level of our crude oil purchases
then in effect increased significantly. In addition, the cost to us of obtaining
letters of credit increased under the amended credit facility. In many instances
we arranged for letters of credit to secure our obligations to purchase crude
oil from our customers, which increased our letter of credit costs and decreased
our unit margins. In other instances, primarily involving lower margin wellhead
and bulk purchases, certain of our purchase contracts were terminated. As a
result of these changes, aggregate volumes purchased are expected to decrease by
150,000 barrels per day, consisting primarily of lower unit margin purchases.
Approximately 50,000 barrels per day of the decrease is related to barrels
gathered at producer lease locations and 100,000 barrels per day is attributable
to bulk purchases. As a result of the increase in letter of credit costs and
reduced volumes, annual EBITDA is expected to be adversely affected by
approximately $5.0 million, excluding the positive impact of current favorable
market conditions. EBITDA means earnings before interest expense, income taxes
and depreciation and amortization.
We have taken appropriate and aggressive steps within our organization to
enhance our processes and procedures to prevent future unauthorized trading. One
of such steps includes the creation of a new professional risk management
position. This risk manager has direct responsibility and authority for our
trading controls and procedures and other aspects of corporate risk management.
However, we can give no assurance that such steps will detect and prevent all
violations of our trading policies and procedures, particularly if deception or
other intentional misconduct is involved.
RESULTS OF OPERATIONS
For the year ended December 31, 1999, our gross margin deficit, EBITDA, cash
flow from operations and net loss totaled ($56.1) million, $89.1 million, $67.2
million and ($103.4) million, respectively. Excluding the unauthorized trading
losses, our gross margin and net income for the year ended December 31, 1999
would have been $110.3 million and $63.1 million, respectively. Cash flow from
operations represents net income before noncash items. EBITDA and cash flow from
operations both exclude the unauthorized trading losses, noncash compensation
expense, restructuring expense, linefill gain
5
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and extraordinary loss from extinguishment of debt. Excluding the unauthorized
trading losses, our pipeline operations accounted for approximately 53% of our
gross margin for year ended December 31, 1999, while our terminalling and
storage activities and gathering and marketing activities accounted for
approximately 47%.
ACQUISITIONS AND DISPOSITIONS
Scurlock Acquisition
On May 12, 1999, we completed the acquisition of Scurlock Permian LLC and
certain other pipeline assets from Marathon Ashland Petroleum LLC. Including
working capital adjustments and closing and financing costs, the cash purchase
price was approximately $141.7 million.
Scurlock, previously a wholly-owned subsidiary of Marathon Ashland Petroleum,
is engaged in crude oil transportation, gathering and marketing, and owns
approximately 2,300 miles of active pipelines, numerous storage terminals and a
fleet of more than 250 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
we acquired also included approximately one million barrels of crude oil
linefill.
Financing for the Scurlock acquisition was provided through:
. borrowings of approximately $92.0 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A.;
. the sale to our general partner of 1.3 million of our Class B common units
for a total cash consideration of $25.0 million, or $19.125 per unit, the
price equal to the market value of our common units on May 12, 1999; and
. a $25.0 million draw under our existing revolving credit agreement.
The Class B common units are pari passu with common units with respect to
quarterly distributions, and are convertible into common units upon approval of
a majority of the common unitholders. The Class B unitholders may request that
we call a meeting of common unitholders to consider approval of the conversion
of Class B units into common units. If the approval of a conversion by the
common unitholders is not obtained within 120 days of a request, each Class B
unitholder 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 120-day period. Except for the vote to approve the
conversion, the Class B units have the same voting rights as the common units.
West Texas Gathering System Acquisition
On July 15, 1999, we completed the acquisition of the West Texas Gathering
System from Chevron Pipe Line Company for approximately $36.0 million, including
transaction costs. Financing for the amounts paid at closing was provided by a
draw under the term loan portion of the Plains Scurlock credit facility. See
Item 7. - "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The assets acquired include approximately 450 miles of
crude oil transmission mainlines, approximately 400 miles of associated
gathering and lateral lines, and approximately 2.9 million barrels of tankage
located along the system.
All American Pipeline Linefill Sale and Asset Disposition
We initiated the sale of approximately 5.2 million barrels of crude oil
linefill from the All American Pipeline in November 1999. This sale was
substantially completed in February 2000. The linefill was located in the
segment of the All American Pipeline that extends from Emidio, California, to
McCamey, Texas. Except for minor third party volumes, one of our subsidiaries
has been the sole shipper on this segment of the pipeline since its predecessor
acquired the line from the Goodyear Tire & Rubber Company in July 1998. Proceeds
from the sale of the linefill were approximately $100.0 million, net of
associated costs, and were used for working capital purposes. We estimate that
we will recognize a total gain of approximately $44.0 million in connection with
the sale of linefill. As of December 31, 1999, we had delivered approximately
1.8 million barrels of linefill and recognized a gain of $16.5 million.
On March 24, 2000, we complete the sale of the above referenced segment of the
All American Pipeline to a unit of El Paso Energy Corporation for total proceeds
of $129.0 million. The proceeds from the sale were used to reduce outstanding
debt. Our net proceeds are expected to be approximately $124.0 million, net of
associated transaction costs and estimated costs to remove certain equipment. We
estimate that we will recognize a gain of approximately $20.0 million in
connection
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with the sale. During 1999, we reported gross margin of approximately $5.0
million from volumes transported on the segment of the line that was sold.
CRUDE OIL PIPELINE OPERATIONS
We present below a description of our principal pipeline assets. All of our
pipeline systems are operated from one of two central control rooms with SCADA
computer systems designed to continuously monitor real time operational data
including measurement of crude oil quantities injected in and delivered through
the pipelines, product flow rates and pressure and temperature variations. This
monitoring and measurement technology provides us the ability to efficiently
batch differing crude oil types with varying characteristics through the
pipeline systems. The SCADA systems are designed to enhance leak detection
capabilities, sound automatic alarms in the event of operational conditions
outside of pre-established parameters and provide for remote-controlled shut-
down of pump stations on the pipeline systems. Pump stations, storage facilities
and meter measurement points along the pipeline systems are linked by telephone,
microwave, satellite or radio communication systems for remote monitoring and
control, which reduces our requirement for full time site personnel at most of
these locations.
We perform scheduled maintenance on all of our pipeline systems and make
repairs and replacements when necessary or appropriate. We attempt to control
corrosion of the mainlines through the use of corrosion inhibiting chemicals
injected into the crude stream, external coatings and anode bed based or
impressed current cathodic protection systems. Maintenance facilities containing
equipment for pipe repairs, spare parts and trained response personnel are
strategically located along the pipelines and in concentrated operating areas.
We believe that all of our pipelines have been constructed and are maintained in
all material respects in accordance with applicable federal, state and local
laws and regulations, standards prescribed by the American Petroleum Institute
and accepted industry practice.
All American Pipeline
The segment of the All American Pipeline which was not sold to El Paso
(see "- All American Pipeline Linefill Sale and Asset Disposition") is a common
carrier crude oil pipeline system that transports crude oil produced from fields
offshore California to locations in California pursuant to tariff rates
regulated by the Federal Energy Regulatory Commission ("FERC") (see " -
Regulation - Transportation Regulation"). As a common carrier, the All American
Pipeline offers transportation services to any shipper of crude oil, provided
that the crude oil tendered for transportation satisfies the conditions and
specifications contained in the applicable tariff. The All American Pipeline
transports crude oil for third parties as well as for us.
We currently operate the segment of the system that extends approximately 10
miles from Exxon's onshore facilities at Las Flores on the California coast to
Plains Resources' onshore facilities at Gaviota, California (24 inch diameter
pipe) and continues from Gaviota approximately 130 miles to our station in
Emidio, California (30-inch pipe). Between Gaviota and our Emidio Station, the
All American Pipeline interconnects with our SJV Gathering System as well as
various third party intrastate pipelines, including the Unocap Pipeline System,
Pacific Pipeline, and a pipeline owned by EOTT Energy Partners, L.P.
System Supply. The All American Pipeline currently transports Outer
Continental Shelf crude oil received at the onshore facilities of the Santa Ynez
field at Las Flores, California and the onshore facilities of the Point Arguello
field located at Gaviota, California.
Effective December 1, 1999, the segment of the All American Pipeline that was
sold to El Paso ceased being used for crude oil transportation. Exxon, which
owns all of the Santa Ynez production, and Plains Resources, Texaco and Sun
Operating L.P., which together own approximately one-half of the Point Arguello
production, have entered into transportation agreements committing to transport
all of their production from these fields on the segment of the All American
Pipeline which we retained. These agreements, which expire in August 2007,
provide for a minimum tariff with annual escalations. At December 31, 1999, the
tariffs averaged $1.41 per barrel for deliveries to connecting pipelines in
California. The agreements do not require these owners to transport a minimum
volume. The producers from the Point Arguello field who do not have contracts
with us have no other means of transporting their production and, therefore,
ship their volumes on the All American Pipeline at the posted tariffs. For the
year ended December 31, 1999, approximately $30.6 million, or 17%, of our gross
margin was attributable to the Santa Ynez field and approximately $10.6 million,
or 6% was attributable to the Point Arguello field. Transportation of volumes
from the Point Arguello field on the All American Pipeline commenced in 1991 and
from the Santa Ynez field in 1994.
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The table below sets forth the historical volumes received from both of these
fields.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991
------- ------ ------ ------- ------ ------ ------- ------- ------
(barrels in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average daily volumes received from:
Point Arguello (at Gaviota) 20 26 30 41 60 73 63 47 29
Santa Ynez (at Las Flores) 59 68 85 95 92 34 - - -
------- ------ ------ ------- ------ ------ ------- ------- ------
Total 79 94 115 136 152 107 63 47 29
======= ====== ====== ======= ====== ====== ======= ======= ======
</TABLE>
In July 1999, a wholly-owned subsidiary of Plains Resources acquired Chevron
USA's 26% working interest in Point Arguello and is the operator of record for
the Point Arguello Unit. All of the volumes attributable to Plains Resources'
interests are committed for transportation on the All American Pipeline and are
subject to our Marketing Agreement with Plains Resources. Plains Resources
believes that opportunities may exist to minimize production decline and,
barring operational or economic disruptions, to offset production decline or
increase production. We anticipate that average daily production received from
the Santa Ynez field for 2000 will generally approximate 55,000 to 60,000
barrels, although we can provide no assurance in that regard.
According to information published by the Minerals Management Service ("MMS"),
significant additional proved, undeveloped reserves have been identified
offshore California which have the potential to be delivered on the All American
Pipeline. Future volumes of crude oil deliveries on the All American Pipeline
will depend on a number of factors that are beyond our control, including
. the economic feasibility of developing the reserves;
. the economic feasibility of connecting such reserves to the All American
Pipeline; and
. the ability of the owners of such reserves to obtain the necessary
governmental approvals to develop such reserves.
The owners of these reserves have filed development plans with the MMS. On
August 13, 1999, the MMS cancelled 4 of the 40 undeveloped leases offshore
California concluding they did not qualify for further lease suspensions. At the
same time, they directed 90-day extensions to the suspensions for the remaining
36 leases to gather additional information. On November 12, 1999, the Secretary
of the Interior directed suspensions for the 36 leases ending at various periods
between June 1, 2001 and August 1, 2003 for the purpose of (1) completion of an
environmental review including cumulative analysis taking into account changed
circumstances, (2) obtaining detailed plans of lessee's additional exploration
and development activities, and (3) the maximum review of these plans allowed
under law. Immediately thereafter, the State of California filed suit claiming
that the California Coastal Commission must review requests for suspension
consistency under California's Coastal Plan before the MMS can approve
suspensions. We cannot assure you that the owners will develop such reserves,
that the MMS will approve development plans or that future regulations or
litigation will not prevent or delay their ultimate development and production.
We also cannot assure you that, if such reserves were developed, a competing
pipeline will not be built to transport the production. In addition, a June 12,
1998 Executive Order of the President of the United States extends until the
year 2012 a statutory moratorium on new leasing of offshore California fields.
Existing fields are authorized to continue production, but federal, state and
local agencies may restrict permits and authorizations for their development,
and may restrict new onshore facilities designed to serve offshore production of
crude oil. San Luis Obispo and Santa Barbara counties have adopted zoning
ordinances that prohibit development, construction, installation or expansion of
any onshore support facility for offshore oil and gas activity in the area,
unless approved by a majority of the votes cast by the voters of the affected
county in an authorized election. Any such restrictions, should they be imposed,
could adversely affect the future delivery of crude oil to the All American
Pipeline.
San Joaquin Valley Supply. The San Joaquin Valley is one of the most prolific
oil producing regions in the continental United States, producing approximately
559,000 barrels per day of crude oil during the first nine months of 1999 that
accounted for approximately 67% of total California production and 11% of the
total production in the lower 48 states.
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The following table reflects the historical production for the San Joaquin
Valley as well as total California production (excluding OCS volumes) as
reported by the California Division of Oil and Gas.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1999/(1)/ 1998 1997 1996 1995 1994 1993 1992 1991 1990
------- ------ ------ ------ ------- ------ ------ ------- ------- ------
(barrels in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average daily volumes:
San Joaquin Valley production (2) 559 592 584 579 569 578 588 609 634 629
Total California production
(excluding OCS volumes) 731 781 781 772 764 784 803 835 875 879
</TABLE>
- ----------------
(1) Reflects information through September 1999.
(2) Consists of production from California Division of Oil and Gas District IV.
System Demand. Deliveries from the All American Pipeline are made to
California refineries through connections with third-party pipelines at Sisquoc,
Pentland and Emidio. Deliveries at Mojave were discontinued in the second
quarter of 1999, and volumes previously delivered to Mojave are delivered to
Emidio. Except for the purging of linefill volumes, deliveries to Texas were
discontinued effective December 1, 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- -------- -------
(barrels in thousands)
<S> <C> <C> <C> <C> <C>
Average daily volumes delivered to:
California
Sisquoc 27 24 21 17 11
Pentland 52 69 74 71 65
Mojave 7 22 32 6 -
Emidio 15 - - - -
-------- ------- -------- -------- -------
Total California 101 115 127 94 76
Texas (1) 56 59 68 113 141
-------- ------- -------- -------- -------
Total 157 174 195 207 217
======== ======= ======== ======== =======
</TABLE>
- --------------
(1) See "Acquisitions and Dispositions - All American Pipeline Linefill and
Asset Disposition".
SJV Gathering System
The SJV Gathering System is a proprietary pipeline system. As a proprietary
pipeline, the SJV Gathering System is not subject to common carrier regulations.
The SJV Gathering System was constructed in 1987 with a design capacity of
approximately 140,000 barrels per day. The system consists of a 16-inch pipeline
that originates at the Belridge station and extends 45 miles south to a
connection with the All American Pipeline at the Pentland station. The SJV
Gathering System is connected to several fields, including the South Belridge,
Elk Hills and Midway Sunset fields, three of the seven largest producing fields
in the lower 48 states. In 1999, we leased a pipeline that provides us access to
the Lost Hills field. The SJV Gathering System also includes approximately
586,000 barrels of tank capacity, which can be used to facilitate movements
along the system as well as to support our other activities.
The SJV Gathering System is supplied with the crude oil production primarily
from major oil companies' equity production from the South Belridge, Cymeric,
Midway Sunset, Elk Hills and Lost Hills fields. The table below sets forth the
historical volumes received into the SJV Gathering System.
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(BARRELS IN THOUSANDS)
Total average daily volumes 84 85 91 67 50
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West Texas Gathering System
We purchased the West Texas Gathering System from Chevron Pipe Line Company in
July 1999 for approximately $36.0 million, including transaction costs. The West
Texas Gathering System is a common carrier crude oil pipeline system located in
the heart of the Permian Basin producing area. The West Texas Gathering System
has lease gathering facilities in Crane, Ector, Upton, Ward and Winkler
counties. In aggregate, these counties have produced on average in excess of
150,000 barrels per day of crude oil over the last four years. The West Texas
Gathering System was originally built by Gulf Oil Corporation in the late
1920's, expanded during the late 1950's and updated during the mid 1990's. The
West Texas Gathering System provides us with considerable flexibility, as major
segments are bi-directional and allow us to move crude oil between three of the
major trading locations in West Texas.
Lease volumes gathered into the system are approximately 50,000 barrels per
day. Chevron USA has agreed to transport its equity crude oil production from
fields connected to the West Texas Gathering System on the system through July
2011 (currently representing approximately 22,000 barrels per day, or 44% of
total system gathering volumes and 22% of the total system volumes). Other large
producers connected to the gathering system include Burlington, Devon, Anadarko,
Altura, Bass, and Fina. Volumes from connecting carriers, including Exxon,
Phillips and Unocal, average approximately 42,000 barrels per day. Our West
Texas Gathering System has the capability to transport approximately 190,000
barrels per day. At the time of the acquistion, truck injection stations were
limited and provided less than 1,000 barrels per day. We have installed ten
truck injection stations on the West Texas Gathering System since the
acquisition. Our trucks are used to pick up crude oil produced in the areas
adjacent to the West Texas Gathering System and deliver these volumes into the
pipeline. These additional injection stations allowed us to reduce the distance
of our truck hauls in this area, increase the utilization of our pipeline assets
and reduce our operating costs. Volumes received from truck injection stations
were increased to 10,000 barrels per day by the fourth quarter of 1999. The West
Texas Gathering System also includes approximately 2.9 million barrels of tank
capacity located along the pipeline system.
Spraberry Pipeline System
The Spraberry Pipeline System, acquired in the Scurlock acquisition, is a
proprietary pipeline system that gathers crude oil from the Spraberry Trend of
West Texas and transports it to Midland, Texas, where it interconnects with the
West Texas Gathering System and other pipelines. The Spraberry Pipeline System
consists of approximately 800 miles of pipe of varying diameter, and has a
throughput capacity of approximately 50,000 barrels of crude oil per day. The
Spraberry Trend is one of the largest producing areas in West Texas, and we are
one of the largest gatherers in the Spraberry Trend. The Spraberry Pipeline
System gathers approximately 34,000 barrels per day of crude oil. Large
suppliers to the Spraberry Pipeline System include Lantern Petroleum and Pioneer
Natural Resources. The Spraberry Pipeline System also includes approximately
173,000 barrels of tank capacity located along the pipeline.
Sabine Pass Pipeline System
The Sabine Pass Pipeline System, acquired in the Scurlock acquisition, is a
common carrier crude oil pipeline system. The primary purpose of the Sabine Pass
Pipeline System is to gather crude oil from onshore facilities of offshore
production near Johnson's Bayou, Louisiana, and deliver it to tankage and barge
loading facilities in Sabine Pass, Texas. The Sabine Pass Pipeline System
consists of approximately 34 miles of pipe ranging from 4 to 6 inches in
diameter and has a throughput capacity of approximately 26,000 barrels of
Louisiana light sweet crude oil per day. For the year ended December 31, 1999,
the system transported approximately 16,500 barrels of crude oil per day. The
Sabine Pass Pipeline System also includes 245,000 barrels of tank capacity
located along the pipeline.
Ferriday Pipeline System
The Ferriday Pipeline System, acquired in the Scurlock acquisition, is a
common carrier crude oil pipeline system which is located in East Louisiana and
West Mississippi. The Ferriday Pipeline System consists of approximately 600
miles of pipe ranging from 2 inches to 12 inches in diameter. The Ferriday
Pipeline System delivers 9,000 barrels per day of crude oil to third-party
pipelines that supply refiners in the Midwest. The Ferriday Pipeline System also
includes approximately 348,000 barrels of tank capacity located along the
pipeline.
In November 1999, we completed the construction of an 8-inch pipeline
underneath the Mississippi River that connects our Ferriday Pipeline System in
West Mississippi with the portion of the system located in East Louisiana. This
connection provides us with bi-directional capability to access additional
markets and enhances our ability to service our pipeline customers and take
advantage of additional high margin merchant activities.
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East Texas Pipeline System
The East Texas Pipeline System, acquired in the Scurlock acquisition, is a
proprietary crude oil pipeline system that is used to gather approximately
10,000 barrels per day of crude oil in East Texas and transport approximately
22,000 barrels per day of crude oil to Crown Central's refinery in Longview,
Texas. The deliveries to Crown Central are subject to a five-year throughput and
deficiency agreement, which extends through 2004. The East Texas Pipeline System
also includes approximately 221,000 barrels of tank capacity located along the
pipeline.
Illinois Basin Pipeline System
The Illinois Basin Pipeline System, acquired with the Scurlock acquisition,
consists of common carrier pipeline and gathering systems and truck injection
facilities in southern Illinois. The Illinois Basin Pipeline System consists of
approximately 170 miles of pipe of varying diameter and delivers approximately
6,400 barrels per day of crude oil to third-party pipelines that supply refiners
in the Midwest. Approximately 3,600 barrels per day of the supply on this system
are from fields operated by Plains Resources.
TERMINALLING AND STORAGE ACTIVITIES AND GATHERING AND MARKETING ACTIVITIES
Terminalling and Storage Activities
We own approximately 9.7 million barrels of terminalling and storage assets,
including tankage associated with our pipeline and gathering systems. Our
terminalling and storage operations generate revenue through terminalling and
storage fees paid by third parties as well as by utilizing the tankage in
conjunction with our merchant activities. Storage fees are generated when we
lease tank capacity to third parties. Terminalling fees, also referred to as
throughput fees, are generated when we receive crude oil from one connecting
pipeline and redeliver such crude oil to another connecting carrier in volumes
that allow the refinery to receive its crude oil on a ratable basis throughout a
delivery period. Both terminalling and storage fees are generally earned from:
. refiners and gatherers that segregate or custom blend crudes for refining
feedstocks;
. pipeline operators, refiners or traders that need segregated tankage for
foreign cargoes;
. traders who make or take delivery under NYMEX contracts; and
. producers and resellers that seek to increase their marketing alternatives.
The tankage that is used to support our arbitrage activities positions us to
capture margins in a contango market or when the market switches from contango
to backwardation.
Our most significant terminalling and storage asset is our Cushing Terminal
which was constructed in 1993, and expanded by approximately 50% in 1999, to
capitalize on the crude oil supply and demand imbalance in the Midwest. The
imbalance was caused by the continued decline of regional production supplies,
increasing imports and an inadequate pipeline and terminal infrastructure. The
Cushing Terminal is also used to support and enhance the margins associated with
our merchant activities relating to our lease gathering and bulk trading
activities.
The Cushing Terminal has total storage capacity of approximately 3.1 million
barrels. The Cushing Terminal is comprised of fourteen 100,000 barrel tanks,
four 150,000 barrel tanks and four 270,000 barrel tanks which are used to store
and terminal crude oil. The Cushing Terminal also includes a pipeline manifold
and pumping system that has an estimated daily throughput capacity of
approximately 800,000 barrels per day. The pipeline manifold and pumping system
is designed to support more than ten million barrels of tank capacity. The
Cushing Terminal is connected to the major pipelines and terminals in the
Cushing Interchange through pipelines that range in size from 10 inches to 24
inches in diameter.
The Cushing Terminal is a state-of-the-art facility designed to serve the
needs of refiners in the Midwest. In order to service an expected increase in
the volumes as well as the varieties of foreign and domestic crude oil projected
to be transported through the Cushing Interchange, we incorporated certain
attributes into the design of the Cushing Terminal including:
. multiple, smaller tanks to facilitate simultaneous handling of multiple
crude varieties in accordance with normal pipeline batch sizes;
. dual header systems connecting most tanks to the main manifold system to
facilitate efficient switching between crude grades with minimal
contamination;
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. bottom drawn sumps that enable each tank to be efficiently drained down to
minimal remaining volumes to minimize crude contamination and maintain
crude integrity during changes of service;
. mixer(s) on each tank to facilitate blending crude grades to refinery
specifications; and
. a manifold and pump system that allows for receipts and deliveries with
connecting carriers at their maximum operating capacity.
As a result of incorporating these attributes into the design of the Cushing
Terminal, we believe we are favorably positioned to serve the needs of Midwest
refiners to handle an increase in varieties of crude transported through the
Cushing Interchange.
The Cushing Terminal also incorporates numerous environmental and operational
safeguards. We believe that our terminal is the only one at the Cushing
Interchange in which each tank has a secondary liner (the equivalent of double
bottoms), leak detection devices and secondary seals. The Cushing Terminal is
the only terminal at the Cushing Interchange equipped with aboveground
pipelines. Like the pipeline systems we operate, the Cushing Terminal is
operated by a SCADA system and each tank is cathodically protected. In addition,
each tank is equipped with an audible and visual high level alarm system to
prevent overflows; a double seal floating roof that minimizes air emissions and
prevents the possible accumulation of potentially flammable gases between fluid
levels and the roof of the tank; and a foam dispersal system that, in the event
of a fire, is fed by a fully-automated fire water distribution network.
The Cushing Interchange is the largest wet barrel trading hub in the U.S. and
the delivery point for crude oil futures contracts traded on the NYMEX. The
Cushing Terminal has been designated by the NYMEX as an approved delivery
location for crude oil delivered under the NYMEX light sweet crude oil futures
contract. As the NYMEX delivery point and a cash market hub, the Cushing
Interchange serves as a primary source of refinery feedstock for the Midwest
refiners and plays an integral role in establishing and maintaining markets for
many varieties of foreign and domestic crude oil.
The following table sets forth throughput volumes for our terminalling and
storage operations, and quantity of tankage leased to third parties from 1995
through 1999.
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
(BARRELS IN THOUSANDS)
Throughput volumes
(average daily volumes):
Cushing Terminal 72 69 69 56 43
Ingleside Terminal 11 11 8 3 -
----- ----- ----- ----- -----
Total 83 80 77 59 43
===== ===== ===== ===== =====
Storage leased to third parties
(monthly average volumes):
Cushing Terminal 1,743 890 414 203 208
Ingleside Terminal 232 260 254 211 -
----- ----- ----- ----- -----
Total 1,975 1,150 668 414 208
===== ===== ===== ===== =====
Gathering and Marketing Activities
Our gathering and marketing activities are conducted in 23 states; however,
the vast majority of those activities are in Texas, Louisiana, California,
Illinois and the Gulf of Mexico. These activities include:
. purchasing crude oil from producers at the wellhead and in bulk from
aggregators at major pipeline interconnects and trading locations;
. transporting this crude oil on our own proprietary gathering assets or
assets owned and operated by third parties when necessary or cost
effective;
. exchanging this crude oil for another grade of crude oil or at a different
geographic location, as appropriate, in order to maximize margins or meet
contract delivery requirements; and
. marketing crude oil to refiners or other resellers.
We purchase crude oil from many independent producers and believe that we have
established broad-based relationships with crude oil producers in our areas of
operations. For the year ended December 31, 1999, we purchased approximately
265,000 barrels per day of crude oil directly at the wellhead from more than
2,200 producers from approximately 10,700 leases. We purchase crude oil from
producers under contracts that range in term from a thirty-day evergreen to
three years.
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Gathering and marketing activities are characterized by large volumes of
transactions with lower margins relative to pipeline and terminalling and
storage operations.
In the period immediately following the disclosure of the unauthorized trading
losses, a significant number of our suppliers and trading partners reduced or
eliminated the amount of open credit previously extended to us. Consequently,
the amount of letters of credit we needed to support the level of crude oil
purchases then in effect increased significantly. In many instances we arranged
for letters of credit to secure our obligations to purchase crude oil from our
customers. In other instances, certain of our purchase contracts were
terminated. As a result of these changes, aggregate volumes purchased are
expected to decrease by 150,000 barrels per day, consisting primarily of lower
unit margin purchases. Approximately 50,000 barrels per day of the decrease is
related to barrels gathered at producer lease locations and 100,000 barrels per
day is attributable to bulk purchases. See "Unauthorized Trading Losses" and
Item 7. - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Resources, Liquidity and Financial Condition".
The following table shows the average daily volume of our lease gathering and
bulk purchases from 1995 through 1999.
Year Ended December 31,
-----------------------------------------
1999(1) 1998 1997 1996 1995
------- ------ ------ ------- ------
(barrels in thousands)
Lease gathering (1) 265 88 71 59 46
Bulk purchases 138 98 49 32 10
------- ------ ------ ------- ------
Total volumes 403 186 120 91 56
======= ====== ====== ======= ======
- ---------
(1) Includes volumes from Scurlock Permian since May 1, 1999.
Crude Oil Purchases. In a typical producer's operation, crude oil flows from
the wellhead to a separator where the petroleum gases are removed. After
separation, the crude oil is treated to remove water, sand and other
contaminants and is then moved into the producer's on-site storage tanks. When
the tank is full, the producer contacts our field personnel to purchase and
transport the crude oil to market. We utilize our truck fleet and gathering
pipelines and third-party pipelines, trucks and barges to transport the crude
oil to market. We own or lease approximately 280 trucks, 325 tractor-trailers
and 290 injection stations.
We have a Marketing Agreement with Plains Resources Inc., under which we are
the exclusive marketer/purchaser for all of Plains Resources' equity crude oil
production. The Marketing Agreement provides that we will purchase for resale at
market prices all of Plains Resources' equity crude oil production for which we
charge a fee of $0.20 per barrel. This fee will be adjusted every three years
based upon then existing market conditions. The Marketing Agreement will
terminate upon a "change of control" of Plains Resources or our general partner.
Bulk Purchases. In addition to purchasing crude oil at the wellhead from
producers, we purchase crude oil in bulk at major pipeline terminal points. This
production is transported from the wellhead to the pipeline by major oil
companies, large independent producers or other gathering and marketing
companies. We purchase crude oil in bulk when we believe additional
opportunities exist to realize margins further downstream in the crude oil
distribution chain. The opportunities to earn additional margins vary over time
with changing market conditions. Accordingly, the margins associated with our
bulk purchases will fluctuate from period to period. Our bulk purchasing
activities are concentrated in California, Texas, Louisiana and at the Cushing
Interchange.
Crude Oil Sales. The marketing of crude oil is complex and requires detailed
current knowledge of crude oil sources and end markets and a familiarity with a
number of factors including grades of crude oil, individual refinery demand for
specific grades of crude oil, area market price structures for the different
grades of crude oil, location of customers, availability of transportation
facilities and timing and costs (including storage) involved in delivering crude
oil to the appropriate customer. We sell our crude oil to major integrated oil
companies, independent refiners and other resellers in various types of sale and
exchange transactions, at market prices for terms ranging from one month to
three years.
As we purchase crude oil, we establish a margin by selling crude oil for
physical delivery to third party users, such as independent refiners or major
oil companies, or by entering into a future delivery obligation with respect to
futures contracts on the NYMEX. Through these transactions, we seek to maintain
a position that is substantially balanced between crude oil purchases and sales
and future delivery obligations. We from time to time enter into fixed price
delivery contracts, floating price collar arrangements, financial swaps and
crude oil futures contracts as hedging devices. Our policy is generally to
purchase only crude oil for which we have a market and to structure our sales
contracts so that crude oil price fluctuations do
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not materially affect the gross margin which we receive. We do not acquire and
hold crude oil, futures contracts or other derivative products for the purpose
of speculating on crude oil price changes that might expose us to indeterminable
losses. In November 1999, we discovered that this policy was violated, and we
incurred $174.0 million in unauthorized trading losses, including estimated
associated costs and legal expenses. See "Unauthorized Trading Losses".
Risk management strategies, including those involving price hedges using NYMEX
futures contracts, have become increasingly important in creating and
maintaining margins. Such hedging techniques require significant resources
dedicated to managing futures positions. We are able to monitor crude oil
volumes, grades, locations and delivery schedules and to coordinate marketing
and exchange opportunities, as well as NYMEX hedging positions. This
coordination ensures that our NYMEX hedging activities are successfully
implemented. We have recently hired a Risk Manager that has direct
responsibility and authority for our risk policies and our trading controls and
procedures and other aspects of corporate risk management.
Crude Oil Exchanges. We pursue exchange opportunities to enhance margins
throughout the gathering and marketing process. When opportunities arise to
increase our margin or to acquire a grade of crude oil that more nearly matches
our delivery requirement or the preferences of our refinery customers, we
exchange physical crude oil with third parties. These exchanges are effected
through contracts called exchange or buy-sell agreements. Through an exchange
agreement, we agree to buy crude oil that differs in terms of geographic
location, grade of crude oil or delivery schedule from crude oil we have
available for sale. Generally, we enter into exchanges to acquire crude oil at
locations that are closer to our end markets, thereby reducing transportation
costs and increasing our margin. We also exchange our crude oil to be delivered
at an earlier or later date, if the exchange is expected to result in a higher
margin net of storage costs, and enter into exchanges based on the grade of
crude oil, which includes such factors as sulfur content and specific gravity,
in order to meet the quality specifications of our delivery contracts.
Producer Services. Crude oil purchasers who buy from producers compete on the
basis of competitive prices and highly responsive services. Through our team of
crude oil purchasing representatives, we maintain ongoing relationships with
more than 2,200 producers. We believe that our ability to offer high-quality
field and administrative services to producers is a key factor in our ability to
maintain volumes of purchased crude oil and to obtain new volumes. High-quality
field services include efficient gathering capabilities, availability of trucks,
willingness to construct gathering pipelines where economically justified,
timely pickup of crude oil from tank batteries at the lease or production point,
accurate measurement of crude oil volumes received, avoidance of spills and
effective management of pipeline deliveries. Accounting and other administrative
services include securing division orders (statements from interest owners
affirming the division of ownership in crude oil purchased by us), providing
statements of the crude oil purchased each month, disbursing production proceeds
to interest owners and calculation and payment of ad valorem and production
taxes on behalf of interest owners. In order to compete effectively, we must
maintain records of title and division order interests in an accurate and timely
manner for purposes of making prompt and correct payment of crude oil production
proceeds, together with the correct payment of all severance and production
taxes associated with such proceeds.
Credit. Our merchant activities involve the purchase of crude oil for resale
and require significant extensions of credit by our suppliers of crude oil. In
order to assure our ability to perform our obligations under crude oil purchase
agreements, various credit arrangements are negotiated with our crude oil
suppliers. Such arrangements include open lines of credit directly with us and
standby letters of credit issued under our letter of credit facility. Due to the
unauthorized trading losses, the amount of letters of credit that we are
required to provide to secure our crude oil purchases has increased. See Item 7.
- - "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources, Liquidity and Financial Condition - Unauthorized
Trading Losses".
When we market crude oil, we must determine the amount, if any, of the line of
credit to be extended to any given customer. If we determine that a customer
should receive a credit line, we must then decide on the amount of credit that
should be extended. Since our typical sales transactions can involve tens of
thousands of barrels of crude oil, the risk of nonpayment and nonperformance by
customers is a major consideration in our business. We believe our sales are
made to creditworthy entities or entities with adequate credit support.
Credit review and analysis are also integral to our leasehold purchases.
Payment for all or substantially all of the monthly leasehold production is
sometimes made to the operator of the lease. The operator, in turn, is
responsible for the correct payment and distribution of such production proceeds
to the proper parties. In these situations, we must determine whether the
operator has sufficient financial resources to make such payments and
distributions and to indemnify and defend us in the event any third party should
bring a protest, action or complaint in connection with the ultimate
distribution of production proceeds by the operator.
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OPERATING ACTIVITIES
See Note 17 in the Notes to the Consolidated and Combined Financial Statements
appearing elsewhere in this report for information with respect to our pipeline
activities and terminalling and storage and gathering and marketing activities
and also those of our predecessor.
CUSTOMERS
Sempra Energy Trading Corporation and Koch Oil Company accounted for 22% and
19%, respectively, of our combined 1999 revenues. No other individual customer
accounted for greater than 10% of our revenues in 1999. We believe that the loss
of an individual customer would not have a material adverse effect.
COMPETITION
Competition among pipelines is based primarily on transportation charges,
access to producing areas and demand for the crude oil by end users. We believe
that high capital requirements, environmental considerations and the difficulty
in acquiring rights of way and related permits make it unlikely that competing
pipeline systems comparable in size and scope to our pipeline systems will be
built in the foreseeable future.
We face intense competition in our terminalling and storage activities and
gathering and marketing activities. Our competitors include other crude oil
pipelines, the major integrated oil companies, their marketing affiliates and
independent gatherers, brokers and marketers of widely varying sizes, financial
resources and experience. Some of these competitors have capital resources many
times greater than ours and control substantially greater supplies of crude oil.
REGULATION
Our operations are subject to extensive regulation. Many departments and
agencies, both federal and state, are authorized by statute to issue and have
issued rules and regulations binding on the oil industry and its individual
participants. The failure to comply with such rules and regulations can result
in substantial penalties. The regulatory burden on the oil industry increases
our cost of doing business and, consequently, affects our profitability.
However, we do not believe that we are affected in a significantly different
manner by these regulations than are our competitors. Due to the myriad of
complex federal and state statutes and regulations which may affect us, directly
or indirectly, you should not rely on the following discussion of certain
statutes and regulations as an exhaustive review of all regulatory
considerations affecting our operations.
Pipeline Regulation
Our pipelines are subject to regulation by the Department of Transportation
under the Hazardous Liquids Pipeline Safety Act of 1979, as amended ("HLPSA")
relating to the design, installation, testing, construction, operation,
replacement and management of pipeline facilities. The HLPSA requires us and
other pipeline operators to comply with regulations issued pursuant to HLPSA, to
permit access to and allow copying of records and to make certain reports and
provide information as required by the Secretary of Transportation.
The Pipeline Safety Act of 1992 amends the HLPSA in several important
respects. It requires the Research and Special Programs Administration of the
Department of Transportation to consider environmental impacts, as well as its
traditional public safety mandate, when developing pipeline safety regulations.
In addition, the Pipeline Safety Act mandates the establishment by the
Department of Transportation of pipeline operator qualification rules requiring
minimum training requirements for operators, and requires that pipeline
operators provide maps and records to the Research and Special Programs
Administration. It also authorizes the Research and Special Programs
Administration to require that pipelines be modified to accommodate internal
inspection devices, to mandate the installation of emergency flow restricting
devices for pipelines in populated or sensitive areas and to order other changes
to the operation and maintenance of petroleum pipelines. We believe that our
pipeline operations are in substantial compliance with applicable HLPSA and
Pipeline Safety Act requirements. Nevertheless, we could incur significant
expenses in the future if additional safety measures are required or if safety
standards are raised and exceed the current pipeline control system
capabilities.
States are largely preempted by federal law from regulating pipeline safety
but may assume responsibility for enforcing federal intrastate pipeline
regulations and inspection of intrastate pipelines. In practice, states vary
considerably in their authority and capacity to address pipeline safety. We do
not anticipate any significant problems in complying with applicable state laws
and regulations in those states in which we operate.
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Transportation Regulation
General Interstate Regulation. Our interstate common carrier pipeline
operations are subject to rate regulation by the FERC under the Interstate
Commerce Act. The Interstate Commerce Act requires that tariff rates for
petroleum pipelines, which includes crude oil, as well as refined product and
petrochemical pipelines, be just and reasonable and non-discriminatory. The
Interstate Commerce Act permits challenges to proposed new or changed rates by
protest, and challenges to rates that are already final and in effect by
complaint. Upon the appropriate showing, a successful complainant may obtain
reparations for overcharges sustained for a period of up to two years prior to
the filing of a complaint.
The FERC is authorized to suspend the effectiveness of a new or changed tariff
rate for a period of up to seven months and to investigate the rate. If upon the
completion of an investigation the FERC finds that the rate is unlawful, it may
require the pipeline operator to refund to shippers, with interest, any
difference between the rates the FERC determines to be lawful and the rates
under investigation. In addition, the FERC will order the pipeline to change its
rates prospectively to the lawful level.
In general, petroleum pipeline rates must be cost-based, although settlement
rates, which are rates that have been agreed to by all shippers, are permitted,
and market-based rates may be permitted in certain circumstances. Under a cost-
of-service basis, rates are permitted to generate operating revenues, on the
basis of projected volumes, not greater than the total of the following:
. operating expenses;
. depreciation and amortization;
. federal and state income taxes; and
. an overall allowed rate of return on the pipeline's "rate base."
Energy Policy Act of 1992 and Subsequent Developments. In October 1992
Congress passed the Energy Policy Act of 1992. The Energy Policy Act deemed
petroleum pipeline rates in effect for the 365-day period ending on the date of
enactment of the Energy Policy Act or that were in effect on the 365th day
preceding enactment and had not been subject to complaint, protest or
investigation during the 365-day period to be just and reasonable under the
Interstate Commerce Act. The Energy Policy Act also provides that complaints
against such rates may only be filed under the following limited circumstances:
. a substantial change has occurred since enactment in either the economic
circumstances or the nature of the services which were a basis for the
rate;
. the complainant was contractually barred from challenging the rate prior to
enactment; or
. a provision of the tariff is unduly discriminatory or preferential.
The Energy Policy Act further required the FERC to issue rules establishing a
simplified and generally applicable ratemaking methodology for petroleum
pipelines, and to streamline procedures in petroleum pipeline proceedings. On
October 22, 1993, the FERC responded to the Energy Policy Act directive by
issuing Order No. 561, which adopts a new indexing rate methodology for
petroleum pipelines. Under the new regulations, which were effective January 1,
1995, petroleum pipelines are able to change their rates within prescribed
ceiling levels that are tied to the Producer Price Index for Finished Goods,
minus one percent. Rate increases made pursuant to the index will be subject to
protest, but such protests must show that the portion of the rate increase
resulting from application of the index is substantially in excess of the
pipeline's increase in costs. The new indexing methodology can be applied to any
existing rate, even if the rate is under investigation. If such rate is
subsequently adjusted, the ceiling level established under the index must be
likewise adjusted.
In Order No. 561, the FERC said that as a general rule pipelines must utilize
the indexing methodology to change their rates. The FERC indicated, however,
that it was retaining cost-of-service ratemaking, market-based rates, and
settlements as alternatives to the indexing approach. A pipeline can follow a
cost-of-service approach when seeking to increase its rates above index levels
for uncontrollable circumstances. A pipeline can seek to charge market- based
rates if it can establish that it lacks market power. In addition, a pipeline
can establish rates pursuant to settlement if agreed upon by all current
shippers. Initial rates for new services can be established through a cost-of-
service proceeding or through an uncontested agreement between the pipeline and
all of its shippers, including at least one shipper not affiliated with the
pipeline.
On May 10, 1996, the Court of Appeals for the District of Columbia Circuit
affirmed Order No. 561. The Court held that by establishing a general indexing
methodology along with limited exceptions to indexed rates, FERC had reasonably
balanced its dual responsibilities of ensuring just and reasonable rates and
streamlining ratemaking through generally
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applicable procedures. The FERC indicated in Order No. 561 that it will assess
in 2000 how the rate-indexing method is operating.
In a proceeding involving Lakehead Pipe Line Company, Limited Partnership
(Opinion No. 397), FERC concluded that there should not be a corporate income
tax allowance built into a petroleum pipeline's rates to reflect income
attributable to noncorporate partners since noncorporate partners, unlike
corporate partners, do not pay a corporate income tax. This result comports with
the principle that, although a regulated entity is entitled to an allowance to
cover its incurred costs, including income taxes, there should not be an element
included in the cost of service to cover costs not incurred. Opinion No. 397 was
affirmed on rehearing in May 1996. Appeals of the Lakehead opinions were taken,
but the parties to the Lakehead proceeding subsequently settled the case, with
the result that appellate review of the tax and other issues never took place.
A proceeding is also pending on rehearing at the FERC involving another
publicly traded limited partnership engaged in the common carrier transportation
of crude oil (the "Santa Fe Proceeding") in which the FERC could further limit
its current position related to the tax allowance permitted in the rates of
publicly traded partnerships, as well as possibly alter the FERC's current
application of the FERC oil pipeline ratemaking methodology. On January 13,
1999, the FERC issued Opinion No. 435 in the Santa Fe Proceeding, which, among
other things, affirmed Opinion No. 397's determination that there should not be
a corporate income tax allowance built into a petroleum pipeline's rates to
reflect income attributable to noncorporate partners. Requests for rehearing of
Opinion No. 435 are pending before the FERC. Petitions for review of Opinion No.
435 are before the D.C. Circuit Court of Appeals, but are being held in abeyance
pending FERC action on the rehearing requests. Once the FERC acts on rehearing,
the FERC's position on the income tax allowance and on other rate issues could
be subject to judicial review.
Our Pipelines. The FERC generally has not investigated rates, such as those
currently charged by us, which have been mutually agreed to by the pipeline and
the shippers or which are significantly below cost of service rates that might
otherwise be justified by the pipeline under the FERC's cost-based ratemaking
methods. Substantially all of our gross margins on transportation are produced
by rates that are either grandfathered or set by agreement of the parties. These
rates have not been decreased through application of the indexing method. Rates
for OCS crude are set by transportation agreements with shippers that do not
expire until 2007 and provide for a minimum tariff with annual escalation. The
FERC has twice approved the agreed OCS rates, although application of the PPFIG-
1 index method would have required their reduction. When these OCS agreements
expire in 2007, they will be subject to renegotiation or to any of the other
methods for establishing rates under Order No. 561. As a result, we believe that
the rates now in effect can be sustained, although no assurance can be given
that the rates currently charged would ultimately be upheld if challenged. In
addition, we do not believe that an adverse determination on the tax allowance
issue in the Santa Fe Proceeding would have a detrimental impact upon our
current rates.
Trucking Regulation
We operate a fleet of trucks to transport crude oil and oilfield materials as
a private, contract and common carrier. We are licensed to perform both
intrastate and interstate motor carrier services. As a motor carrier, we are
subject to certain safety regulations issued by the Department of
Transportation. The trucking regulations cover, among other things, driver
operations, keeping of log books, truck manifest preparations, the placement of
safety placards on the trucks and trailer vehicles, drug and alcohol testing,
safety of operation and equipment, and many other aspects of truck operations.
We are also subject to OSHA with respect to our trucking operations.
ENVIRONMENTAL REGULATION
General
Various federal, state and local laws and regulations governing the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, affect our operations and costs. In particular, our activities
in connection with storage and transportation of crude oil and other liquid
hydrocarbons and our use of facilities for treating, processing or otherwise
handling hydrocarbons and wastes are subject to stringent environmental
regulation. As with the industry generally, compliance with existing and
anticipated regulations increases our overall cost of business. Areas affected
include capital costs to construct, maintain and upgrade equipment and
facilities. While these regulations affect our capital expenditures and
earnings, we believe that these regulations do not affect our competitive
position in that the operations of our competitors that comply with such
regulations are similarly affected. Environmental regulations have historically
been subject to frequent change by regulatory authorities, and we are unable to
predict the ongoing cost to us of complying with these laws and regulations or
the future impact of such regulations on our operations. Violation of federal or
state environmental laws, regulations and permits can result in the imposition
of significant civil and criminal penalties,
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injunctions and construction bans or delays. A discharge of hydrocarbons or
hazardous substances into the environment could, to the extent such event is not
insured, subject us to substantial expense, including both the cost to comply
with applicable regulations and claims by neighboring landowners and other third
parties for personal injury and property damage.
Water
The Oil Pollution Act ("OPA") was enacted in 1990 and amends provisions of the
Federal Water Pollution Control Act of 1972 ("FWPCA") and other statutes as they
pertain to prevention and response to oil spills. The OPA subjects owners of
facilities to strict, joint and potentially unlimited liability for removal
costs and certain other consequences of an oil spill, where such spill is into
navigable waters, along shorelines or in the exclusive economic zone of the U.S.
In the event of an oil spill into navigable waters, substantial liabilities
could be imposed upon us. States in which we operate have also enacted similar
laws. Regulations are currently being developed under OPA and state laws that
may also impose additional regulatory burdens on our operations.
The FWPCA imposes restrictions and strict controls regarding the discharge of
pollutants into navigable waters. Permits must be obtained to discharge
pollutants into state and federal waters. The FWPCA imposes substantial
potential liability for the costs of removal, remediation and damages. We
believe that compliance with existing permits and compliance with foreseeable
new permit requirements will not have a material adverse effect on our financial
condition or results of operations.
Some states maintain groundwater protection programs that require permits for
discharges or operations that may impact groundwater conditions. We believe that
we are in substantial compliance with these state requirements.
Air Emissions
Our operations are subject to the Federal Clean Air Act and comparable state
and local statutes. We believe that our operations are in substantial compliance
with these statutes in all states in which we operate.
Amendments to the Federal Clean Air Act enacted in late 1990 (the "1990
Federal Clean Air Act Amendments") require or will require most industrial
operations in the U.S. to incur capital expenditures in order to meet air
emission control standards developed by the Environmental Protection Agency (the
"EPA") and state environmental agencies. In addition, the 1990 Federal Clean Air
Act Amendments include a new operating permit for major sources ("Title V
permits"), which applies to some of our facilities. Although we can give no
assurances, we believe implementation of the 1990 Federal Clean Air Act
Amendments will not have a material adverse effect on our financial condition or
results of operations.
Solid Waste
We generate non-hazardous solid wastes that are subject to the requirements of
the Federal Resource Conservation and Recovery Act ("RCRA") and comparable state
statutes. The EPA is considering the adoption of stricter disposal standards for
non-hazardous wastes, including oil and gas wastes. RCRA also governs the
disposal of hazardous wastes. We are not currently required to comply with a
substantial portion of the RCRA requirements because our operations generate
minimal quantities of hazardous wastes. However, it is possible that additional
wastes, which could include wastes currently generated during operations, will
in the future be designated as "hazardous wastes." Hazardous wastes are subject
to more rigorous and costly disposal requirements than are non-hazardous wastes.
Such changes in the regulations could result in additional capital expenditures
or operating expenses.
Hazardous Substances
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as "Superfund," imposes liability, without regard to
fault or the legality of the original act, on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the site and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. CERCLA also authorizes the EPA and, in some instances, third parties to
act in response to threats to the public health or the environment and to seek
to recover from the responsible classes of persons the costs they incur. In the
course of our ordinary operations, we may generate waste that falls within
CERCLA's definition of a "hazardous substance." We may be jointly and severally
liable under CERCLA for all or part of the costs required to clean up sites at
which such hazardous substances have been disposed of or released into the
environment.
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We currently own or lease, and have in the past owned or leased, properties
where hydrocarbons are being or have been handled. Although we have utilized
operating and disposal practices that were standard in the industry at the time,
hydrocarbons or other wastes may have been disposed of or released on or under
the properties owned or leased by us or on or under other locations where these
wastes have been taken for disposal. In addition, many of these properties have
been operated by third parties whose treatment and disposal or release of
hydrocarbons or other wastes was not under our control. These properties and
wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws.
Under such laws, we could be required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
to clean up contaminated property (including contaminated groundwater) or to
perform remedial plugging operations to prevent future contamination.
OSHA
We are also subject to the requirements of the Federal Occupational Safety and
Health Act ("OSHA") and comparable state statutes that regulate the protection
of the health and safety of workers. In addition, the OSHA hazard communication
standard requires that certain information be maintained about hazardous
materials used or produced in operations and that this information be provided
to employees, state and local government authorities and citizens. We believe
that our operations are in substantial compliance with OSHA requirements,
including general industry standards, record keeping requirements and monitoring
of occupational exposure to regulated substances.
Endangered Species Act
The Endangered Species Act ("ESA") restricts activities that may affect
endangered species or their habitats. While certain of our facilities are in
areas that may be designated as habitat for endangered species, we believe that
we are in substantial compliance with the ESA. However, the discovery of
previously unidentified endangered species could cause us to incur additional
costs or operation restrictions or bans in the affected area.
Hazardous Materials Transportation Requirements
The DOT regulations affecting pipeline safety require pipeline operators to
implement measures designed to reduce the environmental impact of oil discharge
from onshore oil pipelines. These regulations require operators to maintain
comprehensive spill response plans, including extensive spill response training
for pipeline personnel. In addition, DOT regulations contain detailed
specifications for pipeline operation and maintenance. We believe our operations
are in substantial compliance with such regulations.
ENVIRONMENTAL REMEDIATION
In connection with our acquisition of Scurlock Permian, we identified a number
of areas of potential environmental exposure. Under the terms of our acquisition
agreement, Marathon Ashland is fully indemnifying us for areas of environmental
exposure which were identified at the time of the acquisition, including any and
all liabilities associated with two superfund sites at which it is alleged
Scurlock Permian deposited waste oils as well as any potential liability for
hydrocarbon soil and water contamination at a number of Scurlock Permian
facilities. For environmental liabilities which were not identified at the time
of the acquisition but which occurred prior to the closing, we have agreed to
pay the costs relating to matters that are under $25,000. Our liabilities
relating to matters discovered prior to May 2003 and that exceed $25,000, is
limited to an aggregate of $1.0 million, with Marathon Ashland indemnifying us
for any excess amounts. Marathon Ashland's indemnification obligations for
identified sites extend indefinitely while its obligations for non-identified
sites extend to matters discovered within four years. While we do not believe
that our liability, if any, for environmental contamination associated with our
Scurlock Permian assets will be material, there can be no assurance in that
regard. Moreover, should we be found liable, we believe that our indemnification
from Marathon Ashland should prevent such liability from having a material
adverse effect on our financial condition or results of operations.
In connection with our acquisition of the West Texas Gathering System, we
agreed to be responsible for pre-acquisition environmental liabilities up to an
aggregate amount of $1.0 million, while Chevron Pipe Line Company agreed to
remain solely responsible for liabilities which are discovered prior to July
2002 which exceed this $1.0 million threshold. During our pre-acquisition
investigation, we identified a number of sites along our West Texas Gathering
System on which there are hydrocarbon contaminated soils. While the total cost
of remediation of these sites has not yet been determined, we believe our
indemnification arrangement with Chevron Pipe Line Company should prevent such
costs from having a material adverse effect on our financial condition or
results of operations.
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From 1994 to 1997, our Venice, Louisiana terminal experienced several releases
of crude oil and jet fuel into the soil. The Louisiana Department of
Environmental Quality has been notified of the releases. Marathon Ashland has
performed some soil remediation related to the releases. The extent of the
contamination at the sites is uncertain and there is a potential for groundwater
contamination. We do not expect expenditures related to this terminal to be
material, although we can provide no assurances in that regard.
During 1997, the All American Pipeline experienced a leak in a segment of its
pipeline in California which resulted in an estimated 12,000 barrels of crude
oil being released into the soil. Immediate action was taken to repair the
pipeline leak, contain the spill and to recover the released crude oil. We have
expended approximately $400,000 to date in connection with this spill and do not
expect any additional expenditures to be material, although we can provide no
assurances in that regard.
Prior to being acquired by our predecessor in 1996, the Ingleside Terminal
experienced releases of refined petroleum products into the soil and groundwater
underlying the site due to activities on the property. We are undertaking a
voluntary state-administered remediation of the contamination on the property to
determine the extent of the contamination. We have spent approximately $130,000
to date in investigating the contamination at this site. We do not anticipate
the total additional costs related to this site to exceed $250,000, although no
assurance can be given that the actual cost could not exceed such estimate. In
addition, a portion of any such costs may be reimbursed to us from Plains
Resources.
We may experience future releases of crude oil into the environment from our
pipeline and storage operations, or discover releases that were previously
unidentified. While we maintain an extensive inspection program designed to
prevent and, as applicable, to detect and address such releases promptly,
damages and liabilities incurred due to any future environmental releases from
our assets may substantially affect our business
OPERATIONAL HAZARDS AND INSURANCE
A pipeline may experience damage as a result of an accident or other natural
disaster. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, pollution or environmental
damages and suspension of operations. We maintain insurance of various types
that we consider to be adequate to cover our operations and properties. The
insurance covers all of our assets in amounts considered reasonable. The
insurance policies are subject to deductibles that we consider reasonable and
not excessive. Our insurance does not cover every potential risk associated with
operating pipelines, including the potential loss of significant revenues.
Consistent with insurance coverage generally available to the industry, our
insurance policies provide limited coverage for losses or liabilities relating
to pollution, with broader coverage for sudden and accidental occurrences.
The occurrence of a significant event not fully insured or indemnified
against, or the failure of a party to meet its indemnification obligations,
could materially and adversely affect our operations and financial condition. We
believe that we are adequately insured for public liability and property damage
to others with respect to our operations. With respect to all of our coverage,
no assurance can be given that we will be able to maintain adequate insurance in
the future at rates we consider reasonable.
TITLE TO PROPERTIES
Substantially all of our pipelines are constructed on rights-of-way granted by
the apparent record owners of such property and in some instances such rights-
of-way are revocable at the election of the grantor. In many instances, lands
over which rights-of-way have been obtained are subject to prior liens which
have not been subordinated to the right-of-way grants. In some cases, not all of
the apparent record owners have joined in the right-of-way grants, but in
substantially all such cases, signatures of the owners of majority interests
have been obtained. We have obtained permits from public authorities to cross
over or under, or to lay facilities in or along water courses, county roads,
municipal streets and state highways, and in some instances, such permits are
revocable at the election of the grantor. We have also obtained permits from
railroad companies to cross over or under lands or rights-of-way, many of which
are also revocable at the grantor's election. In some cases, property for
pipeline purposes was purchased in fee. All of the pump stations are located on
property owned in fee or property under long-term leases. In certain states and
under certain circumstances, we have the right of eminent domain to acquire
rights-of-way and lands necessary for our common carrier pipelines.
Some of the leases, easements, rights-of-way, permits and licenses transferred
to us, upon our formation in 1998 and in connection with acquisitions we have
made since that time, required the consent of the grantor to transfer such
rights, which in certain instances is a governmental entity. Our general partner
believes that it has obtained such third-party consents, permits and
authorizations as are sufficient for the transfer to us of the assets necessary
for us to operate our business in all material respects as described in this
report. With respect to any consents, permits or authorizations which have not
yet been
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obtained, our general partner believes that such consents, permits or
authorizations will be obtained within a reasonable period, or that the failure
to obtain such consents, permits or authorizations will have no material adverse
effect on the operation of our business.
Our general partner believes that we have satisfactory title to all of our
assets. Although title to such properties are subject to encumbrances in certain
cases, such as customary interests generally retained in connection with
acquisition of real property, liens related to environmental liabilities
associated with historical operations, liens for current taxes and other burdens
and minor easements, restrictions and other encumbrances to which the underlying
properties were subject at the time of acquisition by our predecessor or us, our
general partner believes that none of such burdens will materially detract from
the value of such properties or from our interest therein or will materially
interfere with their use in the operation of our business.
EMPLOYEES
To carry out our operations, our general partner or its affiliates employed
approximately 910 employees at December 31, 1999. None of the employees of our
general partner were represented by labor unions, and our general partner
considers its employee relations to be good.
ITEM 3. LEGAL PROCEEDINGS
Texas Securities Litigation. On November 29, 1999, a class action lawsuit was
filed in the United States District Court for the Southern District of Texas
entitled Di Giacomo v. Plains All American Pipeline, et al. The suit alleged
that Plains All American Pipeline, L.P. and certain of our general partner's
officers and directors violated federal securities laws, primarily in connection
with unauthorized trading by a former employee. An additional nineteen cases
were filed in the Southern District of Texas, some of which name our general
partner and Plains Resources as additional defendants. Plaintiffs allege that
the defendants are liable for securities fraud violations under Rule 10b-5 and
Section 20(a) of the Securities Exchange Act of 1934 and for making false
registration statements under Sections 11 and 15 of the Securities Act of 1933.
The court has consolidated all subsequently filed cases under the first filed
action described above. Two unopposed motions are currently pending to appoint
lead plaintiffs. These motions ask the court to appoint two distinct lead
plaintiffs to represent two different plaintiff classes: (1) purchasers of
Plains Resources common stock and options and (2) purchasers of our common
units. Once lead plaintiffs have been appointed, the plaintiffs will file their
consolidated amended complaints. No answer or responsive pleading is due until
thirty days after a consolidated amended complaint is filed.
Delaware Derivative Litigation. On December 3, 1999, two derivative lawsuits
were filed in the Delaware Chancery Court, New Castle County, entitled Susser v.
Plains All American Inc., et al and Senderowitz v. Plains All American Inc., et
al. These suits, and three others which were filed in Delaware subsequently,
named our general partner, its directors and certain of its officers as
defendants, and allege that the defendants breached the fiduciary duties that
they owed to Plains All American Pipeline, L.P. and its unitholders by failing
to monitor properly the activities of its employees. The derivative complaints
allege, among other things, that Plains All American Pipeline has been harmed
due to the negligence or breach of loyalty of the officers and directors that
are named in the lawsuits. These cases are currently in the process of being
consolidated. No answer or responsive pleading is due until these cases have
been consolidated and a consolidated complaint has been filed.
We intend to vigorously defend the claims made in the Texas securities
litigation and the Delaware derivative litigation. However, there can be no
assurance that we will be successful in our defense or that these lawsuits will
not have a material adverse effect on our financial position or results of
operation.
We, in the ordinary course of business, are a claimant and/or a defendant in
various other legal proceedings. Management does not believe that the outcome of
these other legal proceedings, individually and in the aggregate, will have a
materially adverse effect on our financial condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON UNITS AND RELATED UNITHOLDER MATTERS
The common units, excluding the Class B common units, are listed and traded on
the New York Stock Exchange under the symbol "PAA". On March 22, 2000, the
market price for the common units was $16 3/8 per unit and there were
approximately 11,700 recordholders and beneficial owners (held in street name).
The following table sets forth high and low sales prices for the common units
as reported on the New York Stock Exchange Composite Tape, and the cash
distributions paid per common unit for the periods indicated:
Common Unit Price Range
------------------------------ Cash
High Low Distributions
---------- --------------- -------------
1999:
1st Quarter $ 19 $ 15 7/8 $ 0.450
2nd Quarter 19 15/16 16 5/16 0.463
3rd Quarter 20 17 3/8 0.481
4th Quarter 20 1/4 9 5/8 0.450 (1)
1998:
4th Quarter $ 20 3/16 $ 16 1/4 $ 0.193 (2)
- ------------
(1) A distribution was not made on the subordinated units for the fourth
quarter of 1999.
(2) Represents a partial quarterly distribution for the period from November
23, 1998, the date of our initial public offering, to December 31, 1998.
The Class B common units are pari passu with common units with respect to
quarterly distributions, and are convertible into common units upon approval of
a majority of the common unitholders. The Class B unitholders may request that
we call a meeting of common unitholders to consider approval of the conversion
of Class B units into common units. If the approval of a conversion by the
common unitholders is not obtained within 120 days of a request, each Class B
unitholder 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 120-day period. Except for the vote to approve the
conversion, the Class B units have the same voting rights as the common units.
We have also issued subordinated units, all of which are held by an affiliate
of our general partner, for which there is no established public trading market.
Subject to the consent of our lenders, we will distribute to our partners
(including holders of subordinated units), on a quarterly basis, all of our
available cash in the manner described herein. Available cash generally means,
for any of our fiscal quarters, all cash on hand at the end of the quarter less
the amount of cash reserves that is necessary or appropriate in the reasonable
discretion of our general partner to:
. provide for the proper conduct of our business;
. comply with applicable law, any of our debt instruments or other
agreements; or
. provide funds for distributions to unitholders and our general partner for
any one or more of the next four quarters.
Minimum quarterly distributions are $0.45 for each full fiscal quarter
(prorated for the initial partial fiscal quarter commencing November 23, 1998,
the closing date of our initial public offering through year-end 1998).
Distributions of available cash to the holders of subordinated units are subject
to the prior rights of the holders of common units to receive the minimum
quarterly distributions for each quarter during the subordination period, and to
receive any arrearages in the distribution of minimum quarterly distributions on
the common units for prior quarters during the subordination period. The
expiration of the subordination period will generally not occur prior to
December 31, 2003.
Under the terms of our amended bank credit agreement and letter of credit and
borrowing facility, we are required to have lender approval to declare or pay
distributions to unitholders and are prohibited from declaring or paying any
distribution to unitholders if a default or event of default (as defined in such
agreements) exists. See Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources, Liquidity and
Financial Condition".
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ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
(in thousands, except unit and operating data)
On November 23, 1998, we completed our initial public offering and the
transactions whereby we became the successor to the business of our predecessor.
The historical financial information below for Plains All American Pipeline was
derived from our audited consolidated financial statements as of December 31,
1999 and 1998, and for the year ended December 31, 1999 and for the period from
November 23, 1998 through December 31, 1998. The pro forma financial information
for the year ended December 31, 1998 was derived from our audited consolidated
financial statements for the period from November 23, 1998 through December 31,
1998 and from the audited combined financial statements of our predecessor for
the period from January 1, 1998 through November 22, 1998. The financial
information below for our predecessor was derived from the audited combined
financial statements of our predecessor, as of December 31, 1997, 1996, and 1995
and for the period from January 1, 1998 through November 22, 1998 and for the
years ended December 31, 1997, 1996, and 1995, including the notes thereto. The
operating data for all periods is derived from our records as well as those of
our predecessor. Commencing May 1, 1999, the results of operations of the
Scurlock Permian businesses are included in our results of operations.
Commencing July 30, 1998, the results of operations of the All American Pipeline
and the SJV Gathering System are included in the results of operations of our
predecessor and Plains All American Pipeline. The selected financial data should
be read in conjunction with the consolidated and combined financial statements,
including the notes thereto, included elsewhere in this report, and Item 7, -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
Predecessor
---------------------------------------------------
November 23, January 1,
Year Ended December 31, 1998 To 1998 To Year Ended December 31,
---------------------------- December 31, November 22, -------------------------------------
1999 1998 (1)(2) 1998 (1) 1998 (1) 1997 1996 1995
----------- ----------- --------- --------- --------- --------- ----------
(restated) (restated) (restated)
(proforma)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 4,701,921 $ 1,568,853 $ 176,445 $ 953,244 $ 752,522 $ 531,698 $ 339,825
Cost of sales and operations 4,591,607 1,494,732 168,946 922,263 740,042 522,167 333,459
Unauthorized trading losses
and related expenses (1) 166,440 7,100 2,400 4,700 - - -
----------- ----------- --------- --------- --------- --------- ----------
Gross margin (56,126) 67,021 5,099 26,281 12,480 9,531 6,366
----------- ----------- --------- --------- --------- --------- ----------
General and administrative
expenses 22,198 6,501 771 4,526 3,529 2,974 2,415
Depreciation and amortization 17,344 11,303 1,192 4,179 1,165 1,140 944
Restructuring expense 1,410 - - - - - -
----------- ----------- --------- --------- --------- --------- ----------
Total expenses 40,952 17,804 1,963 8,705 4,694 4,114 3,359
----------- ----------- --------- --------- --------- --------- ----------
Operating income (loss) (97,078) 49,217 3,136 17,576 7,786 5,417 3,007
Interest expense (21,139) (12,991) (1,371) (11,260) (4,516) (3,559) (3,460)
Noncash compensation expense (1,013) - - - - - -
Gain on sale of linefill 16,457 - - - - - -
Interest and other income 958 584 12 572 138 90 115
----------- ----------- --------- --------- --------- --------- ----------
Net income (loss)
before provision (benefit)
in lieu of income taxes
and extraordinary item (101,815) 36,810 1,777 6,888 3,408 1,948 (338)
Provision (benefit) in
lieu of income taxes - - - 2,631 1,268 726 (93)
----------- ----------- --------- --------- --------- --------- ----------
Net income (loss) before
extraordinary item $ (101,815) $ 36,810 $ 1,777 $ 4,257 $ 2,140 $ 1,222 $ (245)
=========== =========== ========= ========= ========= ========= ==========
Basic and diluted
net income (loss) per
limited partner unit before
extraordinary item (3) $ (3.16) $ 1.20 $ 0.06 $ 0.25 $ 0.12 $ 0.07 $ (0.01)
=========== =========== ========= ========= ========= ========= ==========
Weighted average
number of limited partner
units outstanding 31,633 30,089 30,089 17,004 17,004 17,004 17,004
=========== =========== ========= ========= ========= ========= ==========
Table and footnotes continued on next page
</TABLE>
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<TABLE>
<CAPTION>
Predecessor
---------------------------------------------------
November 23, January 1,
Year Ended December 31, 1998 To 1998 To Year Ended December 31,
---------------------------- December 31, November 22, -------------------------------------
1999 1998 (1) 1998 (1) 1998 (1) 1997 1996 1995
----------- ----------- --------- --------- --------- --------- ----------
(restated) (restated) (restated)
(proforma)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(AT END OF PERIOD):
Working capital (4) $ 101,539 N/A $ 2,231 N/A $ 2,017 $ 2,586 $ 3,055
Total assets 1,223,037 N/A 607,186 N/A 149,619 122,557 82,076
Related party debt
Long-term 114,000 N/A - N/A 28,531 31,811 32,095
Total debt (5) 368,819 N/A 184,750 N/A 18,000 - -
Partners' capital 192,973 N/A 270,543 N/A - - -
Combined equity - N/A - N/A 5,975 3,835 2,613
OTHER DATA:
EBITDA (6) $ 89,074 $ 68,204 $ 6,740 $ 27,027 $ 9,089 $ 6,647 $ 4,066
Maintenance capital
expenditures (7) 1,741 2,091 200 1,508 678 1,063 571
OPERATING DATA:
Volumes (barrels per day):
All American
Tariff (8) 100,600 124,500 110,200 113,700 - - -
Margin (9) 56,200 49,200 50,900 49,100 - - -
Other 61,400 - - - - - -
----------- ----------- --------- --------- --------- --------- ----------
Total pipeline 218,200 173,700 161,100 162,800 - - -
=========== =========== ========= ========= ========= ========= ==========
Lease gathering (10) 264,700 108,500 126,200 87,100 71,400 58,500 45,900
Bulk purchases (11) 138,200 97,900 133,600 94,700 48,500 31,700 10,200
----------- ----------- --------- --------- --------- --------- ----------
Total 402,900 206,400 259,800 181,800 119,900 90,200 56,100
=========== =========== ========= ========= ========= ========= ==========
Terminal throughput (12) 83,300 79,800 61,900 81,400 76,700 59,800 42,500
=========== =========== ========= ========= ========= ========= ==========
</TABLE>
- ---------
(1) In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). Approximately $7.1 million of the unauthorized trading losses
was recognized in 1998 and as a result, we have restated our 1998 financial
information. See Item 1. - "Business - Unauthorized Trading Losses".
(2) The unaudited selected pro forma financial and operating data for the year
ended December 31, 1998, is based on our historical financial statements
and those of our predecessor and Wingfoot Ventures Seven, Inc., a wholly-
owned subsidiary of Goodyear. The historical financial statements of
Wingfoot reflect the historical operating results of the All American
Pipeline and the SJV Gathering System through July 30, 1998. Effective July
30 1998, our predecessor acquired the All American Pipeline and SJV
Gathering system from Goodyear for approximately $400.0 million. The pro
forma selected financial data reflects certain pro forma adjustments to the
historical results of operations as if we had been formed and the
acquisition had taken place on January 1, 1998.
(3) Basic and diluted net income (loss) per unit is computed by dividing the
limited partners' interest in net income by the number of outstanding
common and subordinated units. For periods prior to November 23, 1998, the
number of units are equal to the common and subordinated units received by
our general partner in exchange for the assets contributed to the
partnership.
(4) At December 31, 1999, working capital includes $37.9 million of pipeline
linefill and $103.6 million for the segment of the All American Pipeline
that were both sold in the first quarter of 2000. See Item 1. -
"Acquisitions and Dispositions - All American Pipeline Linefill and Asset
Disposition".
(5) Excludes related party debt.
(6) EBITDA means earnings before interest expense, income taxes, depreciation
and amortization. Our EBITDA calculation also excludes the unauthorized
trading losses, noncash compensation, restructuring expense, linefill
gain and extraordinary loss from extinguishment of debt. EBITDA is not a
measurement presented in accordance with GAAP and is not intended to be
used in lieu of GAAP presentations of results of operations and cash
provided by operating activities. Our EBITDA may not be comparable to
EBITDA of other entities, as other entities may not calculate EBITDA in the
same manner as we do.
(7) 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 our existing 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 operating capacity are
charged to expense as incurred.
(8) Represents crude oil deliveries on the All American Pipeline for the
account of third parties.
(9) Represents crude oil deliveries on the All American Pipeline and the SJV
Gathering System for the account of affiliated entities. These volumes were
transported on the segment of the line that was sold. See "All American
Pipeline Linefill Sale and Asset Disposition."
(10) Represents barrels of crude oil purchased at the wellhead, including
volumes which would have been purchased under the Marketing Agreement.
(11) Represents barrels of crude oil purchased at collection points, terminals
and pipelines.
(12) Represents total crude oil barrels delivered from the Cushing Terminal and
the Ingleside Terminal.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of our
operations and those of the midstream subsidiaries of Plains Resources (our
"predecessor") should be read in conjunction with our historical consolidated
and combined financial statements and accompanying notes and those of our
predecessor included elsewhere in this report. For more detailed information
regarding the basis of presentation for the following financial information, see
the notes to the historical consolidated and combined financial statements.
OVERVIEW
We were formed in September of 1998 to acquire and operate the midstream crude
oil business and assets of Plains Resources Inc. and its wholly-owned
subsidiaries. On November 23, 1998, we completed our initial public offering and
the transactions whereby we became the successor to the business of our
predecessor. Our operations are conducted through Plains Marketing, L.P., All
American Pipeline, L.P. and Plains Scurlock Permian, L.P. Plains All American
Inc., a wholly owned subsidiary of Plains Resources, is our general partner. We
are engaged in interstate and intrastate crude oil transportation, gathering and
marketing as well as crude oil terminalling and storage activities. Our
operations are conducted primarily in California, Texas, Oklahoma, Louisiana and
the Gulf of Mexico.
Pipeline Operations. Our activities from pipeline operations generally consist
of transporting third-party volumes of crude oil for a tariff and merchant
activities designed to capture price differentials between the cost to purchase
and transport crude oil to a sales point and the price received for such crude
oil at the sales point. Tariffs on our pipeline systems vary by receipt point
and delivery point. The gross margin generated by our tariff activities depends
on the volumes transported on the pipeline and the level of the tariff charged,
as well as the fixed and variable costs of operating the pipeline. Our ability
to generate a profit on margin activities is not tied to the absolute level of
crude oil prices but is generated by the difference between an index related
price paid and other costs incurred in the purchase of crude oil and an index
related price at which we sell crude oil. We are well positioned to take
advantage of these price differentials due to our ability to move purchased
volumes on our pipeline systems. We combine reporting of gross margin for tariff
activities and margin activities due to the sharing of fixed costs between the
two activities.
Terminalling and Storage Activities and Gathering and Marketing Activities.
Gross margin from terminalling and storage activities is dependent on the
throughput volume of crude oil stored and the level of fees generated at our
terminalling and storage facilities. Gross margin from our gathering and
marketing activities is dependent on our ability to sell crude oil at a price in
excess of our aggregate cost. These operations are not directly affected by the
absolute level of crude oil prices, but are affected by overall levels of supply
and demand for crude oil and fluctuations in market related indices.
During periods when the demand for crude oil is weak (as was the case in late
1997, 1998 and the first quarter of 1999), the market for crude oil is often in
contango, meaning that the price of crude oil in a given month is less than the
price of crude oil in a subsequent month. A contango market has a generally
negative impact on marketing margins, but is favorable to the storage business,
because storage owners at major trading locations (such as the Cushing
Interchange) can simultaneously purchase production at low current prices for
storage and sell at higher prices for future delivery. When there is a higher
demand than supply of crude oil in the near term, the market is backward,
meaning that the price of crude oil in a given month exceeds the price of crude
oil in a subsequent month. A backward market has a positive impact on marketing
margins because crude oil gatherers can capture a premium for prompt deliveries.
We believe that the combination of our terminalling and storage activities and
gathering and marketing activities provides a counter-cyclical balance which has
a stabilizing effect on our operations and cash flow.
As we purchase crude oil, we establish a margin by selling crude oil for
physical delivery to third party users, such as independent refiners or major
oil companies, or by entering into a future delivery obligation with respect to
futures contracts on the NYMEX. Through these transactions, we seek to maintain
a position that is substantially balanced between crude oil purchases and sales
and future delivery obligations. We purchase crude oil on both a fixed and
floating price basis. As fixed price barrels are purchased, we enter into sales
arrangements with refiners, trade partners or on the NYMEX, which establishes a
margin and protects it against future price fluctuations. When floating price
barrels are purchased, we match those contracts with similar type sales
agreements with our customers, or likewise establish a hedge position using the
NYMEX futures market. From time to time, we enter into arrangements which will
expose us to basis risk. Basis risk occurs when crude oil is purchased based on
a crude oil specification and location which is different from the
countervailing sales arrangement. Our policy is only to purchase crude oil for
which we have a market and to structure our sales contracts so that crude oil
price fluctuations do not materially affect the gross margin which we receive.
In November 1999, we discovered that this policy was violated, and we incurred
$174.0 million in unauthorized trading losses, including associated costs and
25
<PAGE>
legal expenses. See -"Unauthorized Trading Losses". We do not acquire and hold
crude oil futures contracts or other derivative products for the purpose of
speculating on crude oil price changes that might expose us to indeterminable
losses.
UNAUTHORIZED TRADING LOSSES
In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). Approximately $7.1 million of the unauthorized trading losses was
recognized in 1998 and the remainder in 1999. As a result, we have restated our
1998 financial information. Normally, as we purchase crude oil, we establish a
margin by selling crude oil for physical delivery to third-party users or by
entering into a future delivery obligation with respect to futures contracts.
The employee in question violated our policy of maintaining a position that is
substantially balanced between crude oil purchases and sales or future delivery
obligations. The unauthorized trading and associated losses resulted in a
default of certain covenants under our credit facilities and significant short-
term cash and letter of credit requirements. See "Capital Resources, Liquidity
and Financial Condition".
RESULTS OF OPERATIONS
Pro Forma Comparison of the Years Ended December 31, 1999 and 1998
In the discussion that follows, we are presenting a comparison of our
historical results for 1999 and pro forma results for 1998. The pro forma
adjustments to the historical results of operations for 1998 assume we had been
formed and the acquisition of the All American Pipeline and the SJV Gathering
System had taken place January 1, 1998. The following table sets forth certain
historical and pro forma financial and operating information of Plains All
American Pipeline for the periods presented. The following pro forma financial
and operating information does not include pro forma adjustments related to the
Scurlock acquisition which was effective May 1, 1999 (in thousands).
Year Ended December 31,
-------------------------------
1999 1998
-------------- --------------
(historical) (pro forma)
(restated)
OPERATING RESULTS:
Revenues $ 4,701,921 $ 1,568,853
============== ==============
Gross margin
Pipeline $ 58,001 $ 50,893
Terminalling and storage
and gathering and marketing 52,313 23,228
Unauthorized trading losses (166,440) (7,100)
-------------- --------------
Total (56,126) 67,021
General and administrative expense (22,198) (6,501)
-------------- --------------
Gross profit $ (78,324) $ 60,520
============== ==============
Net income (loss) $ (103,360) $ 36,810
============== ==============
Table continued on following page
26
<PAGE>
Year Ended December 31,
-------------------------------
1999 1998
-------------- --------------
(historical) (pro forma)
AVERAGE DAILY VOLUMES (BARRELS):
Pipeline Activities:
All American
Tariff activities 101 125
Margin activities 56 49
Other 61 -
-------------- --------------
Total 218 174
============== ==============
Lease gathering 265 108
Bulk purchases 138 98
-------------- --------------
Total 403 206
============== ==============
Terminal throughput 83 80
============== ==============
Storage leased to third parties,
monthly average volumes 1,975 1,150
============== ==============
For the year ended December 31, 1999, we reported a net loss of $103.4 million
on total revenue of $4.7 billion compared to net income for the year ended
December 31, 1998 of $36.8 million on total revenue of $1.6 billion. The results
for the years ended December 31, 1999 and 1998 include the following
nonrecurring items:
1999
. $166.4 million of unauthorized trading losses;
. a $16.5 million gain on the portion of the All American Pipeline linefill
that was sold in 1999;
. restructuring expense of $1.4 million; and
. an extraordinary loss of $1.5 million related to the early extinguishment
of debt.
1998
. $7.1 million of unauthorized trading losses.
Excluding these items, we would have reported net income of $49.6 million and
$43.9 million for the years ended December 31, 1999 and 1998, respectively.
Excluding the unauthorized trading losses, we reported gross margin (revenues
less direct expenses of purchases, transportation, terminalling and storage and
other operating and maintenance expenses) of $110.3 million for the year ended
December 31, 1999 compared to $74.1 million reported for 1998. Gross profit
(gross margin less general and administrative expense), also excluding the
unauthorized trading losses, was $88.1 million for the year ended December 31,
1999 as compared to $67.6 million for 1998.
Pipeline Operations. Gross margin from pipeline operations was $58.0 million
for the year ended December 31, 1999 compared to $50.9 million for the prior
year on a pro forma basis. The increase resulted from increased margins from our
pipeline merchant activities, a reduction in operating costs attributable to the
All American Pipeline and to the two 1999 acquisitions which contributed
approximately $4.8 million of pipeline gross margin. The increase was partially
offset by lower tariff transport volumes, due to lower production from Exxon's
Santa Ynez Field and the Point Arguello Field, both offshore California.
The margin between revenue and direct cost of crude purchased was $33.5
million for the year ended December 31, 1999 compared to $14.5 million on a pro
forma basis for 1998. Pipeline tariff revenues were approximately $46.4 million
for the year ended December 31, 1999 compared to approximately $57.5 million on
a pro forma basis in 1998. Pipeline operations and maintenance expenses were
approximately $24.0 million for the year ended December 31, 1999 as compared to
$26.1 million on a pro forma basis for 1998.
Tariff transport volumes on the All American Pipeline decreased from an
average of 125,000 barrels per day for the year ended December 31, 1998 on a pro
forma basis to 101,000 barrels per day in 1999 due primarily to a decrease in
shipments of offshore California production, which decreased from 94,000 barrels
per day on a pro forma basis in 1998 to 79,000 barrels per day in 1999. Barrels
associated with our merchant activities on the All American Pipeline increased
from 49,000 barrels per day on a pro forma basis to 56,000 barrels per day for
the year ended December 31, 1999. Tariff volumes shipped on the Scurlock and
West Texas Systems averaged 61,000 barrels per day during 1999.
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<PAGE>
In March 2000, we sold the segment of the All American Pipeline that extends
from Emidio, California to McCamey, Texas. We initiated the sale of
approximately 5.2 million barrels of crude oil linefill from the All American
Pipeline in November 1999. The sale of the linefill was substantially complete
in February 2000. We estimate that we will recognize a total gain of
approximately $44.0 million in connection with the sale of the linefill. As of
December 31, 1999, we have delivered approximately 1.8 million barrels of
linefill and recognized a gain of $16.5 million. During 1999, we reported gross
margin of approximately $5.0 million associated with operating the segment of
the All American Pipeline that was sold. See "Capital Resources, Liquidity and
Financial Condition".
The following table sets forth All American Pipeline average deliveries per
day within and outside California for the periods presented (in thousands).
Year Ended
December 31,
------------------
1999 1998
---- ----
(historical) (pro forma)
Deliveries:
Average daily volumes (barrels):
Within California 101 115
Outside California 56 59
---- ----
Total 157 174
==== ====
Gathering and Marketing Activities and Terminalling and Storage Activities.
Excluding the unauthorized trading losses, gross margin from gathering,
marketing, terminalling and storage activities was approximately $52.3 million
for the year ended December 31, 1999 compared to $23.2 million in the prior year
on a pro forma basis. The increase in gross margin is due to an increase in
lease gathering and bulk purchase volumes, primarily as a result of the Scurlock
acquisition which contributed approximately $26.3 million of 1999 gross margin,
and an increase in storage capacity leased at our Cushing Terminal. Lease
gathering volumes increased from an average of 108,000 barrels per day on a pro
forma basis for the year ended December 31, 1998 to approximately 265,000
barrels per day in 1999. Bulk purchase volumes increased from approximately
98,000 barrels per day for 1998 to approximately 138,000 barrels per day this
year. Leased terminal capacity increased significantly from approximately 1.1
million barrels per month in 1998 to 2.0 million barrels per month during 1999.
The 1.1 million barrel expansion of our Cushing Terminal was placed in service
in the second quarter of 1999. Throughput volumes at our terminals increased
approximately 3,000 barrels per day in the current year period.
In the period immediately following the disclosure of the unauthorized trading
losses, a significant number of our suppliers and trading partners reduced or
eliminated the open credit previously extended to us. Consequently, the amount
of letters of credit we needed to support the level of our crude oil purchases
then in effect increased significantly. In addition, the cost to us of obtaining
letters of credit increased under the amended credit facility. In many instances
we arranged for letters of credit to secure our obligations to purchase crude
oil from our customers, which increased our letter of credit costs and decreased
our unit margins. In other instances, primarily involving lower margin wellhead
and bulk purchases, our purchase contracts were terminated. As a result of these
changes, aggregate volumes purchased are expected to decrease by 150,000 barrels
per day, consisting primarily of lower unit margin purchases. Approximately
50,000 barrels per day of the decrease is related to barrels gathered at
producer lease locations and 100,000 barrels per day is attributable to bulk
purchases. As a result of the increase in letter of credit costs and reduced
volumes, annual EBITDA is expected to be adversely affected by approximately
$5.0 million, excluding the positive impact of current favorable market
conditions.
General and administrative expenses were $22.2 million for the year ended
December 31, 1999, compared to $6.5 million for 1998 on a pro forma basis. The
increase in 1999 as compared to the 1998 pro forma amount is due to the Scurlock
and West Texas Gathering System acquisitions in 1999, continued expansion of our
business activities and expenses related to the operation of Plains All American
Pipeline as a public entity. As a result of the unauthorized trading losses, we
will incur additional expenses in 2000.
Depreciation and amortization expense was $17.3 million for the year ended
December 31, 1999, compared to $11.3 million on a pro forma basis for 1998. The
increase is primarily due to the Scurlock acquisition and the West Texas
Gathering System acquisition.
Interest expense was $21.1 million for the year ended December 31, 1999,
compared to $13.0 million on a pro forma basis for 1998. The increase is due to
(1) interest associated with the debt incurred for the Scurlock acquisition, (2)
the West Texas Gathering System acquisition, (3) an increase in interest related
to hedged inventory transactions and (4) an increase in interest rates as a
result of the unauthorized trading losses. The 1999 extraordinary item of $1.5
million relates to the write-
In 1999, we terminated 24 employees and paid approximately $1.4 million in
connection therewith.
28
<PAGE>
off of certain debt issue costs and penalties associated with the prepayment of
debt. The prepayment of debt was made with proceeds from our equity offering in
October 1999. See "Capital Resources, Liquidity and Financial Condition".
Historical Analysis of Three Years Ended December 31, 1999.
The historical results of operations for the year ended December 31, 1999
include the results of the Scurlock acquisition effective May 1, 1999 and the
West Texas Gathering System acquisition effective July 1, 1999. The combined
historical results of operations for the year ended December 31, 1998 are
derived from our historical statements for the period from November 23, 1998
through December 31, 1998, and the combined financial statements of our
predecessor for the period from January 1, 1998 through November 22, 1998, which
in the following discussion are combined and referred to as the year ended
December 31, 1998. Commencing July 30, 1998 (the date of acquisition of the All
American Pipeline and the SJV Gathering System from Goodyear), the results of
operations of the All American Pipeline and the SJV Gathering System are
included in the results of operations of the predecessor.
For 1999, we reported a net loss of $103.4 million on total revenue of $4.7
billion compared to net income for 1998 of $6.0 million on total revenue of $1.1
billion and net income for 1997 of $2.1 million on total revenue of $752.5
million. The results for the years ended December 31, 1999 and 1998 include the
following nonrecurring items:
1999
. $166.4 million of unauthorized trading losses;
. a $16.5 million gain on the portion of the All American Pipeline linefill
that was sold in 1999;
. restructuring expense of $1.4 million; and
. an extraordinary loss of $1.5 million related to the early extinguishment
of debt.
1998
. $7.1 million of unauthorized trading losses.
The following table sets forth historical and combined historical financial
and operating information of Plains All American Pipeline for the periods
presented and includes the impact of the nonrecurring items discussed above (in
thousands)
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(restated) (predecessor)
OPERATING RESULTS:
Revenues $ 4,701,921 $ 1,129,689 $ 752,522
=========== ============= ===========
Gross margin
Pipeline $ 58,001 $ 16,768 $ -
Terminalling and storage
and gathering and marketing 52,313 21,712 12,480
Unauthorized trading losses (166,440) (7,100) -
----------- ------------- -----------
Total (56,126) 31,380 12,480
General and administrative expense (22,198) (5,297) (3,529)
----------- ------------- -----------
Gross profit $ (78,324) $ 26,083 $ 8,951
=========== ============= ===========
Net income (loss) $ (103,360) $ 5,979 $ 2,140
=========== ============= ===========
Table continued on following page
29
<PAGE>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
(predecessor)
AVERAGE DAILY VOLUMES (BARRELS):
Pipeline Activities:
All American
Tariff activities 101 113 -
Margin activities 56 50 -
Other 61 - -
----------- ----------- ----------
Total 218 163 -
=========== =========== ==========
Lease gathering 265 88 71
Bulk purchases 138 98 49
----------- ----------- ----------
Total 403 186 120
=========== =========== ==========
Terminal throughput 83 80 77
=========== =========== ==========
Storage leased to third parties,
monthly average volumes 1,975 1,150 668
=========== =========== ==========
Pipeline Operations. Gross margin from pipeline operations was $58.0 million
for the year ended December 31, 1999 compared to $16.8 million for 1998. The
increase resulted from twelve months of results from the All American Pipeline
in 1999 versus five months in 1998, increased margins from our pipeline merchant
activities, and to the two 1999 acquisitions which contributed approximately
$4.8 million of pipeline gross margin. The increase was partially offset by
lower tariff transport volumes, due to lower production from Exxon's Santa Ynez
Field and the Point Arguello Field, both offshore California.
The margin between revenue and direct cost of crude purchased was $33.5
million for the year ended December 31, 1999 compared to $3.9 million for 1998.
Pipeline tariff revenues were approximately $46.4 million for the year ended
December 31, 1999 compared to approximately $19.0 million for 1998. Pipeline
operations and maintenance expenses were approximately $24.0 million for the
year ended December 31, 1999 as compared to $6.1 million for 1998.
Tariff transport volumes on the All American Pipeline decreased from an
average of 113,000 barrels per day for the year ended December 31, 1998 to
101,000 barrels per day in 1999 due primarily to a decrease in shipments of
offshore California production, which decreased from 90,000 barrels per day in
1998 to 79,000 barrels per day in 1999. Barrels associated with our merchant
activities on the All American Pipeline increased from 50,000 barrels per day in
1998 to 56,000 barrels per day for the year ended December 31, 1999. Tariff
volumes shipped on the Scurlock and West Texas Gathering systems averaged 61,000
barrels per day during 1999.
In March 2000, we sold the segment of the All American Pipeline that extends
from Emidio, California to McCamey, Texas. We initiated the sale of
approximately 5.2 million barrels of crude oil linefill from the All American
Pipeline in November 1999. The sale of the linefill was substantially complete
in February 2000. We estimate that we will recognize a total gain of
approximately $44.0 million in connection with the sale of the linefill. As of
December 31, 1999, we had delivered approximately 1.8 million barrels of
linefill and recognized a gain of $16.5 million. During 1999, we reported gross
margin of approximately $5.0 million associated with operating the segment of
the All American Pipeline that was sold. See "Capital Resources, Liquidity and
Financial Condition".
The following table sets forth the All American Pipeline average deliveries
per day within and outside California (in thousands):
Year Ended
December 31,
--------------
1999 1998
------ ------
Deliveries:
Average daily volumes (barrels):
Within California 101 111
Outside California 56 52
------ ------
Total 157 163
====== ======
30
<PAGE>
Gathering and Marketing Activities and Terminalling and Storage Activities.
Excluding the unauthorized trading losses, gross margin from terminalling and
storage and gathering and marketing activities was approximately $52.3 million
for the year ended December 31, 1999, reflecting a 141% increase over the $21.7
million reported for 1998 and a 319% increase over the $12.5 million reported
for 1997. The increase in gross margin is due to an increase in lease gathering
and bulk purchase volumes, primarily as a result of the Scurlock acquisition,
which contributed approximately $26.3 million of 1999 gross margin, and an
increase in storage capacity leased at our Cushing Terminal. Lease gathering
volumes increased from an average of 88,000 and 71,000 barrels per day in 1998
and 1997, respectively, to approximately 265,000 barrels per day in 1999. Bulk
purchase volumes increased from approximately 98,000 and 49,000 barrels per day
for 1998 and 1997, respectively, to approximately 138,000 barrels per day this
year. Leased terminal capacity increased significantly from approximately 1.1
and 0.7 million barrels per month in 1998 and 1997, respectively, to 2.0 million
barrels per month during 1999. The 1.1 million barrel expansion of our Cushing
Terminal was placed in service in the second quarter of 1999. Throughput volumes
at our terminals increased approximately 3,000 and 6,000 barrels per day in the
current year period from 1998 and 1997, respectively.
In the period immediately following the disclosure of the unauthorized trading
losses, a significant number of our suppliers and trading partners reduced or
eliminated the open credit previously extended to us. Consequently, the amount
of letters of credit we needed to support the level of our crude oil purchases
then in effect increased significantly. In addition, the cost to us of obtaining
letters of credit increased under the amended credit facility. In many instances
we arranged for letters of credit to secure our obligations to purchase crude
oil from our customers, which increased our letter of credit costs and decreased
our unit margins. In other instances, primarily involving lower margin wellhead
and bulk purchases, our purchase contracts were terminated. As a result of these
changes, aggregate volumes purchased are expected to decrease by 150,000 barrels
per day, consisting primarily of lower unit margin purchases. Approximately
50,000 barrels per day of the decrease is related to barrels gathered at
producer lease locations and 100,000 barrels per day is attributable to bulk
purchases. As a result of the increase in letter of credit costs and reduced
volumes, annual EBITDA is expected to be adversely affected by approximately
$5.0 million, excluding the positive impact of current favorable market
conditions.
General and administrative expenses were $22.2 million for the year ended
December 31, 1999, compared to $5.3 million and $3.5 million for 1998 and 1997,
respectively. Such increases were primarily attributable to the Scurlock and
West Texas Gathering System acquisitions in 1999, the All American Pipeline
acquisition in July 1998, continued expansion of our business activities and
expenses related to the operation of the Plains All American Pipeline as a
public entity. As a result of the unauthorized trading losses, we will incur
additional expenses in 2000.
Depreciation and amortization expense was $17.3 million in 1999, $5.4 million
in 1998 and $1.2 million in 1997. The increase in 1999 is due primarily to the
Scurlock and West Texas Gathering System acquisitions in 1999 and the All
American Pipeline acquisition in July 1998. The increase in 1998 is due to the
All American Pipeline acquisition.
Interest expense was $21.1 million in 1999, $12.6 million in 1998 and $4.5
million in 1997. The increase in 1999 is due to (1) interest associated with the
debt incurred for the Scurlock and West Texas Gathering System acquisitions, (2)
a full year of interest for the All American Pipeline acquisition, (3) an
increase in interest related to hedged inventory transactions and (4) an
increase in interest rates as a result of the unauthorized trading losses. The
increase in interest expense in 1998 is associated with the debt incurred for
the acquisition of the All American Pipeline and the SJV Gathering System.
Interest expense in 1997 is comprised principally of interest charged to our
predecessor by Plains Resources for amounts borrowed to construct the Cushing
Terminal and subsequent capital additions, including the Ingleside Terminal.
The extraordinary item of $1.5 million in 1999 relates to the write-off of
certain debt issue costs and penalties incurred associated with the prepayment
of debt. The prepayment of debt was made from the proceeds of our equity
offering in October 1999. See - "Capital Resources, Liquidity and Financial
Condition".
In 1999, we terminated 24 employees and paid approximately $1.4 million in
connection therewith.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
Unauthorized Trading Losses
In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). A full investigation into the unauthorized trading activities by
outside legal counsel and independent accountants and consultants determined
that the vast majority of the losses occurred from March through November 1999,
and the impact warranted a restatement of previously reported financial
information for 1999 and 1998 (see Note 3 in Notes to our consolidated and
combined financial statements appearing elsewhere in this report).
31
<PAGE>
Normally, as we purchase crude oil, we establish a margin by selling crude oil
for physical delivery to third-party users or by entering into a future delivery
obligation with respect to futures contracts. The employee in question violated
our policy of maintaining a position that is substantially balanced between
crude oil purchases and sales or future delivery obligations. The unauthorized
trading and associated losses resulted in a default of certain covenants under
our credit facilities and significant short-term cash and letter of credit
requirements.
In December 1999, we executed amended credit facilities and obtained default
waivers from all of our lenders. The amended credit facilities:
. waived defaults under covenants contained in the existing credit
facilities;
. increased availability under our letter of credit and borrowing facility
from $175.0 million in November 1999 to $295.0 million in December 1999,
$315.0 million in January 2000, and thereafter decreasing to $239.0 million
in February through April 2000, to $225.0 million in May and June 2000 and
to $200.0 million in July 2000 through July 2001;
. required the lenders' consent prior to the payment of distributions to
unitholders;
. prohibited contango inventory transactions subsequent to January 20, 2000;
and
. increased interest rates and fees under certain of the facilities.
We paid approximately $13.7 million to our lenders in connection with the
amended credit facilities. This amount was capitalized as debt issue costs and
will be amortized over the remaining term of the amended facilities. In
connection with the amendments, our general partner loaned us approximately
$114.0 million. This subordinated debt is due not later than November 30, 2005.
We have taken appropriate and aggressive steps within our organization to
enhance our processes and procedures to prevent future unauthorized trading. One
of such steps includes the creation of a new professional risk management
position. This risk manager has direct responsibility and authority for our
trading controls and procedures and other aspects of corporate risk management.
However, we can give no assurance that such steps will detect and prevent all
violations of our trading policies and procedures, particularly if deception or
other intentional misconduct is involved.
Public Offering
In October 1999, we completed a public offering of an additional 2,990,000
common units, representing limited partner interests, at $18.00 per unit. Net
proceeds, including our general partners' contribution, were approximately $51.3
million after deducting underwriters' discounts and commissions and offering
expenses of approximately $3.1 million. The proceeds, together with our general
partner's capital contribution of approximately $0.5 million to maintain its 2%
general partner interest, were used to reduce outstanding debt. Approximately
$44.0 million was used to reduce the term loan portion of the Plains Scurlock
bank credit agreement and the remainder was used to reduce the balance
outstanding on our other revolving credit facility.
All American Pipeline Linefill Sale and Asset Disposition
We initiated the sale of approximately 5.2 million barrels of crude oil
linefill from the All American Pipeline in November 1999. This sale was
substantially completed in February 2000. The linefill was located in the
segment of the All American Pipeline that extends from Emidio, California, to
McCamey, Texas. Except for minor third party volumes, one of our subsidiaries
has been the sole shipper on this segment of the pipeline since its predecessor
acquired the line from the Goodyear Tire & Rubber Company in July 1998. Proceeds
from the sale of the linefill were approximately $100.0 million, net of
associated costs, and were used for working capital purposes. We estimate that
we will recognize a total gain of approximately $44.0 million in connection with
the sale of linefill. As of December 31, 1999, we had delivered approximately
1.8 million barrels of linefill and recognized a gain of $16.5 million.
On March 24, 2000, we completed the sale of the above referenced segment of
the All American Pipeline to a unit of El Paso Energy Corporation for total
proceeds of $129.0 million. The proceeds from the sale were used to reduce
outstanding debt. Our net proceeds are expected to be approximately $124.0
million, net of associated transaction costs and estimated costs to remove
certain equipment. We estimate that we will recognize a gain of approximately
$20.0 million in connection with the sale. During 1999, we reported gross margin
of approximately $5.0 million from volumes transported on the segment of the
line that was sold.
32
<PAGE>
Scurlock Acquisition
On May 12, 1999, Plains Scurlock Permian, L.P., a limited partnership of which
Plains All American Inc. is the general partner and Plains Marketing, L.P. is
the limited partner, completed the Scurlock acquisition. Including working
capital adjustments and closing and financing costs, the cash purchase price was
approximately $141.7 million. Financing for the Scurlock acquisition was
provided through:
. borrowings of approximately $92.0 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A.;
. the sale to our general partner of 1.3 million of our Class B common units
for a total cash consideration of $25.0 million, or $19.125 per unit, the
price equal to the market value of our common units on May 12, 1999; and
. a $25.0 million draw under our existing revolving credit agreement.
The Class B common units are pari passu with common units with respect to
quarterly distributions, and are convertible into common units upon approval of
a majority of the common unitholders. The Class B unitholders may request that
we call a meeting of common unitholders to consider approval of the conversion
of Class B units into common units. If the approval of a conversion by the
common unitholders is not obtained within 120 days of a request, each Class B
unitholder 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 120-day period. Except for the vote to approve the
conversion, the Class B units have the same voting rights as the common units.
West Texas Gathering System Acquisition
On July 15, 1999, Plains Scurlock Permian, L.P. completed the acquisition of a
West Texas crude oil pipeline and gathering system from Chevron Pipe Line
Company for approximately $36.0 million, including transaction costs. Our total
acquisition cost was approximately $38.9 million including costs to address
certain issues identified in the due diligence process. The principal assets
acquired include approximately 450 miles of crude oil transmission mainlines,
approximately 400 miles of associated gathering and lateral lines and
approximately 2.9 million barrels of crude oil storage and terminalling capacity
in Crane, Ector, Midland, Upton, Ward and Winkler Counties, Texas. Financing for
the amounts paid at closing was provided by a draw under the term loan portion
of the Plains Scurlock credit facility.
Credit Agreements
Amounts outstanding under our credit agreements at December 31, 1999 were as
follows (in thousands):
All American Pipeline, L.P. bank credit agreement $ 225,000
Plains Scurlock bank credit agreement 85,100
Plains Marketing, L.P. letter of credit and borrowing facility 13,719
Secured term credit facility 45,000
Subordinated note payable - general partner 114,000
---------
$ 482,819
=========
Concurrently with the closing of our initial public offering in November 1998,
we entered into a $225.0 million bank credit agreement that includes a $175.0
million term loan facility and a $50.0 million revolving credit facility. As a
result of the unauthorized trading losses discovered in November 1999, the
facility was in default of certain covenants, with those defaults being
subsequently waived and the facility amended in December. The bank credit
agreement is secured by a lien on substantially all of our assets except the
assets which secure the Plains Scurlock credit facility. We may borrow up to
$50.0 million under the revolving credit facility for acquisitions, capital
improvements, working capital and general business purposes. At December 31,
1999, we had $175.0 million outstanding under the term loan facility and $50.0
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 term loan and revolving credit
facility bear interest at our option at either the base rate, as defined, plus
an applicable margin, or reserve adjusted LIBOR plus an applicable margin. We
incur a commitment fee on the unused portion of the revolving credit facility.
Plains Scurlock has a bank credit agreement which consists of a five-year
$82.6 million term loan facility and a three-year $35.0 million revolving credit
facility. The Plains Scurlock credit facility is nonrecourse to Plains All
American Pipeline, Plains Marketing, L.P. and All American Pipeline, L.P. and is
secured by substantially all of the assets of Plains Scurlock Permian, L.P. and
its subsidiaries, including the Scurlock assets and the West Texas Gathering
System. Borrowings
33
<PAGE>
under the term loan and revolving credit facility bear interest at LIBOR plus
the applicable margin. A commitment fee equal to 0.5% 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
in May 2004. As of December 31, 1999, letters of credit of approximately $29.5
million were outstanding under the revolver and borrowings of $82.6 million and
$2.5 million were outstanding under the term loan and revolver, respectively.
The term loan was reduced to $82.6 million from $126.6 million with proceeds
from our October 1999 public unit offering.
We have a letter of credit and borrowing facility, the purpose of which is to
provide standby letters of credit to support the purchase and exchange of crude
oil for resale and borrowings to finance crude oil inventory which has been
hedged against future price risk or designated as working inventory. As a result
of the unauthorized trading losses discovered in November 1999, the facility was
in default of certain covenants, with those defaults being subsequently waived
and the facility amended in December 1999. As amended, the letter of credit
facility has a sublimit for cash borrowings of $40.0 million at December 31,
1999, with decreasing amounts thereafter through April 30, 2000, at which time
the sublimit is eliminated. The letter of credit and borrowing facility provides
for an aggregate letter of credit availability of $295.0 million in December
1999, $315.0 million in January 2000, and thereafter decreasing to $239.0
million in February through April 2000, to $225.0 million in May and June 2000,
and to $200.0 million in July 2000 through July 2001. 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 of
our current assets and current liabilities, primarily accounts receivable and
accounts payable related to the purchase and sale of crude oil. This facility is
secured by a lien on substantially all of our assets except the assets which
secure the Plains Scurlock credit facility. At December 31, 1999, there were
letters of credit of approximately $292.0 million and borrowings of $13.7
million outstanding under this facility.
On December 30, 1999, we entered into a $65.0 million senior secured term
credit facility to fund short-term working capital requirements resulting from
the unauthorized trading losses. The facility was secured by a portion of the
5.2 million barrels of linefill that was sold and receivables from certain sales
contracts applicable to the linefill. The facility had a maturity date of
March 24, 2000 and was repaid with the proceeds from the sale of the linefill
securing the facility. At December 31, 1999, there were borrowings of $45.0
million outstanding.
All of our credit agreements contain prohibitions on distributions on, or
purchases or redemptions of, units if any default or event of default is
continuing. In addition, our facilities contain various covenants limiting our
ability to:
. incur indebtedness;
. grant liens;
. sell assets in excess of certain limitations;
. engage in transactions with affiliates;
. make investments;
. enter into hedging contracts; and
. enter into a merger, consolidation or sale of assets.
Each of our facilities treats a change of control as an event of default. In
addition, the terms of our letter of credit and borrowing facility and our bank
credit agreement require lenders' consent prior to the payment of distributions
to unitholders and require us to maintain:
. a current ratio of 1.0 to 1.0:
. a debt coverage ratio which is not greater than 5.0 to 1.0;
. an interest coverage ratio which is not less than 3.0 to 1.0;
. a fixed charge coverage ratio which is not less than 1.25 to 1.0; and
. a debt to capital ratio of not greater than 0.60 to 1.0.
The terms of the Plains Scurlock bank credit agreement require Plains Scurlock
to maintain at the end of each quarter:
. a debt coverage ratio of 6.0 to 1.0 from October 1, 1999 through June 30,
2000; 5.0 to 1.0 from July 1, 2000 through June 30, 2001; and 4.0 to 1.0
thereafter; and
. an interest coverage ratio of 2.0 to 1.0 from October 1, 1999 through
June 30, 2000 and 2.5 to 1.0 thereafter.
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<PAGE>
In addition, the Plains Scurlock bank credit agreement contains limitations on
the Plains Scurlock operating partnership's ability to make distributions to us
if its indebtedness and current liabilities exceed certain levels as well as the
amount of expansion capital it may expend.
In December 1999, our general partner loaned us $114.0 million. This
subordinated debt is due not later than November 30, 2005. Proceeds from the
notes were used for working capital requirements created by the unauthorized
trading losses. The notes are subordinated in right of payment to all existing
senior indebtedness and bear interest at the same LIBOR rate as our letter of
credit and borrowing facility. Interest on the notes is payable monthly, but
payment of interest requires the permission of certain of our lenders. Any
interest not paid when due is added to the principal of the notes, at the option
of our general partner.
We are currently in discussions with our lenders to restructure and
consolidate our various credit facilities. If completed, this will enable us to
increase our current bank credit facilities (excluding short-term credit
facility and the letter of credit and borrowing facility) from total capacity of
approximately $342.6 million to approximately $350.0 million. In addition, we
are in discussions to restructure and increase the size of our letter of credit
and borrowing facility, which will provide us the ability to enter into contango
inventory transactions. Although there can be no assurance we will be successful
in restructuring the facilities, we believe these facilities, combined with cash
flow from operating activities and the sale of the linefill and segment of the
All American Pipeline, will provide us with additional flexibility and
liquidity, including liquidity required to meet our obligations and to make
distributions to our unitholders.
Cash Flows
Year Ended December 31,
----------------------------------------
(in millions) 1999 1998 1997
-----------------------------------------------------------------
(restated) (predecessor)
(combined)
(unaudited)
Cash provided by (used in):
Operating activities $ (106.2) $ 29.8 $ (12.9)
Investing activities (186.1) (402.7) (1.9)
Financing activities 340.5 386.4 14.3
-----------------------------------------------------------------
Operating Activities. Net cash used in operating activities in 1999 resulted
from the unauthorized trading losses. The losses were partially offset by
increased margins due to the Scurlock and West Texas Gathering System
acquisitions.
Investing Activities. Net cash used in investing activities for 1999 included
approximately $177.0 million for acquisitions, primarily for the Scurlock and
West Texas gathering system, $10.9 million for expansion capital and $1.7
million for maintenance capital. Approximately $5.0 million and $4.2 million,
respectively, related to the Cushing terminal expansion is included in expansion
capital expenditures for 1999 and 1998, respectively. Net cash used in investing
activities for 1998 consisted primarily of approximately $394.0 million for the
purchase of the All American Pipeline and SJV Gathering System. We estimate that
capital expenditures necessary to maintain our existing asset base at current
operating levels will be approximately $4.0 million to $5.0 million each year.
Financing activities. Cash provided by financing activities in 1999 was
generated from net issuances of (1) $76.5 million in common and Class B units,
(2) $184.1 million of short-term and long-term debt and (3) $114.0 million of
two subordinated notes to our general partner. Cash inflows from financing
activities during 1998 included (1) $283.8 million from the net issuance of
short-term and long-term debt and (2) a capital contribution of approximately
$113.7 million from our general partner primarily in connection with the
acquisition of the All American Pipeline and SJV Gathering System.
Subject to the consent of our lenders, we will distribute 100% of our
available cash within 45 days after the end of each quarter to unitholders of
record and to our general partner. Available cash is generally defined as all of
our cash and cash equivalents on hand at the end of the quarter less reserves
established by our general partner for future requirements. Minimum quarterly
distributions are $0.45 for each full fiscal quarter. Distributions of available
cash to the holders of subordinated units are subject to the prior rights of the
holders of common units to receive the minimum quarterly distributions for each
quarter during the subordination period, and to receive any arrearages in the
distribution of minimum quarterly distributions on the common units for prior
quarters during the subordination period. The expiration of the subordination
period will generally not occur prior to December 31, 2003.
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<PAGE>
Cash distributions paid to unitholders on our outstanding common units,
Class B units and subordinated units in 1999 were $51.7 million. Included in
this amount is $5.9 million representing distributions for the period from our
inception, November 23, 1998 through December 31, 1998. On February 14, 2000, we
paid a cash distribution of $0.45 per unit on our outstanding common units and
Class B units. The distribution was paid to unitholders of record on February 7,
2000 for the period covering October 1, 1999 through December 31, 1999. The
total distribution paid was approximately $11.2 million, with approximately $7.2
million paid to our public unitholders and the remainder paid to our general
partner for its limited and general partner interests. We received the requisite
consent from our lenders to pay the fourth quarter distribution. No distribution
was declared on the subordinated units owned by our general partner.
Contingencies
Since our announcement in November 1999 of our losses resulting from
unauthorized trading by a former employee, numerous class action lawsuits have
been filed against us, certain of our general partner's officers and directors
and in some of these cases, our general partner and Plains Resources Inc.
alleging violations of the federal securities laws. In addition, derivative
lawsuits were filed in the Delaware Chancery Court against our general partner,
its directors and certain of its officers alleging the defendants breached the
fiduciary duties owed to us and our unitholders by failing to monitor properly
the activities of our traders. See Item 3. - "Legal Proceedings".
We may experience future releases of crude oil into the environment from our
pipeline and storage operations, or discover releases that were previously
unidentified. While we maintain an extensive inspection program designed to
prevent and, as applicable, to detect and address such releases promptly,
damages and liabilities incurred due to any future environmental releases from
our assets may substantially affect our business.
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 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 we are 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 we are 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. This statement was amended by Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133 ("SFAS 137") issued in June
1999. SFAS 137 defers the effective date of SFAS 133 to fiscal years beginning
after June 15, 2000. We are required to adopt this statement beginning in 2001.
We have not yet determined the effect that the adoption of SFAS 133 will have on
our financial position or results of operations.
YEAR 2000
Year 2000 Project. In order to address the Year 2000 issue, we initiated a
Year 2000 project. We incurred approximately $0.8 million through December 31,
1999, in connection with our Year 2000 project, approximately $0.4 million of
which were costs paid to third parties. We did not encounter any critical system
application, hardware or equipment failures during the date roll over to the
Year 2000, and have not experienced any disruptions of business activities as a
result of Year 2000 failures by our customers, suppliers, service providers or
business partners.
36
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to various market risks, including volatility in crude oil
commodity prices and interest rates. To manage such exposure, we monitor our
inventory levels, current economic conditions and our expectations of future
commodity prices and interest rates when making decisions with respect to risk
management. We do not enter into derivative transactions for speculative trading
purposes. Substantially all of our 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 instruments and
the change in fair value that would be expected from a 10 percent adverse price
change are shown in the table below (in millions):
DECEMBER 31,
------------------------------------------------
1999 1998
--------------------- ---------------------
10% 10%
Adverse Adverse
Fair Price Fair Price
Value Change Value Change
------- -------- --------- -------
Crude oil :
Futures contracts $ - $ (2.8) $ 1.8 $ (0.3)
Swaps and options contracts (0.6) (0.1) - -
The fair values of the futures contracts are based on quoted market prices
obtained from the NYMEX. The fair value of the swaps are estimated based on
quoted prices from independent reporting services compared to the contract price
of the swap which approximate the gain or loss that would have been realized if
the contracts had been closed out at year end. All hedge positions offset
physical positions exposed to the cash market; none of these offsetting physical
positions are included in the above table. Price-risk sensitivities were
calculated by assuming an across-the-board 10 percent adverse change in prices
regardless of term or historical relationships between the contractual price of
the instruments and the underlying commodity price. In the event of an actual 10
percent change in prompt month crude prices, the fair value of our derivative
portfolio would typically change less than that shown in the table due to lower
volatility in out-month prices.
Interest Rate Risk. Our debt instruments are sensitive to market fluctuations
in interest rates. The table below presents principal payments and the related
weighted average interest rates by expected maturity dates for debt outstanding
at December 31, 1999. Our variable rate debt bears interest at LIBOR plus the
applicable margin. The average interest rates presented below are based upon
rates in effect at December 31, 1999. The carrying value of variable rate bank
debt approximates fair value as interest rates are variable, based on prevailing
market rates (dollars in millions).
<TABLE>
<CAPTION>
Expected Year of Maturity
-------------------------------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
-------- -------- -------- -------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES:
Short-term debt - variable rate $ 58.7 $ - $ - $ - $ - $ - $ 58.7 $ 58.7
Average interest rate 8.74% 8.74%
Long-term debt - variable rate 50.8 0.6 3.2 0.7 80.0 289.0 424.1 424.1
Average interest rate 8.45% 9.06% 9.40% 9.06% 9.06% 8.44% 8.57%
</TABLE>
At December 31, 1998, the carrying value of short-term and long-term debt of
$9.7 million and $175.0 million, respectively, approximated fair value.
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 December 31, 1999, we had
interest rate swap and collar arrangements for an aggregate notional principal
amount of $215.0 million, which positions had an aggregate value of
approximately $0.4 million as of such date. These instruments are based on LIBOR
margins and generally provide for a floor of 5% and a ceiling of 6.5% for $90.0
million of debt and a floor of 6% and a ceiling of 8% for $125.0 million of
debt. In August 1999, we terminated our swap arrangements on an aggregate
notional principal amount of $175.0 million and we received consideration in the
amount of approximately $10.8 million.
At December 31, 1998, we had an interest rate swap arrangement for an
aggregate notional principal amount of $175.0 million and would have been
required to pay approximately $2.2 million to terminate the instrument at that
date.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required here is included in the report as set forth in that
"Index to Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OUR GENERAL PARTNER
PARTNERSHIP MANAGEMENT
Our general partner manages our operations and activities. Unitholders do not
directly or indirectly participate in our management or operation. Our general
partner owes a fiduciary duty to the unitholders. As a general partner, our
general partner is liable for all of our debts (to the extent not paid from our
assets), except for indebtedness or other obligations that are made specifically
non-recourse to it. Whenever possible, our general partner intends to incur
indebtedness or other obligations on a non-recourse basis.
Two members of the board of directors of our general partner serve on a
conflicts committee that reviews specific matters that the board believes may
involve conflicts of interest between our general partner and Plains All
American Pipeline. The conflicts committee determines if the resolution of a
conflict of interest is fair and reasonable to us. The members of the conflicts
committee may not be officers or employees of our general partner or directors,
officers or employees of its affiliates. Any matters approved by the conflicts
committee will be conclusively deemed to be fair and reasonable to us, approved
by all of our partners, and not a breach by our general partner of any duties
owed to us. In addition, the members of the conflicts committee also serve on an
audit committee which reviews our external financial reporting, recommends
engagement of our independent auditors and reviews procedures for internal
auditing and the adequacy of our internal accounting controls.
As is commonly the case with publicly-traded limited partnerships, we are
managed and operated by the officers and are subject to the oversight of the
directors of our general partner. Most of our operational personnel are
employees of our general partner.
Some officers of our general partner may spend a substantial amount of time
managing the business and affairs of Plains Resources and its affiliates. These
officers may face a conflict regarding the allocation of their time between our
business and the other business interests of Plains Resources. Our general
partner intends to cause its officers to devote as much time to the management
of our business and affairs as is necessary for the proper conduct of our
business and affairs.
DIRECTORS AND EXECUTIVE OFFICERS OF OUR GENERAL PARTNER
The following table sets forth certain information with respect to the
executive officers and members of the Board of Directors of our general partner.
Executive officers and directors are elected for one year terms.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH OUR GENERAL PARTNER
- --------------------------------- --- -----------------------------------------------------------------
<S> <C> <C>
Greg L. Armstrong 41 Chairman of the Board, Chief Executive Officer and Director
Harry N. Pefanis 42 President, Chief Operating Officer and Director
Phillip D. Kramer 44 Executive Vice President and Chief Financial Officer
George R. Coiner 48 Senior Vice President
Michael R. Patterson 52 Senior Vice President, General Counsel and Secretary
Michael J. Latiolais 45 Vice President - Administration
Mark F. Shires 42 Vice President - Operations
Cynthia A. Feeback 42 Treasurer
Everardo Goyanes 55 Director and Member of Audit and Conflicts Committees
Robert V. Sinnott 50 Director and Member of Audit and Compensation
Committees
Arthur L. Smith 47 Director and Member of Audit, Conflicts and Compensation
Committees
</TABLE>
Greg L. Armstrong has served as Chairman of the Board, Chief Executive Officer
and Director of our general partner since its formation. In addition, he has
been President, Chief Executive Officer and Director of Plains Resources since
1992. He previously served Plains Resources as: President and Chief Operating
Officer from October to December 1992; Executive Vice President and Chief
Financial Officer from June to October 1992; Senior Vice President and Chief
Financial Officer from 1991 to 1992; Vice President and Chief Financial Officer
from 1984 to 1991; Corporate Secretary from 1981 to 1988; and Treasurer from
1984 to 1987.
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<PAGE>
Harry N. Pefanis has served as President, Chief Operating Officer and Director
of our general partner since its formation. In addition, he has been Executive
Vice President - Midstream of Plains Resources since May 1998. He previously
served Plains Resources as: Senior Vice President from February 1996 until May
1998; Vice President - Products Marketing from 1988 to February 1996; Manager of
Products Marketing from 1987 to 1988; and Special Assistant for Corporate
Planning from 1983 to 1987. Mr. Pefanis was also President of the Plains
Midstream Subsidiaries until the formation of Plains All American Pipeline.
Phillip D. Kramer has served as Executive Vice President and Chief Financial
Officer of our general partner since its formation. In addition, he has been
Executive Vice President, Chief Financial Officer and Treasurer of Plains
Resources since May 1998. He previously served Plains Resources as: Senior Vice
President, Chief Financial Officer and Treasurer from May 1997 until May 1998;
Vice President, Chief Financial Officer and Treasurer from 1992 to 1997; Vice
President and Treasurer from 1988 to 1992; Treasurer from 1987 to 1988; and
Controller from 1983 to 1987.
George R. Coiner has served as Senior Vice President of our general partner
since its formation. In addition, he was Vice President of Plains Marketing &
Transportation Inc., a Plains Midstream Subsidiary, since November 1995. Prior
to joining Plains Marketing & Transportation Inc., he was Senior Vice President,
Marketing with Scurlock Permian Corp.
Michael R. Patterson has served as Senior Vice President, General Counsel and
Secretary of our general partner since its formation. In addition, he has been
Vice President, General Counsel and Secretary of Plains Resources since 1988. He
previously served Plains Resources as Vice President and General Counsel from
1985 to 1988.
Michael J. Latiolais has served as Vice President - Administration of our
general partner since August 1999 and as Controller of our general partner from
July 1998 through August 1999. In addition, he was Vice President and Controller
for All American Pipeline Company, Celeron Gathering Corporation and Celeron
Trading & Transportation Company from 1994 until such companies were merged into
the operating partnerships of Plains All American Pipeline. He served as
Controller of such companies from 1985 to 1994.
Mark F. Shires has served as Vice President - Operations of our general
partner since August 1999. He served as Manager of Operations for our general
partner from April 1999 until August 1999 when he was elected to his current
position. In addition, he was a business consultant from 1996 until April 1999.
He served as a consultant to Plains Marketing & Transportation Inc. and Plains
All American Pipeline from May 1998 until April 1999. He previously served as
President of Plains Terminal & Transfer Corporation, a Plains Midstream
Subsidiary, from 1993 to 1996.
Cynthia A. Feeback has served as Treasurer of our general partner since its
formation. In addition, she has been Vice President - Accounting and Assistant
Treasurer of Plains Resources since May 1999. She previously served Plains
Resources as Assistant Treasurer, Controller and Principal Accounting Officer
from May 1998 to May 1999; Controller and Principal Accounting Officer from 1993
to 1998; Controller from 1990 to 1993; and Accounting Manager from 1988 to 1990.
Everardo Goyanes has served as a Director and a member of Audit and Conflicts
Committees since May 1999. Mr. Goyanes is a financial consultant specializing in
natural resources. From 1989 to 1998, he was Managing Director of the Natural
Resources Group of ING Baring Furman Selz (a commercial banking firm). He was a
financial consultant from 1987 to 1989 and was Vice President - Finance of
Forest Oil Corporation from 1983 to 1987.
Robert V. Sinnott has served as a Director and a member of Audit and
Compensation Committees since September 1998. Mr. Sinnott has been Vice
President of Kayne Anderson Investment Management, Inc. (an investment
management firm) since 1992. He was Vice President and Senior Securities Officer
of the Investment Banking Division of Citibank from 1986 to 1992. He is also a
director of Plains Resources and Glacier Water Services, Inc. (a vended water
company).
Arthur L. Smith has served as a Director and a member of Audit, Conflicts and
Compensation Committees since February 1999. Mr. Smith is Chairman of John S.
Herold, Inc. (a petroleum research and consulting firm), a position he has held
since 1984. For the period from May 1998 to October 1998, he served as Chairman
and Chief Executive Officer of Torch Energy Advisors Incorporated. He is also a
director of Cabot Oil & Gas Corporation. Mr. Smith served as a director of
Pioneer Natural Resources Company from 1997 to 1998 and of Parker & Parsley
Petroleum Company from 1991 to 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires directors,
officers and persons who beneficially own more than ten percent of a registered
class of our equity securities to file with the SEC and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
such equity securities. Such persons are also required to
39
<PAGE>
furnish us with copies of all Section 16(a) forms that they file. Based solely
upon a review of the copies of Forms 3, 4 and 5 furnished to us, or written
representations from certain reporting persons that no Forms 5 were required, we
believe that during 1999 our officers and directors complied with all filing
requirements with respect to our equity securities.
REIMBURSEMENT OF EXPENSES OF OUR GENERAL PARTNER AND ITS AFFILIATES
Our general partner does not receive any management fee or other compensation
in connection with its management of Plains All American Pipeline. However, our
general partner and its affiliates, including Plains Resources, perform services
for us and are reimbursed by us for all expenses incurred on our behalf,
including the costs of employee, officer and director compensation and benefits
properly allocable to us, as well as all other expenses necessary or appropriate
to the conduct of our business and properly allocable to us. The partnership
agreement provides that our general partner will determine the expenses that are
allocable to us in any reasonable manner determined by our general partner in
its sole discretion.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
We were formed in September 1998 but conducted no business until late November
1998. Accordingly, prior to 1999, no officer of our general partner received
salary and bonus compensation for services to the partnership in excess of
$100,000. Messrs. Armstrong, Pefanis, Kramer and Patterson and Ms. Feeback are
compensated by Plains Resources and do not receive compensation from our general
partner with the exceptions of awards to Messrs. Armstrong and Pefanis under the
Long-Term Incentive Plan and the Transaction Grant Agreements described below.
However, we reimburse our general partner and its affiliates, including Plains
Resources for expenses incurred on our behalf, including the costs of officer
compensation properly allocable to us. See Item 13. - "Certain Relationships
and Related Transactions - Relationship with Plains Resources". The following
table sets forth certain compensation information for all executive officers of
our general partner who received salary and bonus compensation from our general
partner in excess of $100,000 in 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term
-------------------------- Compensation Other
Name and Principal Position Year Salary Bonus LTIP Payouts Compensation
--------------------------- ---- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
George Coiner 1999 $ 180,956 $ 295,000 (1) $ 167,073 (2) $ 10,000 (3)
Senior Vice President
Michael J. Latiolais 1999 152,267 76,133 - 10,000 (3)
Vice President - Administration 71,110 (4)
Mark F. Shires 1999 160,792 (5) 77,500 - -
Vice President - Operations
</TABLE>
- ----------
(1) Paid under Management Incentive Plan. See " - Management Incentive Plan"
below.
(2) Represents the value of 11,111 common units as of December 31, 1999 plus
distribution equivalent rights with respect to such units, which vested
under the Transaction Grant Agreement. See - "Transaction Grant
Agreements" below.
(3) Plains Resources matches 100% of an employee's contribution to its 401(k)
Plan (subject to certain limitations in the plan), with such matching
contribution being made 50% in cash and 50% in Plains Resources Common
Stock (the number of shares for the stock match being based on the market
value of the Common Stock at the time the shares are granted).
(4) Represents reimbursement of moving and relocation expenses.
(5) Includes $51,000 for consulting fees we paid to Mr. Shires prior to his
becoming an employee of our general partner in April 1999.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Plains Resources has an employment agreement with Mr. Armstrong which expires
on March 1, 2002 (unless extended pursuant to the terms thereof) and provides
for a current base salary of $330,000 per year, subject to annual review. If Mr.
Armstrong's employment is terminated without cause, he will be entitled to
receive an amount equal to two times his annual base salary. If his employment
is terminated as a result of a change in control of Plains Resources, he will be
entitled to receive an amount equal to three times the aggregate of his annual
base salary and bonus. In either event, Mr. Armstrong will be entitled to
receive medical benefits for two years following the date of his termination.
Under Mr. Armstrong's agreement, a change in control of Plains Resources is
defined as the directors in office on the date of the agreement ceasing to
constitute a majority of the Board of Directors of Plains Resources.
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Plains Resources also has an employment agreement with Mr. Pefanis, under
which Mr. Pefanis serves as Executive Vice President of Plains Resources as well
as President and Chief Operating Officer of our general partner and is
responsible for our overall operations. The employment agreement provides that
Plains Resources will not require Mr. Pefanis to engage in activities that
materially detract from his duties and responsibilities as an officer of our
general partner. The initial term of the employment agreement runs through
November 23, 2001, subject to annual extensions and includes confidentiality,
nonsolicitation and noncompete provisions, which, in general, will continue for
two years following termination of Mr. Pefanis' employment. The employment
agreement provides for an annual base salary of $235,000, subject to annual
review. If Mr. Pefanis' employment is terminated without cause, he will be
entitled to receive an amount equal to two times his base salary. Upon a Change
in Control of Plains Resources or a Marketing Operations Disposition (as such
terms are defined in the employment agreement), the term of the employment
agreement will be automatically extended for three years, and if Mr. Pefanis'
employment is terminated during the one-year period following either event by
him for a Good Reason or by Plains Resources other than for death, disability or
Cause (as such terms are defined in the employment agreement), he will be
entitled to a lump sum severance amount equal to three times the sum of (1) his
highest rate of annual base salary and (2) the largest annual bonus paid during
the three preceding years.
Long-Term Incentive Plan
Our general partner has adopted the Plains All American Inc. 1998 Long-Term
Incentive Plan for employees and directors of our general partner and its
affiliates who perform services for us. The Long-Term Incentive Plan consists of
two components, a restricted unit plan and a unit option plan. The Long-Term
Incentive Plan currently permits the grant of restricted units and unit options
covering an aggregate of 975,000 common units. The plan is administered by the
Compensation Committee of our general partner's board of directors.
Restricted Unit Plan. A restricted unit is a "phantom" unit that entitles the
grantee to receive a common unit upon the vesting of the phantom unit. As of
March 15, 2000, an aggregate of approximately 500,000 restricted units have been
authorized for grants to employees of our general partner, 170,000 of which have
been granted with the remaining 330,000 to be granted in the near future. Grants
made include 60,000, 30,000 and 12,500 units to Messrs. Pefanis, Coiner and
Latiolais, respectively. The Compensation Committee may, in the future, make
additional grants under the plan to employees and directors containing such
terms as the Compensation Committee shall determine. In general, restricted
units granted to employees during the subordination period will vest only upon,
and in the same proportions as, the conversion of the subordinated units to
common units. Grants made to non-employee directors of our general partner will
be eligible to vest prior to termination of the subordination period.
If a grantee terminates employment or membership on the board for any reason,
the grantee's restricted units will be automatically forfeited unless, and to
the extent, the Compensation Committee provides otherwise. Common units to be
delivered upon the vesting of rights may be common units acquired by our general
partner in the open market, common units already owned by our general partner,
common units acquired by our general partner directly from us or any other
person, or any combination of the foregoing. Our general partner will be
entitled to reimbursement by us for the cost incurred in acquiring common units.
If we issue new common units upon vesting of the restricted units, the total
number of common units outstanding will increase. Following the subordination
period, the Compensation Committee, in its discretion, may grant tandem
distribution equivalent rights with respect to restricted units.
The issuance of the common units pursuant to the restricted unit plan is
primarily intended to serve as a means of incentive compensation for
performance. Therefore, no consideration will be paid to us by the plan
participants upon receipt of the common units.
Unit Option Plan. The Unit Option Plan currently permits the grant of options
covering common units. No grants have been made under the Unit Option Plan to
date. However, the Compensation Committee may, in the future, make grants under
the plan to employees and directors containing such terms as the committee shall
determine, provided that unit options have an exercise price equal to the fair
market value of the units on the date of grant. Unit options granted during the
subordination period will become exercisable automatically upon, and in the same
proportions as, the conversion of the subordinated units to common units, unless
a later vesting date is provided.
Upon exercise of a unit option, our general partner will deliver common units
acquired by it in the open market, purchased directly from us or any other
person, or use common units already owned by our general partner, or any
combination of the foregoing. Our general partner will be entitled to
reimbursement by us for the difference between the cost incurred by our general
partner in acquiring such common units and the proceeds received by our general
partner from an optionee at the time of exercise. Thus, the cost of the unit
options will be borne by us. If we issue new common units upon
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<PAGE>
exercise of the unit options, the total number of common units outstanding will
increase, and our general partner will remit to us the proceeds received by it
from the optionee upon exercise of the unit option.
The unit option plan has been designed to furnish additional compensation to
employees and directors and to align their economic interests with those of the
common unitholders. Our general partner's board of directors in its discretion
may terminate the Long-Term Incentive Plan at any time with respect to any
common units for which a grant has not yet been made. Our general partner's
board of directors also has the right to alter or amend the Long-Term Incentive
Plan or any part of the plan from time to time, including increasing the number
of common units with respect to which awards may be granted; provided, however,
that no change in any outstanding grant may be made that would materially impair
the rights of the participant without the consent of such participant.
TRANSACTION GRANT AGREEMENTS
In addition to the grants made under the Restricted Unit Plan described above,
our general partner, at no cost to us, agreed to transfer approximately 400,000
of its affiliates' common units (including distribution equivalent rights
attributable to such units) to certain key employees of our general partner. A
grant covering 50,000 of such common units was terminated in 1999. Generally,
approximately 69,444 of the remaining common units vest in each of the years
ending December 31, 1999, 2000 and 2001 if the operating surplus generated in
such year equals or exceeds the amount necessary to pay the minimum quarterly
distribution on all outstanding common units and the related distribution on the
general partner interest. If a tranche of common units does not vest in a
particular year due to a common unit arrearage, such common units will vest at
the time the common unit arrearages for such year have been paid. In addition,
approximately 47,224 of the remaining common units vest in each of the years
ending December 31, 1999, 2000 and 2001 if the operating surplus generated in
such year exceeds the amount necessary to pay the minimum quarterly distribution
on all outstanding common units and subordinated units and the related
distribution on the general partner interest. In 1999, approximately 69,444 of
such common units vested and 47,224 of such common units remain unvested as no
distribution on the subordinated units was made for the fourth quarter of 1999.
Any common units remaining unvested shall vest upon, and in the same proportion
as, the conversion of subordinated units to common units. Distribution
equivalent rights are paid in cash at the time of the vesting of the associated
common units. Notwithstanding the foregoing, all common units become vested if
Plains All American Inc. is removed as our general partner prior to January 1,
2002.
The compensation expense incurred in connection with these grants will be
funded by our general partner, without reimbursement by us. Under these grants,
75,000 common units were allocated to each of Messrs. Armstrong and Pefanis and
50,000 common units were allocated to Mr. Coiner.
MANAGEMENT INCENTIVE PLAN
Our general partner has adopted the Plains All American Inc. Management
Incentive Plan. The Management Incentive Plan is designed to enhance the
performance of our general partner's key employees by rewarding them with cash
awards for achieving quarterly and/or annual financial performance objectives.
The Management Incentive Plan is administered by the Compensation Committee.
Individual participants and payments, if any, for each fiscal quarter and year
are determined by and in the discretion of the Compensation Committee. Any
incentive payments are at the discretion of the Compensation Committee, and our
general partner may amend or change the Management Incentive Plan at any time.
Our general partner is entitled to reimbursement by us for payments and costs
incurred under the plan.
COMPENSATION OF DIRECTORS
Each director of our general partner who is not an employee of our general
partner is paid an annual retainer fee of $20,000, an attendance fee of $2,000
for each board meeting he attends (excluding telephonic meetings), an attendance
fee of $500 for each committee meeting or telephonic board meeting he attends
plus reimbursement for related out-of-pocket expenses. Messrs. Armstrong and
Pefanis, as officers of our general partner, are otherwise compensated for their
services to our general partner and therefore receive no separate compensation
for their services as directors of our general partner.
42
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of units held by
beneficial owners of 5% or more of the units, by directors and officers of our
general partner and by all directors and executive officers of our general
partner as a group as of March 15, 2000.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
of Class B of of Percentage
Common Common Common Class B Subordinated Subordinated of
Name of Beneficial Owner Units Units Units Units Units Units Total Units
- ----------------------------- ----------- ---------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Plains Resources Inc. (1) 6,904,795 (3) 30.0% 1,307,190 100.0% 10,029,619 100% 53.1%
Plains All American Inc. (2) 6,904,795 (3) 30.0% 1,307,190 100.0% 10,029,619 100% 53.1%
Goldman, Sachs & Co. 1,278,325 (4) 5.6% - - - - 3.7%
Greg L .Armstrong 95,000 (3) (6) - - - - (6)
Harry N. Pefanis 147,000 (3)(5) (6) - - - - (6)
Phillip D. Kramer 6,000 (6) - - - - (6)
George R. Coiner 85,000 (3)(5) (6) - - - - (6)
Michael R. Patterson 7,000 (6) - - - - (6)
Michael J. Latiolais 12,500 (5) (6) - - - - (6)
Mark F. Shires - (6) - - - - (6)
Cynthia A. Feeback 500 (6) - - - - (6)
Everado Goyanes - (6) - - - - (6)
Robert V. Sinnot 5,000 (6) - - - - (6)
Arthur L. Smith 7,500 (6) - - - - (6)
All directors and executive
officers as a group
(11 persons) 365,500 1.6% (7) - - - - 1.1% (7)
- ---------------
</TABLE>
(1) Plains Resources Inc. is the sole stockholder of Plains All American Inc.,
our general partner. The address of Plains Resources Inc. is 500 Dallas,
Suite 700, Houston, Texas 77002.
(2) The address of Plains All American Inc. is 500 Dallas, Suite 700, Houston,
Texas 77002. The record holder of such common units and subordinated units
is PAAI LLC, a wholly-owned subsidiary of Plains All American Inc., whose
address is 500 Dallas, Suite 700, Houston, Texas 77002.
(3) Includes 280,556 common units owned by affiliates of our general partner to
be transferred to employees pursuant to transaction grant agreements,
subject to certain vesting conditions. The recipients and their initial
grants included: Mr. Armstrong - 75,000 (8,333 units currently vested); Mr.
Pefanis - 75,000 (16,667 units currently vested); and Mr. Coiner - 50,000
(11,111 units currently vested). See Item 11. - "Executive Compensation -
Transaction Grant Agreements".
(4) The address for Goldman, Sachs & Co. and its parent, the Goldman Sachs
Group, Inc., is 85 Broad Street, New York, New York 10004. Goldman, Sachs &
Co., a broker/dealer, and its parent, the Goldman Sachs Group, Inc., are
deemed to have shared voting power and shared disposition power over
1,278,325 common units owned by their customers.
(5) Includes the following unvested common units issuable under the Long-Term
Incentive Plan to: Mr. Pefanis - 60,000; Mr. Coiner - 30,000; and Mr.
Latiolais - 12,500. See Item 11. - "Executive Compensation - Long-Term
Incentive Plan."
(6) Less than one percent.
(7) Assumes the vesting of the units granted pursuant to the transaction grant
agreements and under the long-term incentive plan as described in footnotes
(3) and (5) above to the named officers and directors. See Item 11. -
"Executive Compensation - Long-Term Incentive Plan" for vesting conditions
of these grants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RIGHTS OF OUR GENERAL PARTNER
Our general partner and its affiliates own 8,211,985 common units, including
1,307,190 Class B common units, and 10,029,619 subordinated units, representing
an aggregate 52.5% limited partner interest in the Plains All American Pipeline.
In addition, our general partner owns an aggregate 2% general partner interest
in Plains All American Pipeline and the operating partnerships on a combined
basis. Through our general partner's ability, as general partner, to manage and
operate Plains All American Pipeline and the ownership of 8,211,985 common
units, including 1,307,190 Class B common units, and all of the outstanding
subordinated units by our general partner and its affiliates (effectively giving
our general partner the ability to veto certain actions of Plains All American
Pipeline), our general partner has the ability to control the management of
Plains All American Pipeline.
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<PAGE>
RELATIONSHIP WITH PLAINS RESOURCES
General
Plains Resources controls our general partner, which is its wholly-owned
subsidiary. We have extensive ongoing relationships with Plains Resources. These
relationships include but are not limited to:
. an Omnibus Agreement that provides for (1) the resolution of certain
conflicts arising from the fact that we and Plains Resources conduct
related businesses and (2) our general partner's indemnification of us for
certain matters; and
. a Marketing Agreement with Plains Resources that provides for the marketing
of Plains Resources' equity crude oil production.
Transactions with Affiliates
On May 12, 1999, Plains Scurlock Permian, L.P., a limited partnership of which
Plains All American Inc. is our general partner and Plains Marketing, L.P. is
the limited partner, completed the acquisition of Scurlock Permian LLC from
Marathon Ashland Petroleum LLC. See Item 7. - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Resources,
Liquidity and Financial Condition". To finance a portion of the purchase price,
we sold 1.3 million Class B common units to our general partner at $19.125 per
unit, the market value of our common units on May 12, 1999.
The Class B units are initially pari passu with common units with respect to
distributions, and are convertible into common units upon approval of a majority
of the common unitholders. The Class B unitholders may request that we call a
meeting of common unitholders to consider approval of the conversion of Class B
units into common units. If the approval of a conversion by the common
unitholders is not obtained within 120 days of a request, each Class B
unitholder 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 120-day period. Except for the vote to approve the
conversion, Class B units have the same voting rights as the common units.
For the year ended December 31, 1999, Plains Resources produced approximately
20,400 barrels per day which were subject to the Marketing Agreement. We paid
approximately $131.5 million for such production and recognized profits of
approximately $1.5 million under the terms of that agreement.
Our general partner has sole responsibility for conducting our business and
managing our operations and owns all of the incentive distribution rights. Some
of the senior executives who currently manage our business also manage and
operate the business of Plains Resources. Our general partner does not receive
any management fee or other compensation in connection with its management of
our business, but it is reimbursed for all direct and indirect expenses incurred
on our behalf. For the year ended December 31, 1999, our general partner and its
affiliates incurred $44.7 million of direct and indirect expenses on our behalf.
Of this amount, $142,000 and $212,000 represented reimbursement for the services
of Messrs. Armstrong and Pefanis, respectively, as officers of our general
partner.
In December 1999, following the losses we incurred as a result of the
unauthorized trading activity by a former employee, our general partner loaned
us approximately $114.0 million. This subordinated debt is due not later than
November 30, 2005. Funding to our general partner for these loans was provided
by Plains Resources. See Item 7. - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital Resources, Liquidity and
Financial Condition".
Indemnity from Our General Partner
In connection with the acquisition of the All American Pipeline and the SJV
Gathering System in July 1998, Wingfoot agreed to indemnify our general partner
for certain environmental and other liabilities. The indemnity is subject to
limits of:
. $10.0 million with respect to matters of corporate authorization and title
to shares;
. $21.5 million with respect to condition of rights-of-way, lease rights and
undisclosed liabilities and litigation; and
. $30.0 million with respect to environmental liabilities resulting from
certain undisclosed and pre-existing conditions.
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<PAGE>
Wingfoot has no liability, however, until the aggregate amount of losses, with
respect to each such category exceeds $1.0 million. These indemnities will
remain in effect until July 2000, with the exception of the environmental
indemnity, which will remain in effect until July 2001. However, upon the
transfer to an unaffiliated third party of a major portion of the assets
acquired from Wingfoot, the indemnities automatically terminate. The
environmental indemnity is also subject to certain sharing ratios which change
based on whether the claim is made in the first, second or third year of the
indemnity as well as the amount of such claim. We have also agreed to be solely
responsible for the cumulative aggregate amount of losses resulting from the oil
leak from the All American Pipeline to the extent such losses do not exceed
$350,000. Any costs in excess of $350,000 will be applied to the $1.0 million
deductible for the Wingfoot environmental indemnity. Our general partner has
agreed to indemnify us for environmental and other liabilities to the extent it
is indemnified by Wingfoot. However, if the sale of the linefill from the All
American Pipeline and the subsequent sale of such pipeline to EPNG Pipeline
Company are construed to constitute a sale of a major portion of the assets
acquired from Wingfoot, the indemnities by Wingfoot will terminate. See Items 1.
and 2. - "Business and Properties - Acquisitions and Dispositions - All American
Pipeline Linefill Sale and Asset Disposition".
Plains Resources has agreed to indemnify us for environmental liabilities
related to the assets of the our predecessor transferred to us that arose prior
to closing and are discovered within three years after closing (excluding
liabilities resulting from a change in law after closing). Plains Resources'
indemnification obligation is capped at $3.0 million.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See "Index to Consolidated Financial Statements" set forth on Page F-1.
(a)(3) EXHIBITS
3.1 -- Second Amended and Restated Agreement of Limited Partnership of
Plains All American Pipeline, L.P. dated as of November 23, 1998
(incorporated by reference to Exhibit 3.1 to Annual Report on Form
10-K for the Year Ended December 31, 1998).
3.2 -- Amended and Restated Agreement of Limited Partnership of Plains
Marketing, L.P. dated as of November 23, 1998 (incorporated by
reference to Exhibit 3.2 to Annual Report on Form 10-K for the Year
Ended December 31, 1998).
3.3 -- Amended and Restated Agreement of Limited Partnership of All
American Pipeline, L.P. dated as of November 23, 1998 (incorporated
by reference to Exhibit 3.3 to Annual Report on Form 10-K for the
Year Ended December 31, 1998).
3.4 -- Certificate of Limited Partnership of Plains All American Pipeline,
L.P. (incorporated by reference to Exhibit 3.4 to Registration
Statement, file No. 333-64107).
3.5 -- Certificate of Limited Partnership of Plains Marketing, L.P. dated
as of November 10, 1998 (incorporated by reference to Exhibit 3.5 to
Annual Report on Form 10-K for the Year Ended December 31, 1998).
3.6 -- Articles of Conversion of All American Pipeline Company dated as of
November 10, 1998 (incorporated by reference to Exhibit 3.5 to
Annual Report on Form 10-K for the Year Ended December 31, 1998).
3.7 -- Agreement of Limited Partnership of Plains Scurlock Permian, L.P.
dated as of April 29, 1999 (incorporated by reference to Exhibit 3.7
to Quarterly Report on Form 10-Q for the Quarter Ended March 31,
1999).
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 (incorporated by reference to Exhibit 3.8 to Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1999).
10.01 -- Credit Agreement among All American Pipeline, L.P., Plains All
American Pipeline, L.P., Plains Marketing, L.P., ING (U.S.) Capital
Corporation and certain other banks dated as of November 17, 1998
(incorporated by reference to Exhibit 10.01 to Annual Report on Form
10-K for the Year Ended December 31, 1998).
10.02 -- Amended and Restated Credit Agreement among Plains Marketing, L.P.,
Plains All American Pipeline, L.P., BankBoston, N.A., and certain
other banks dated as of November 17, 1998 (incorporated by reference
to Exhibit 10.01 to Annual Report on Form 10-K for the Year Ended
December 31, 1998).
10.03 -- Contribution, Conveyance and Assumption Agreement among Plains All
American Pipeline, L.P. and certain other parties dated as of
November 23, 1998 (incorporated by reference to Exhibit 10.03 to
Annual Report on Form 10-K for the Year Ended December 31, 1998).
**10.04 -- Plains All American Inc., 1998 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.04 to Annual Report on
Form 10-K for the Year Ended December 31, 1998).
**10.05 -- Plains All American Inc., 1998 Management Incentive Plan Plains All
American Inc., 1998 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.05 to Annual Report on Form 10-K for the
Year Ended December 31, 1998).
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<PAGE>
**10.06 -- Employment Agreement between Plains Resources Inc. and Harry N.
Pefanis dated as of November 23, 1998 (incorporated by reference to
Exhibit 10.06 to Annual Report on Form 10-K for the Year Ended
December 31, 1998).
10.07 -- Crude Oil Marketing Agreement among Plains Resources Inc., Plains
Illinois Inc., Stocker Resources, L.P., Calumet Florida, Inc. and
Plains Marketing, L.P. dated as of November 23, 1998 (incorporated by
reference to Exhibit 10.07 to Annual Report on Form 10-K for the Year
Ended December 31, 1998).
10.08 -- Omnibus Agreement among Plains Resources Inc., Plains All American
Pipeline, L.P., Plains Marketing, L.P., All American Pipeline, L.P.,
and Plains All American Inc. dated as of November 23, 1998
(incorporated by reference to Exhibit 10.08 to Annual Report on Form
10-K for the Year Ended December 31, 1998).
10.09 -- Transportation Agreement dated July 30, 1993, between All American
Pipeline Company and Exxon Company, U.S.A. (incorporated by reference
to Exhibit 10.9 to Registration Statement, file No. 333-64107).
10.10 -- Transportation Agreement dated August 2, 1993, between All American
Pipeline Company and Texaco Trading and Transportation Inc., Chevron
U.S.A. and Sun Operating Limited Partnership (incorporated by
reference to Exhibit 10.10 to Registration Statement, file
No. 333-64107).
**10.11 -- Form of Transaction Grant Agreement (Payment on Vesting)
(incorporated by reference to Exhibit 10.12 to Registration
Statement, file No. 333-64107).
10.12 -- First Amendment to Contribution, Conveyance and Assumption Agreement
dated as of December 15, 1998 (incorporated by reference to Exhibit
10.13 to Annual Report on Form 10-K for the Year Ended December 31,
1998).
10.13 -- First Amendment dated as of March 18, 1999, to Credit Agreement among
All American Pipeline, L.P., Plains All American Pipeline, L.P.,
Plains Marketing, L.P., ING (U.S.) Capital Corporation and certain
other banks (incorporated by reference to Exhibit 10.14 to Annual
Report on Form 10-K for the Year Ended December 31, 1998).
10.14 -- First Amendment dated as of March 18, 1999, to Amended and Restated
Credit Agreement among Plains Marketing, L.P., Plains All American
Pipeline, L.P., All American Pipeline, L.P., BankBoston, N.A. and
certain other banks (incorporated by reference to Exhibit 10.15 to
Annual Report on Form 10-K for the Year Ended December 31, 1998).
10.15 -- Agreement for Purchase and Sale of Membership Interest in Scurlock
Permian LLC between Marathon Ashland LLC and Plains Marketing, L.P.
dated as of March 17, 1999 (incorporated by reference to Exhibit
10.16 to Annual Report on Form 10-K for the Year Ended December 31,
1998).
10.16 -- Asset Sales Agreement between Chevron Pipe Line Company and Plains
Marketing, L.P. dated as of April 16, 1999 (incorporated by reference
to Exhibit 10.17 to Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1999).
10.17 -- Credit Agreement dated as of May 12, 1999, between Plains Scurlock
Permian, L.P., BankBoston, N.A. and certain other financial
institutions (incorporated by reference to Exhibit 10.18 to Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 1999).
10.18 -- First Amendment to Plains Scurlock Credit Agreement dated as of
July 29, 1999, between Plains Scurlock Permian, L.P., BankBoston,
N.A. and certain other financial institutions (incorporated by
reference to Exhibit 10.19 to Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1999).
**10.19 -- Transaction Grant Agreement with Greg L. Armstrong (incorporated by
reference to Exhibit 10.20 to Registration Statement on Form S-1,
file no. 333-86907)
10.20 -- Second Amendment dated as of August 19, 1999, to Plains Scurlock
Credit Agreement between Plains Scurlock Permian, L.P., BankBoston,
N.A. and certain other financial institutions (incorporated by
reference to Exhibit 10.21 to Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1999).
47
<PAGE>
10.21 -- Second Amendment dated September 24, 1999, to Credit Agreement among
All American Pipeline, L.P., Plains Marketing, L.P., Plains All
American Pipeline, L.P. and BankBoston, N.A. and certain other
financial institutions (incorporated by reference to Exhibit 10.22 to
Quarterly Report on Form 10-Q for the Quarter Ended September 30,
1999).
10.22 -- Second Amendment dated September 24, 1999, to Amended and Restated
Credit Agreement among Plains Marketing, L.P., Plains All American
Pipeline, L.P., All American Pipeline, L.P. and BankBoston, N.A. and
certain other financial institutions (incorporated by reference to
Exhibit 10.23 to Quarterly Report on Form 10-Q for the Quarter Ended
September 30, 1999).
*10.23 -- Amended and Restated Credit Agreement dated as of December 1, 1999,
among All American Pipeline, L.P., Plains Marketing, L.P., Plains All
American Pipeline, L.P. and BankBoston, N.A. and certain other
financial institutions.
*10.24 -- Second Amended and Restated Credit Agreement dated as of December 1,
1999, among Plains Marketing, L.P., Plains All American Pipeline,
L.P., All American Pipeline, L.P. and BankBoston, N.A. and certain
other financial institutions.
*10.25 -- Amendment and Limited Consent dated as of December 1, 1999, among All
American Pipeline, L.P., Plains Marketing, L.P., Plains All American
Pipeline, L.P. and BankBoston, N.A. and certain other financial
institutions.
*10.26 -- Amendment and Limited Consent dated as of December 1, 1999, among
Plains Marketing, L.P., Plains All American Pipeline, L.P., All
American Pipeline, L.P. and BankBoston, N.A. and certain other
financial institutions.
*10.27 -- Pipeline Sale and Purchase Agreement dated January 31, 2000, among
Plains All American Pipeline, L.P., All American Pipeline, L.P.,
El Paso Natural Gas Company and El Paso Pipeline Company.
21.1 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to Registration Statement on Form S-1, file no. 333-
86907).
*23.1 -- Consent of PricewaterhouseCooper, LLP.
*27.1 -- Financial Data Schedule
- ---------
* Filed herewith
** Management contract or compensatory plan or arrangement
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed on November 29, 1999, regarding the
discovery of unauthorized trading activity by a former employee which was
expected to result in losses to us of approximately $160.0 million.
A Current Report on Form 8-K was filed on December 1, 1999, regarding the
execution of agreements with our lenders to provide for a $300.0 million
credit facility and the waiver of defaults under certain covenants in our
credit facilities which resulted from our unauthorized trading losses, as
well as the execution by Plains Resources of commitment letters for the sale
of up to $50.0 million of a new series of preferred stock, the proceeds of
which would constitute a portion of the $114.0 million in debt financing
which Plains Resources agreed to provide to us.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLAINS ALL AMERICAN PIPELINE, L.P..
By: PLAINS ALL AMERICAN INC.,
Our General Partner
Date: March 30, 2000 By: /s/ Phillip D. Kramer
------------------------------------
Phillip D. Kramer, Executive Vice
President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 30, 2000 By: /s/ Greg L. Armstrong
------------------------------------
Greg L. Armstrong, Chairman of the Board,
Chief Executive Officer and Director of
our General Partner (Principal Executive
Officer)
Date: March 30, 2000 By: /s/ Harry N. Pefanis
------------------------------------
Harry N. Pefanis, President, Chief
Operating Officer
and Director of our General Partner
Date: March 30, 2000 By: /s/ Phillip D. Kramer
------------------------------------
Phillip D. Kramer, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer) of
our General Partner
Date: March 30, 2000 By: /s/ Cynthia A. Feeback
------------------------------------
Cynthia A. Feeback, Treasurer
(Principal Accounting Officer) of our
General Partner
Date: March 30, 2000 By: /s/ Everardo Goyanes
------------------------------------
Everardo Goyanes, Director of our General
Partner
Date: March 30, 2000 By: /s/ Robert V. Sinnott
------------------------------------
Robert V. Sinnott, Director of our General
Partner
Date: March 30, 2000 By: /s/ Arthur L. Smith
------------------------------------
Arthur L. Smith, Director of our General
Partner
49
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements
Report of Independent Accountants..................................................................... F-2
Report of Independent Accountants..................................................................... F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998.......................................... F-4
Consolidated and Combined Statements of Operations:
For the year ended December 31, 1999
For the period from inception (November 23,1998) to December 31, 1998
For the period from January 1, 1998 to November 22, 1998 and
the year ended December 31, 1997 (Predecessor)..................................................... F-5
Consolidated and Combined Statements of Cash Flows:
For the year ended December 31, 1999
For the period from inception (November 23,1998) to December 31, 1998
For the period from January 1, 1998 to November 22, 1998 and
the year ended December 31, 1997 (Predecessor)..................................................... F-6
Consolidated Statements of Changes in Partners' Capital for the period from inception (November 23,
1998) to December 31, 1998 and for the year ended December 31, 1999................................. F-7
Notes to Consolidated and Combined Financial Statements............................................... F-8
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of the General Partner and the Unitholders of
Plains All American Pipeline, L.P.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in partners' capital and of
cash flows, after the restatement described in Note 3, present fairly, in all
material respects, the financial position of Plains All American Pipeline, L.P.
and subsidiaries (the "Partnership") at December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December 31,
1999 and the period from inception (November 23, 1998) to December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of the General Partner and the Unitholders of
Plains All American Pipeline, L.P.
In our opinion, the accompanying combined statements of operations and of cash
flows of the Plains Midstream Subsidiaries, the predecessor entity of the
Partnership, after the restatement described in Note 3, present fairly, in all
material respects, the combined results of their operations and their cash flows
for the period from January 1, 1998 to November 22, 1998 and the year ended
December 31, 1997 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Plains Midstream Subsidiaries' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
March 29, 2000
F-3
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- ---------
(restated)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 53,768 $ 5,503
Accounts receivable and other 508,920 120,615
Inventory 72,697 37,711
Assets held for sale (Note 5) 103,615 -
----------- ---------
Total current assets 739,000 163,829
----------- ---------
PROPERTY AND EQUIPMENT 454,878 378,835
Less allowance for depreciation and amortization (11,581) (799)
----------- ---------
443,297 378,036
----------- ---------
OTHER ASSETS
Pipeline linefill 17,633 54,511
Other 23,107 10,810
----------- ---------
$ 1,223,037 $ 607,186
=========== =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 485,400 $ 144,080
Due to affiliates 42,692 7,768
Short-term debt and current portion of long-term debt 109,369 9,750
----------- ---------
Total current liabilities 637,461 161,598
LONG-TERM LIABILITIES
Bank debt 259,450 175,000
Subordinated note payable - general partner 114,000 -
Other long-term liabilities and deferred credits 19,153 45
----------- ---------
Total liabilities 1,030,064 336,643
----------- ---------
COMMITMENTS AND CONTINGENCIES (Note 15)
PARTNERS' CAPITAL
Common unitholders (23,049,239 and 20,059,239 units
outstanding at December 31, 1999 and 1998, respectively) 208,359 253,568
Class B Common unitholders (1,307,190 units
outstanding at December 31, 1999) 20,548 -
Subordinated unitholders (10,029,619 units outstanding) (35,621) 15,995
General partner (313) 980
----------- ---------
192,973 270,543
----------- ---------
$ 1,223,037 $ 607,186
=========== =========
</TABLE>
See notes to consolidated and combined financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Predecessor
---------------------------------
November 23, January 1,
Year Ended 1998 To 1998 To Year Ended
December 31, December 31, November 22, December 31,
1999 1998 1998 1997
-------------- --------------- --------------- ---------------
(restated) (restated)
<S> <C> <C> <C> <C>
REVENUES $ 4,701,921 $ 176,445 $ 953,244 $ 752,522
COST OF SALES AND OPERATIONS 4,591,607 168,946 922,263 740,042
UNAUTHORIZED TRADING LOSSES
AND RELATED EXPENSES (Note 3) 166,440 2,400 4,700 -
-------------- --------------- --------------- ---------------
Gross Margin (56,126) 5,099 26,281 12,480
-------------- --------------- --------------- ---------------
EXPENSES
General and administrative 22,198 771 4,526 3,529
Depreciation and amortization 17,344 1,192 4,179 1,165
Restructuring expense 1,410 - - -
-------------- --------------- --------------- ---------------
Total expenses 40,952 1,963 8,705 4,694
-------------- --------------- --------------- ---------------
Operating income (loss) (97,078) 3,136 17,576 7,786
Interest expense (20,533) (1,371) (8,492) (894)
Related party interest expense (606) - (2,768) (3,622)
Noncash compensation expense (1,013) - - -
Gain on sale of linefill (Note 5) 16,457 - - -
Interest and other income 958 12 572 138
-------------- --------------- --------------- ---------------
Net income (loss) before provision in lieu
of income taxes and extraordinary item (101,815) 1,777 6,888 3,408
Provision in lieu of income taxes - - 2,631 1,268
-------------- --------------- --------------- ---------------
Net income (loss) before extraordinary item (101,815) 1,777 4,257 2,140
Extraordinary item (Note 9) (1,545) - - -
-------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (103,360) $ 1,777 $ 4,257 $ 2,140
============== =============== =============== ===============
NET INCOME (LOSS) - LIMITED PARTNERS $ (101,517) $ 1,741 $ 4,172 $ 2,097
============== =============== =============== ===============
NET INCOME (LOSS) - GENERAL PARTNER $ (1,843) $ 36 $ 85 $ 43
============== =============== =============== ===============
BASIC AND DILUTED INCOME (LOSS)
PER LIMITED PARTNER UNIT
Net income (loss) before extraordinary item $ (3.16) $ 0.06 $ 0.25 $ 0.12
Extraordinary item (0.05) - - -
-------------- --------------- --------------- ---------------
Net income (loss) $ (3.21) $ 0.06 $ 0.25 $ 0.12
============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 31,633 30,089 17,004 17,004
============== =============== =============== ===============
</TABLE>
See notes to consolidated and combined financial statements.
F-5
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Predecessor
--------------------------------
November 23, January 1,
Year Ended 1998 To 1998 To Year Ended
December 31, December 31, November 22, December 31,
1999 1998 1998 1997
--------------- --------------- ---------------- --------------
(restated) (restated)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (103,360) $ 1,777 $ 4,202 $ 2,140
Items not affecting cash flows
from operating activities:
Depreciation and amortization 17,344 1,192 4,179 1,165
(Gain) loss on sale of assets (Note 5) (16,457) - 117 (28)
Change in payable in lieu of deferred taxes - - 2,231 1,131
Noncash compensation expense 1,013 - - -
Other non cash items 1,047 45 - -
Change in assets and liabilities, net of acquisition:
Accounts receivable and other (224,181) (10,245) 37,498 (10,454)
Inventory 34,772 (14,805) (3,336) (16,450)
Accounts payable and other current liabilities 164,783 36,675 (25,850) 9,627
Pipeline linefill (3) (6,247) 2,343 -
Other long-term liabilities and deferred credits 18,873 - - -
------------ -------- -------- --------
Net cash provided by (used in) operating activities (106,169) 8,392 21,384 (12,869)
------------ -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Costs incurred in connection with
acquisitions (Note 4) (176,918) - (394,026) -
Additions to property and equipment (12,801) (2,887) (5,528) (678)
Disposals of property and equipment 294 - 8 85
Additions to other assets (68) (202) (65) (1,261)
Proceeds from linefill sale (Note 5) 3,400 - - -
------------ -------- -------- --------
Net cash used in investing activities (186,093) (3,089) (399,611) (1,854)
------------ -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (payments to) affiliates 34,924 (1,174) 3,349 (3,679)
Proceeds from issuance of units, net 76,450 241,690 - -
Distributions upon formation - (241,690) - -
Costs incurred in connection
with financing arrangements (17,243) - (9,938) -
Cash balance at formation - 224 - -
Proceeds from subordinated notes - general partner 114,000 - - -
Proceeds from long-term debt 403,721 - 331,300 -
Proceeds from short-term debt 131,119 1,150 30,600 39,000
Principal payments of long-term debt (268,621) - (39,300) -
Principal payments of short-term debt (82,150) - (40,000) (21,000)
Capital contribution from Parent - - 113,700 -
Dividend to Parent - - (3,557) -
Distributions to unitholders (51,673) - - -
------------- ------- ------- --------
Net cash provided by financing activities 340,527 200 386,154 14,321
------------- ------- ------- --------
Net increase (decrease) in cash
and cash equivalents 48,265 5,503 7,927 (402)
Cash and cash equivalents, beginning of period 5,503 - 2 404
------------- ------- ------- --------
Cash and cash equivalents, end of period $ 53,768 $ 5,503 $ 7,929 $ 2
============= ======= ======= ========
</TABLE>
See notes to consolidated and combined financial statements.
F-6
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (NOVEMBER 23, 1998) TO DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CLASS B GENERAL PARTNERS'
COMMON UNITS COMMON UNITS SUBORDINATED UNITS PARTNER CAPITAL
-------------------- ------------------ -------------------- --------- ----------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT AMOUNT AMOUNT
------- --------- ------ -------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of units to public 13,085 $ 241,690 - $ - - $ - $ - $ 241,690
Contribution of assets and
debt assumed 6,974 106,392 - - 10,030 153,005 9,369 268,766
Distribution at time of
formation - (95,675) - - - (137,590) (8,425) (241,690)
Net income for the period
from November 23, 1998
to December 31, 1998 (restated) - 1,161 - - - 580 36 1,777
------- --------- ------ -------- ------- --------- --------- ----------
Balance at
December 31, 1998 (restated) 20,059 253,568 - - 10,030 15,995 980 270,543
Issuance of Class B
Common Units - - 1,307 25,000 - - 252 25,252
Noncash compensation expense - - - - - - 1,013 1,013
Issuance of units to public 2,990 50,654 - - - - 544 51,198
Distributions - (33,265) - (1,234) (15,915) (1,259) (51,673)
Net loss - (62,598) - (3,218) (35,701) (1,843) (103,360)
------- --------- ------ -------- ------- --------- --------- ----------
Balance at December 31, 1999 23,049 $ 208,359 1,307 $ 20,548 10,030 $ (35,621) $ (313) $ 192,973
======= ========= ====== ======== ======= ========= ========= ==========
</TABLE>
See notes to consolidated and combined financial statements.
F-7
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Note 1 -- Organization and Basis of Presentation
Organization
We are a Delaware limited partnership that was formed in September of 1998 to
acquire and operate the midstream crude oil business and assets of Plains
Resources Inc. and its wholly-owned subsidiaries. On November 23, 1998, we
completed our initial public offering and the transactions whereby we became the
successor to the business of the midstream subsidiaries of Plains Resources,
also referred to as our predecessor or the Plains Midstream Subsidiaries. Our
operations are conducted through Plains Marketing, L.P., All American Pipeline,
L.P. and Plains Scurlock Permian, L.P. Our general partner, Plains All American
Inc., is a wholly-owned subsidiary of Plains Resources. We are engaged in
interstate and intrastate crude oil transportation, gathering and marketing as
well as crude oil terminalling and storage activities. Our operations are
conducted primarily in California, Texas, Oklahoma, Louisiana and the Gulf of
Mexico.
Formation and Offering
On November 23, 1998, we completed an initial public offering of 13,085,000
common units at $20.00 per unit, representing limited partner interests and
received net proceeds of approximately $244.7 million. Concurrently with the
closing of the initial public offering, certain of the Plains Midstream
subsidiaries were merged into Plains Resources, which sold the assets of these
subsidiaries to us in exchange for $64.1 million and the assumption of $11.0
million of related indebtedness. At the same time, our general partner conveyed
all of its interest in the All American Pipeline and the SJV Gathering System to
us in exchange for:
. 6,974,239 common units, 10,029,619 subordinated units and an aggregate 2%
general partner interest;
. the right to receive incentive distributions as defined in the partnership
agreement; and
. our assumption of $175.0 million of indebtedness incurred by our general
partner in connection with the acquisition of the All American Pipeline and
the SJV Gathering System.
In addition to the $64.1 million discussed above, we distributed approximately
$177.6 million of the offering proceeds to our general partner and used
approximately $3.0 million of the remaining proceeds to pay expenses incurred in
connection with the initial public offering.
Basis of Consolidation and Presentation
The accompanying financial statements and related notes present our
consolidated financial position as of December 31, 1999 and 1998, and the
results of our operations, cash flows and changes in partners' capital for the
year ended December 31, 1999 and the period from inception (November 23, 1998)
to December 31, 1998, and the results of operations and cash flows of our
predecessor for the period from January 1, 1998 to November 22, 1998 and the
year ended December 31, 1997. All significant intercompany transactions have
been eliminated. Certain reclassifications have been made to prior period
amounts to conform with current period presentation.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes these estimates are reasonable,
actual results could differ from these estimates.
Revenue Recognition. Gathering and marketing revenues are accrued at the time
title to the product sold transfers to the purchaser, which typically occurs
upon receipt of the product by the purchaser, and purchases are accrued at the
time title to the product purchased transfers to us, which typically occurs upon
our receipt of the product. Terminalling and storage revenues are recognized at
the time service is performed. Revenues for the transportation of crude oil are
recognized based upon regulated and non-regulated tariff rates and the related
transported volumes.
F-8
<PAGE>
Cost of Sales and Operations. Cost of sales consists of the cost of crude oil,
transportation fees, field and pipeline operating expenses and letter of credit
expenses. Field and pipeline operating expenses consist primarily of fuel and
power costs, telecommunications, labor costs for pipeline field personnel,
maintenance, utilities, insurance and property taxes. Crude oil exchanges
whereby like volumes are purchased and sold with the same customers with little
effect on gross margin are netted in cost of sales and operations.
Cash and Cash Equivalents. Cash and cash equivalents consist of all demand
deposits and funds invested in highly liquid instruments with original
maturities of three months or less.
Inventory. Inventory consists of crude oil in pipelines and in storage tanks
which is valued at the lower of cost or market, with cost determined using the
average cost method. Inventory at December 31, 1999 includes approximately $37.9
million of crude oil linefill which we began selling in November 1999 (see
Note 5).
Property and Equipment and Pipeline Linefill. Property and equipment is stated
at cost and consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Crude oil pipelines $ 351,460 $ 268,219
Crude oil pipeline facilities 39,358 70,870
Crude oil storage and terminal facilities 43,583 34,606
Trucking equipment, injection stations
and other 18,249 4,559
Office property and equipment 2,228 581
--------- ---------
454,878 378,835
Less accumulated depreciation and
amortization (11,581) (799)
--------- ---------
$ 443,297 $ 378,036
========= =========
</TABLE>
Depreciation is computed using the straight-line method over estimated useful
lives as follows:
. crude oil pipelines - 40 years;
. crude oil pipeline facilities - 25 years;
. crude oil terminal and storage facilities - 30 to 40 years;
. trucking equipment, injection stations and other - 5 to 10 years; and
. other property and equipment - 5 to 7 years.
Acquisitions and improvements are capitalized; maintenance and repairs are
expensed as incurred. Net gains or losses on property and equipment disposed of
are included in interest and other income.
Pipeline linefill is recorded at cost and consists of crude oil linefill used
to pack a pipeline such that when an incremental barrel enters a pipeline it
forces a barrel out at another location. After the sale of linefill discussed
below, we own approximately 1.2 million barrels of crude oil that is used to
maintain the vast majority of our minimum operating linefill requirements.
Proceeds from the sale and repurchase of pipeline linefill are reflected as cash
flows from operating activities in the accompanying consolidated and combined
statements of cash flows. Proceeds from the sale of linefill in connection with
the segment of the All American Pipeline that is being sold are included in
investing activities in the accompanying consolidated and combined statements of
cash flows. In November 1999, we initiated the sale of 5.2 million barrels of
crude oil linefill (see Note 5).
Impairment of Long-Lived Assets. Long-lived assets, including any related
goodwill, with recorded values that are not expected to be recovered through
future cash flows are written-down to estimated fair value. Fair value is
generally determined from estimated discounted future net cash flows.
F-9
<PAGE>
Other Assets. Other assets consist of the following (in thousands):
DECEMBER 31,
-------------------------
1999 1998
--------- ---------
Debt issue costs $ 24,776 $ 10,171
Goodwill and other 1,994 1,134
--------- ---------
26,770 11,305
Accumulated amortization (3,663) (495)
--------- ---------
$ 23,107 $ 10,810
========= =========
Costs incurred in connection with the issuance of long-term debt are
capitalized and amortized using the straight-line method over the term of the
related debt. Debt issue costs at December 31, 1999, include approximately $13.7
million paid to amend our credit facilities as a result of defaults caused by
unauthorized trading losses (see Note 3). Goodwill was recorded as the amount of
the purchase price in excess of the fair value of certain transportation and
crude oil gathering assets purchased by our predecessor and is amortized using
the straight-line method over a period of twenty years.
Federal Income Taxes. No provision for income taxes related to our operations
is included in the accompanying consolidated financial statements because as a
partnership, we are not subject to federal or state income tax and the tax
effect of our activities accrues to the unitholders. Net earnings for financial
statement purposes may differ significantly from taxable income reportable to
unitholders as a result of differences between the tax bases and financial
reporting bases of assets and liabilities and the taxable income allocation
requirements under the partnership agreement. Individual unitholders will have
different investment bases depending upon the timing and price of acquisition of
partnership units. Further, each unitholder's tax accounting, which is partially
dependent upon his/her tax position, may differ from the accounting followed in
the consolidated financial statements. Accordingly, there could be significant
differences between each individual unitholder's tax bases and his/her share of
the net assets reported in the consolidated financial statements. We do not have
access to information about each individual unitholder's tax attributes, and the
aggregate tax bases cannot be readily determined. Accordingly, management does
not believe that in our circumstances, the aggregate difference would be
meaningful information.
Our predecessor is included in the consolidated federal income tax return of
Plains Resources. Income taxes are calculated as if our predecessor had filed a
return on a separate company basis utilizing a federal statutory rate of 35%.
Hedging. We utilize various derivative instruments, for purposes other than
trading, to hedge our exposure to price fluctuations on crude in storage and
expected purchases, sales and transportation of crude oil. The derivative
instruments consist primarily of futures and option contracts traded on the New
York Mercantile Exchange and crude oil swap contracts entered into with
financial institutions. We also utilize interest rate swaps and collars to
manage the interest rate exposure on our long-term debt.
These derivative instruments qualify for hedge accounting as they reduce the
price risk of the underlying hedged item and are designated as a hedge at
inception. Additionally, the derivatives result in financial impacts which are
inversely correlated to those of the items being hedged. This correlation,
generally in excess of 80%, (a measure of hedge effectiveness) is measured both
at the inception of the hedge and on an ongoing basis. If correlation ceases to
exist, we would discontinue hedge accounting and apply mark to market
accounting. Gains and losses on the termination of hedging instruments are
deferred and recognized in income as the impact of the hedged item is recorded.
Unrealized changes in the market value of crude oil hedge contracts are not
generally recognized in our statement of operations or our predecessor's
statements of operations until the underlying hedged transaction occurs. The
financial impacts of crude oil hedge contracts are included in our and our
predecessor's statements of operations as a component of revenues. Such
financial impacts are offset by gains or losses realized in the physical market.
Cash flows from crude oil hedging activities are included in operating
activities in the accompanying statements of cash flows. Net deferred gains and
losses on futures contracts, including closed futures contracts, entered into to
hedge anticipated crude oil purchases and sales are included in current assets
or current liabilities in the accompanying consolidated balance sheets.
Deferred gains or losses from inventory hedges are included as part of the
inventory costs and recognized when the related inventory is sold.
Amounts paid or received from interest rate swaps and collars are charged or
credited to interest expense and matched with the cash flows and interest
expense of the long-term debt being hedged, resulting in an adjustment to the
effective interest rate. Deferred gains of $10.8 million received upon the
termination of an interest rate swap are included in other long-term liabilities
and deferred credits, net of accumulated amortization, in the accompanying
balance sheet at December 31, 1999.
F-10
<PAGE>
Net income per unit. Basic and diluted net income (loss) per unit is
determined by dividing net income (loss) after deducting the amount allocated to
our general partner, by the weighted average number of outstanding common units
and subordinated units. Partnership income (loss) is allocated first according
to cash distributions, and the remainder according to percentage ownership in
the partnership. For periods prior to November 23, 1998, outstanding units are
assumed to equal the common and subordinated units received by our general
partner in exchange for assets contributed to us.
Unit Options. We have elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for our employee unit options and awards. Under
APB 25, no compensation expense is recognized when the exercise price of options
equals the fair value (market price) of the underlying units on the date of
grant (see Note 14).
Recent Accounting Pronouncements. In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). 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 we are 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 we are
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. This statement
was amended by Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133 ("SFAS 137") issued in June 1999. SFAS 137 defers
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. We
are required to adopt this statement beginning in 2001. We have not yet
determined the effect that the adoption of SFAS 133 will have on our financial
position or results of operations.
NOTE 3 -- UNAUTHORIZED TRADING LOSSES AND RESTATED FINANCIAL STATEMENTS
In November 1999, we discovered that a former employee had engaged in
unauthorized trading activity, resulting in losses of approximately $162.0
million ($174.0 million, including estimated associated costs and legal
expenses). A full investigation into the unauthorized trading activities by
outside legal counsel and independent accountants and consultants determined
that the vast majority of the losses occurred from March through November 1999,
and the impact warranted a restatement of previously reported financial
information for 1999 and 1998. Approximately $7.1 million of the unauthorized
trading losses was recognized in 1998 and the remainder in 1999.
Normally, as we purchase crude oil, we establish a margin by selling crude oil
for physical delivery to third-party users or by entering into a future delivery
obligation with respect to futures contracts. The employee in question violated
our policy of maintaining a position that is substantially balanced between
crude oil purchases and sales or future delivery obligations. The unauthorized
trading and associated losses resulted in a default of certain covenants under
our credit facilities and significant short-term cash and letter of credit
requirements.
In December 1999, we executed amended credit facilities and obtained default
waivers from all of our lenders. The amended credit facilities:
. waived defaults under covenants contained in the existing credit
facilities;
. increased availability under our letter of credit and borrowing facility
from $175.0 million in November 1999 to $295.0 million in December 1999,
$315.0 million in January 2000, and thereafter decreasing to $239.0 million
in February through April 2000, to $225.0 million in May and June 2000 and
to $200.0 million in July 2000 through July 2001;
. required the lenders' consent prior to the payment of distributions to
unitholders;
. prohibited contango inventory transactions subsequent to January 20, 2000;
and
. increased interest rates and fees under certain of the facilities.
We paid approximately $13.7 million to our lenders in connection with the
amended credit facilities. This amount was capitalized as debt issue costs and
will be amortized over the remaining term of the amended facilities. In
connection with the amendments, our general partner loaned us approximately
$114.0 million. This subordinated debt is due not later than November 30, 2005.
F-11
<PAGE>
In the period immediately following the disclosure of the unauthorized trading
losses, a significant number of our suppliers and trading partners reduced or
eliminated the open credit previously extended to us. Consequently, the amount
of letters of credit we needed to support the level of our crude oil purchases
then in effect increased significantly. In addition, the cost to us of obtaining
letters of credit increased under the amended credit facility. In many instances
we arranged for letters of credit to secure our obligations to purchase crude
oil from our customers, which increased our letter of credit costs and decreased
our unit margins. In other instances, primarily involving lower margin wellhead
and bulk purchases, certain of our purchase contracts were terminated.
The summarized restated results for the periods ended and financial position
as of March 31, June 30, and September 30, 1999 are as follows: (in thousands,
except unit data) (unaudited).
RESTATED
--------------------------------------------------------
THREE PERIOD ENDED PERIOD ENDED
MONTHS JUNE 30, 1999 SEPTEMBER 30, 1999
ENDED -------------------- ----------------------
MARCH 31, THREE SIX THREE NINE
1999 MONTHS MONTHS MONTHS MONTHS
--------- -------- --------- --------- ----------
STATEMENT OF
OPERATIONS DATA:
Gross margin $ (1,546) $ 4,985 $ 3,439 $ (38,922) $ (35,483)
Operating loss (6,965) (4,624) (11,589) (51,892) (63,481)
Net loss (10,061) (9,154) (19,215) (60,131) (79,346)
Net loss per limited
partner unit (0.33) (0.29) (0.62) (1.88) (2.53)
BALANCE SHEET DATA:
Current assets $186,846 $ 413,418 $ 522,332
Current liabilities 190,331 452,307 622,394
Partners' capital 261,657 263,939 190,877
CASH FLOW DATA:
Net cash provided by
operating activities $ 4,445 $ 15,397 $ 1,380
The summarized previously reported results for the periods ended and financial
position as of March 31, June 30, and September 30, 1999 are as follows: (in
thousands, except unit data) (unaudited).
PREVIOUSLY REPORTED
--------------------------------------------------------
THREE PERIOD ENDED PERIOD ENDED
MONTHS JUNE 30, 1999 SEPTEMBER 30, 1999
ENDED -------------------- ----------------------
MARCH 31, THREE SIX THREE NINE
1999 MONTHS MONTHS MONTHS MONTHS
--------- -------- --------- --------- ----------
STATEMENT OF
OPERATIONS DATA:
Gross margin $ 19,828 $ 26,212 $ 46,040 $ 33,304 $ 79,344
Operating income 14,409 16,603 31,422 20,334 51,346
Net income 11,313 12,073 23,386 12,095 35,481
Net income per limited
partner unit 0.37 0.38 0.75 0.38 1.13
BALANCE SHEET DATA:
Current assets $187,015 $ 413,344 $522,234
Current liabilities 169,126 409,632 507,469
Partners' capital 283,031 306,540 305,704
CASH FLOW DATA:
Net cash provided by
operating activities $ 4,276 $ 15,471 $ 1,478
Below is the summarized restated and previously reported results for the three
and nine months ending September 30, 1998 (in thousands, except unit data)
(unaudited).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------- -------------------
PREVIOUSLY PREVIOUSLY
RESTATED REPORTED RESTATED REPORTED
-------- ---------- -------- ----------
STATEMENT OF
OPERATIONS DATA:
Gross margin $ 6,914 $13,914 $16,114 $23,114
Operating income 3,410 10,410 9,948 16,948
Net income (loss) (1,212) 3,258 2,042 6,512
Net income (loss) per
limited partner unit (0.07) 0.19 0.12 0.38
F-12
<PAGE>
The summarized restated and previously reported results for the periods of
November 23, 1998 to December 31, 1998 and January 1, 1998 to November 22, 1998
and financial position as of Decvember 31, 1998 are as follows (in thousands,
except unit data):
November 23, 1998 January 1, 1998
to December 31, 1998 to November 22, 1998
-------------------- --------------------
Previously Previously
Restated Reported Restated Reported
-------- --------- -------- ----------
Statement of Operations Data:
Gross margin $ 5,099 $ 7,499 $ 26,281 $ 30,981
Operating income 3,136 5,536 17,576 22,276
Net income 1,777 4,177 4,257 7,025
Net income per limited partner unit 0.06 0.14 0.25 0.40
Balance Sheet Data:
Current assets $ 163,829 $ 166,851 $ - $ -
Current liabilities 161,598 157,520 - -
Partners' capital 270,543 277,643 - -
NOTE 4 -- ACQUISITIONS
Scurlock Acquisition
On May 12, 1999, we completed the acquisition of Scurlock Permian LLC and
certain other pipeline assets from Marathon Ashland Petroleum LLC. Including
working capital adjustments and closing and financing costs, the cash purchase
price was approximately $141.7 million.
Scurlock, previously a wholly-owned subsidiary of Marathon Ashland Petroleum,
is engaged in crude oil transportation, gathering and marketing, and owns
approximately 2,300 miles of active pipelines, numerous storage terminals and a
fleet of more than 250 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
we acquired also included approximately one million barrels of crude oil
linefill.
Financing for the Scurlock acquisition was provided through:
. borrowings of approximately $92.0 million under Plains Scurlock's limited
recourse bank facility with BankBoston, N.A.;
. the sale to our general partner of 1.3 million of our Class B common units
for a total cash consideration of $25.0 million, or $19.125 per unit, the
price equal to the market value of our common units on May 12, 1999; and
. a $25.0 million draw under our existing revolving credit agreement.
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 Marathon Ashland Petroleum to Plains Scurlock, Marathon Ashland
Petroleum has agreed to indemnify and hold harmless Scurlock and Plains Scurlock
for claims, liabilities and 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 Marathon
Ashland Petroleum on or before May 15, 2003.
The assets, liabilities and results of operations of Scurlock are included in
our consolidated financial statements 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 (in thousands):
Crude oil pipeline, gathering and terminal assets $125,120
Other property and equipment 1,546
Pipeline linefill 16,057
Other assets (debt issue costs) 3,100
Other long-term liabilities (environmental accrual) (1,000)
Net working capital items (3,090)
--------
Cash paid $141,733
========
F-13
<PAGE>
Pro Forma Results for the Scurlock Acquisition
The following unaudited pro forma data is presented to show pro forma
revenues, net income and basic and diluted net income (loss) per limited partner
unit as if the Scurlock acquisition, which was effective May 1, 1999, had
occurred on January 1, 1998 (in thousands).
YEAR NOVEMBER 23, JANUARY 1,
ENDED 1998 TO 1998 TO
DECEMBER 31, DECEMBER 31, NOVEMBER 22,
1999 1998 1998
----------- --------- -----------
(restated) (restated)
Revenues $ 5,089,223 $ 278,424 $ 2,099,463
=========== ========= ===========
Net income (loss) $ (97,012) $ (7,957) $ 3,063
=========== ========= ===========
Basic and diluted net income (loss)
per limited partner unit $ (3.01) $ (0.25) $ 0.18
=========== ========= ===========
West Texas Gathering System Acquisition
On July 15, 1999, Plains Scurlock Permian, L.P. completed the acquisition of a
West Texas crude oil pipeline and gathering system from Chevron Pipe Line
Company for approximately $36.0 million, including transaction costs. Our total
acquisition cost was approximately $38.9 million including costs to address
certain issues identified in the due diligence process. The principal assets
acquired include approximately 450 miles of crude oil transmission mainlines,
approximately 400 miles of associated gathering and lateral lines and
approximately 2.9 million barrels of crude oil storage and terminalling capacity
in Crane, Ector, Midland, Upton, Ward and Winkler Counties, Texas. Financing for
the amounts paid at closing was provided by a draw under the term loan portion
of the Plains Scurlock credit facility.
Venice Terminal Acquisition
On September 3, 1999, we completed the acquisition of a Louisiana crude oil
terminal facility and associated pipeline system from Marathon Ashland Petroleum
LLC for approximately $1.5 million. The principal assets acquired include
approximately 300,000 barrels of crude oil storage and terminalling capacity and
a six-mile crude oil transmission system near Venice, Louisiana.
All American Pipeline Acquisition
On July 30, 1998, our predecessor acquired all of the outstanding capital
stock of the All American Pipeline Company, Celeron Gathering Corporation and
Celeron Trading & Transportation Company (collectively the "Celeron
Companies") from Wingfoot, a wholly-owned subsidiary of the Goodyear Tire and
Rubber Company ("Goodyear"), for approximately $400.0 million, including
transaction costs. The principal assets of the entities acquired include the All
American Pipeline and the SJV Gathering System, as well as other assets related
to such operations. The acquisition was accounted for utilizing the purchase
method of accounting with the assets, liabilities and results of operations
included in the combined financial statements of the predecessor effective
July 30, 1998.
The acquisition was accounted for utilizing the purchase method of accounting
and the purchase price was allocated in accordance with APB 16 as follows (in
thousands):
Crude oil pipeline, gathering and terminal assets $ 392,528
Other assets (debt issue costs) 6,138
Net working capital items (excluding cash received of $7,481) 1,498
---------
Cash paid $ 400,164
=========
Financing for the acquisition was provided through a $325.0 million, limited
recourse bank facility and an approximate $114.0 million capital contribution by
Plains All American Inc. Actual borrowings at closing were $300.0 million.
In 1999, we terminated 24 employees and paid approximately $1.4 million in
connection therewith.
F-14
<PAGE>
NOTE 5 -- ASSET DISPOSITIONS
We initiated the sale of approximately 5.2 million barrels of crude oil
linefill from the All American Pipeline in November 1999. This sale was
substantially completed in February 2000. The linefill was located in the
segment of the All American Pipeline that extends from Emidio, California, to
McCamey, Texas. Except for minor third party volumes, one of our subsidiaries
has been the sole shipper on this segment of the pipeline since its predecessor
acquired the line from Goodyear on July 30, 1998. Proceeds from the sale of the
linefill were approximately $100.0 million, net of associated costs, and were
used for working capital purposes. We estimate that we will recognize a total
gain of approximately $44.0 million in connection with the sale of linefill. As
of December 31, 1999, we had delivered approximately 1.8 million barrels of
linefill and recognized a gain of $16.5 million. The amount of crude oil
linefill for sale at December 31, 1999 was $37.9 million and is included in
inventory on the consolidated balance sheet.
On March 24, 2000, we completed the sale of the above referenced segment of
the All American Pipeline to a unit of El Paso Energy Corporation for total
proceeds of $129.0 million. The proceeds from the sale were used to reduce
outstanding debt. Our net proceeds are expected to be approximately $124.0
million, net of associated transaction costs and estimated costs to remove
certain equipment. We estimate that we will recognize a gain of approximately
$20.0 million in connection with the sale. During 1999, we reported gross margin
of approximately $5.0 million from volumes transported on the segment of the
line that was sold.
NOTE 6 --CREDIT AGREEMENTS AND LONG-TERM DEBT
Short-term debt and current portion of long-term debt consists of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
----------- -----------
(in thousands)
<S> <C> <C>
Letter of credit borrowing facility, bearing interest at
weighted average interest rates of 8.7% and 6.8%
at December 31, 1999 and 1998, respectively $ 13,719 $ 9,750
Secured term credit facility, bearing interest at
a weighted average interest rate of 8.8%
at December 31, 1999 45,000 -
-------- -------
58,719 9,750
Current portion of long-term debt 50,650 -
-------- -------
$109,369 $ 9,750
======== =======
</TABLE>
We have a letter of credit and borrowing facility, the purpose of which is to
provide standby letters of credit to support the purchase and exchange of crude
oil for resale and borrowings to finance crude oil inventory which has been
hedged against future price risk or designated as working inventory. As a result
of the unauthorized trading losses discovered in November 1999, the facility was
in default of certain covenants, with those defaults being subsequently waived
and the facility amended in December 1999. As amended, the letter of credit
facility has a sublimit for cash borrowings of $40.0 million at December 31,
1999, with decreasing amounts thereafter through April 30, 2000, at which time
the sublimit is eliminated. The letter of credit and borrowing facility provides
for an aggregate letter of credit availability of $295.0 million in December
1999, $315.0 million in January 2000, and thereafter decreasing to $239.0
million in February through April 2000, to $225.0 million in May and June 2000
and to $200.0 million in July 2000 through July 2001. 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 of
our current assets and current liabilities, primarily accounts receivable and
accounts payable related to the purchase and sale of crude oil. This facility is
secured by a lien on substantially all of our assets except the assets which
secure the Plains Scurlock credit facility. At December 31, 1999, there were
letters of credit of approximately $292.0 million and borrowings of $13.7
million outstanding under this facility.
On December 30, 1999, we entered into a $65.0 million senior secured term
credit facility to fund short-term working capital requirements resulting from
the unauthorized trading losses. The facility was secured by a portion of the
5.2 million barrels of linefill that was sold and receivables from certain sales
contracts applicable to the linefill. The facility had a maturity date of March
24, 2000 and was repaid with the proceeds from the sale of the linefill securing
the facility. At December 31, 1999, there were borrowings of $45.0 million
outstanding.
F-15
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
All American Pipeline, L.P. bank credit agreement,
bearing interest at weighted average interest rates of 8.3%
and 6.8% at December 31, 1999 and 1998, respectively $ 225,000 $ 175,000
Plains Scurlock bank credit agreement, bearing interest at
a weighted average interest rate of 9.1% at December 31, 1999 85,100 -
Subordinated note payable - general partner, bearing interest at
a weighted average interest rate of 8.7% at December 31, 1999 114,000 -
--------- ---------
424,100 175,000
Less current maturities (50,650) -
--------- ---------
$ 373,450 $ 175,000
========= =========
</TABLE>
Concurrently with the closing of our initial public offering in November 1998,
we entered into a $225.0 million bank credit agreement that includes a $175.0
million term loan facility and a $50.0 million revolving credit facility. As a
result of the unauthorized trading losses discovered in November 1999, the
facility was in default of certain covenants, with those defaults being
subsequently waived and the facility amended in December. The bank credit
agreement is secured by a lien on substantially all of our assets except the
assets which secure the Plains Scurlock bank credit agreement. We may borrow up
to $50.0 million under the revolving credit facility for acquisitions, capital
improvements, working capital and general business purposes. At December 31,
1999, we had $175.0 million outstanding under the term loan facility and $50.0
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 term loan and revolving credit
facility bear interest at our option at either the base rate, as defined, plus
an applicable margin, or reserve adjusted LIBOR plus an applicable margin. We
incur a commitment fee on the unused portion of the revolving credit facility.
Plains Scurlock has a bank credit agreement which consists of a five-year
$82.6 million term loan facility and a three-year $35.0 million revolving credit
facility. The Plains Scurlock bank credit agreement is nonrecourse to Plains All
American Pipeline, Plains Marketing, L.P. and All American Pipeline, L.P. and is
secured by substantially all of the assets of Plains Scurlock Permian, L.P. and
its subsidiaries, including the Scurlock assets and the West Texas gathering
system. Borrowings under the term loan and the revolving credit facility bear
interest at LIBOR plus the applicable margin. A commitment fee equal to 0.5% 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 in May 2004. As of December 31, 1999, letters of credit of
approximately $29.5 million were outstanding under the revolver and borrowings
of $82.6 million and $2.5 million were outstanding under the term loan and
revolver, respectively. The term loan was reduced to $82.6 million from $126.6
million with proceeds from our October 1999 public unit offering.
All of our credit facilities contain prohibitions on distributions on, or
purchases or redemptions of, units if any default or event of default is
continuing. In addition, our facilities contain various covenants limiting our
ability to:
. incur indebtedness;
. grant liens;
. sell assets in excess of certain limitations;
. engage in transactions with affiliates;
. make investments;
. enter into hedging contracts; and
. enter into a merger, consolidation or sale of assets.
Each of our facilities treats a change of control as an event of default. In
addition, the terms of our letter of credit and borrowing facility and our bank
credit agreement require lenders' consent prior to the payment of distributions
to unitholders and require us to maintain:
. a current ratio of 1.0 to 1.0, as defined in our credit agreement;
. a debt coverage ratio which is not greater than 5.0 to 1.0;
F-16
<PAGE>
. an interest coverage ratio which is not less than 3.0 to 1.0;
. a fixed charge coverage ratio which is not less than 1.25 to 1.0; and
. debt to capital ratio of not greater than 0.60 to 1.0.
The terms of the Plains Scurlock bank credit agreement requires Plains
Scurlock to maintain at the end of each quarter:
. a debt coverage ratio of 6.0 to 1.0 from October 1, 1999 through June 30,
2000; 5.0 to 1.0 from July 1, 2000 through June 30, 2001; and 4.0 to 1.0
thereafter; and
. an interest coverage ratio of 2.0 to 1.0 from October 1, 1999 through
June 30, 2000 and 2.5 to 1.0 thereafter.
In addition, the Plains Scurlock bank credit agreement contains limitations on
the Plains Scurlock operating partnership's ability to make distributions to us
if its indebtedness and current liabilities exceed certain levels as well as the
amount of expansion capital it may expend.
In December 1999, our general partner loaned us $114.0 million. This
subordinated debt is due not later than November 30, 2005. Proceeds from the
notes were used for working capital requirements created by the unauthorized
trading losses (see Note 3). The notes are subordinated in right of payment to
all existing senior indebtedness and bear interest at the same LIBOR rate as our
letter of credit and borrowing facility. Interest on the notes is payable
monthly, but payment of interest requires the permission of certain of our
lenders. Any interest not paid when due is added to the principal of the notes,
at the option of our general partner.
At December 31, 1999, we had interest rate collar agreements aggregating a
notional principal amount of $215.0 million which hedge the interest rate on our
underlying debt obligations. These instruments are based on LIBOR rates before
the applicable margins and generally provide for a floor of 5% and a ceiling of
6.5% for $90.0 million of debt and a floor of 6.1% and a ceiling of 8% for
$125.0 million of debt.
The aggregate amount of maturities of all long-term indebtedness for the next
five years is: 2000 - $50.6 million, 2001 - $0.6 million, 2002 - $3.2 million,
2003 - $0.7 million and 2004 - $80.0 million.
NOTE 7 -- PARTNERSHIP CAPITAL AND DISTRIBUTIONS
Partner's capital consists of 24,356,429 common units, including 1,307,190
Class B common units, representing a 69.4% limited partner interest, (a
subsidiary of our general partner owns 6,904,795 of such common units),
10,029,619 Subordinated units owned by a subsidiary of our general partner
representing a 28.6% limited partner interest and a 2% general partner interest.
In the aggregate, our general partner's interests represent an effective 54.0%
ownership of our equity at December 31, 1999.
All of the subordinated units and 20,059,239 of the common units were issued
in connection with our November 1998 initial public offering. In October 1999,
we completed a public offering of an additional 2,990,000 common units
representing limited partner interests at $18.00 per unit. Net proceeds,
including our general partners' contribution, from the offering were
approximately $51.3 million after deducting underwriters' discounts and
commissions and offering expenses of approximately $3.1 million. These proceeds
were used to reduce outstanding debt. The Class B common units were issued in
May 1999 to our general partner at $19.125 per unit for total proceeds of $25.0
million in connection with the Scurlock acquisition (see Note 4).
Subject to the consent of our lenders, we will distribute 100% of our
available cash within 45 days after the end of each quarter to unitholders of
record and to our general partner. Available cash is generally defined as all of
our cash and cash equivalents on hand at the end of each quarter less reserves
established by our general partner for future requirements. Distributions of
available cash to holders of subordinated units are subject to the prior rights
of holders of common units to receive the minimum quarterly distribution ("MQD")
for each quarter during the subordinated period (which will not end earlier than
December 31, 2003) and to receive any arrearages in the distribution of the MQD
on the common units for the prior quarters during the subordinated period. The
MQD is $0.45 per unit ($1.80 per unit on an annual basis). Upon expiration of
the subordination period, all subordinated units will be converted on a one-for-
one basis into common units and will participate pro rata with all other common
units in future distributions of available cash. Under certain circumstances, up
to 50% of the subordinated units may convert into common units prior to the
expiration of the subordination period. Common units will not accrue arrearages
with respect to distributions for any quarter after the subordination period and
subordinated units will not accrue any arrearages with respect to distributions
for any quarter.
If quarterly distributions of available cash exceed the MQD or the Target
Distribution Levels (as defined), our general partner will receive distributions
which are generally equal to 15%, then 25% and then 50% of the distributions of
available
F-17
<PAGE>
cash that exceed the MQD or Target Distribution Level. The Target Distribution
Levels are based on the amounts of available cash from our Operating Surplus (as
defined) distributed with respect to a given quarter that exceed distributions
made with respect to the MQD and common unit arrearages, if any.
The Class B common units are initially pari passu with common units with
respect to distributions, and are convertible into common units upon approval of
a majority of the common unitholders. The Class B unitholders may request that
we call a meeting of common unitholders to consider approval of the conversion
of Class B units into common units. If the approval of a conversion by the
common unitholders is not obtained within 120 days of a request, each Class B
common unitholder 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 120-day period. Except for the vote to
approve the conversion, Class B common units have the same voting rights as the
common units.
Our 1999 and 1998 distributions declared, which were paid in the quarter
following declaration are summarized in the following table:
<TABLE>
<CAPTION>
DISTRIBUTION PER UNIT TOTAL DISTRIBUTION
----------------------- --------------------------------------------------
COMMON SUBORDINATED GENERAL
COMMON SUBORDINATED UNITHOLDERS UNITHOLDERS PARTNER TOTAL
------- ------------ ----------- ------------ ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999
Fourth quarter $ 0.450 $ - $10,960 $ - $ 224 $11,184
Third quarter 0.481 0.481 11,721 4,827 506 17,054
Second quarter 0.463 0.463 9,881 4,639 358 14,878
First quarter 0.450 0.450 9,026 4,513 276 13,815
1998
Fourth quarter $ 0.193 $ 0.193 $ 3,871 $ 1,936 $ 119 $ 5,926
</TABLE>
The fourth quarter 1998 distribution represents a partial quarterly
distribution for the period from November 23, 1998, the date of our initial
public offering, to December 31, 1998.
NOTE 8 -- FINANCIAL INSTRUMENTS
Derivatives
We utilize derivative financial instruments to hedge our exposure to price
volatility on crude oil and do not use such instruments for speculative trading
purposes. These arrangements expose us to credit risk (as to counterparties) and
to risk of adverse price movements in certain cases where our purchases are less
than expected. In the event of non-performance of a counterparty, we might be
forced to acquire alternative hedging arrangements or be required to honor the
underlying commitment at then-current market prices. In order to minimize credit
risk relating to the non-performance of a counterparty, we enter into such
contracts with counterparties that are considered investment grade, periodically
review the financial condition of such counterparties and continually monitor
the effectiveness of derivative financial instruments in achieving our
objectives. In view of our criteria for selecting counterparties, our process
for monitoring the financial strength of these counterparties and our experience
to date in successfully completing these transactions, we believe that the risk
of incurring significant financial statement loss due to the non-performance of
counterparties to these transactions is minimal.
At December 31, 1999, our hedging activities included crude oil futures
contracts maturing in 2000 through 2002, covering approximately 7.4 million
barrels of crude oil including the portion of the linefill sold in January and
February 2000. Since such contracts are designated as hedges and correlate to
price movements of crude oil, any gains or losses resulting from market changes
will be largely offset by losses or gains on our hedged inventory or anticipated
purchases of crude oil.
Fair Value of Financial Instruments
The carrying values of items comprising current assets and current liabilities
approximate fair value due to the short-term maturities of these instruments.
Crude oil futures contracts permit settlement by delivery of the crude oil and,
therefore, are not financial instruments. The carrying value of bank debt
approximates fair value as interest rates are variable, based on prevailing
market rates. The fair value of crude oil and interest rate swap and collar
agreements are based on current termination values or quoted market prices of
comparable contracts.
F-18
<PAGE>
We utilize interest rate swap and collar agreements to hedge the interest rate
on our underlying debt obligations. The carrying amounts and fair values of our
financial instruments are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998
----------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Unrealized loss on crude oil swaps $ - $ (569) - $ -
Unrealized gain (loss) on interest rate swaps
and collars - 388 - (2,164)
</TABLE>
NOTE 9 -- EXTRAORDINARY ITEM
For the year ended December 31, 1999, we recognized an extraordinary loss
related to the early extinguishment of debt. The loss is related to the
reduction of the Plains Scurlock term loan facility with proceeds from our 1999
public offering and the restructuring of our letter of credit and borrowing
facility as a result of the unauthorized trading losses (see Notes 3 and 7).
NOTE 10 -- INCOME TAXES
As discussed in Note 2, our predecessor's results are included in Plains
Resources' combined federal income tax return. The amounts presented below were
calculated as if our predecessor filed a separate tax return.
Provision in lieu of income taxes of our predecessor consists of the following
components (in thousands):
<TABLE>
<CAPTION>
JANUARY 1,
1998 TO YEAR ENDED
NOVEMBER 22, DECEMBER 31,
1998 1997
----------- ------------
(RESTATED)
<S> <C> <C>
Federal
Current $ 455 $ 38
Deferred 1,900 1,131
State
Current - 99
Deferred 276 -
------- -------
Total $ 2,631 $ 1,268
======= =======
</TABLE>
A reconciliation of the provision in lieu of income taxes to the federal
statutory tax rate of 35% is as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 1,
1998 TO YEAR ENDED
NOVEMBER 22, DECEMBER 31,
1998 1997
------------ ------------
(RESTATED)
<S> <C> <C>
Provision at the statutory rate $ 2,410 $ 1,169
State income tax, net of
benefit for federal deduction 181 65
Permanent differences 40 34
------------ ------------
Total $ 2,631 $ 1,268
============ ============
</TABLE>
F-19
<PAGE>
NOTE 11 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
In connection with our formation, certain investing and financial activities
occurred. Effective November 23, 1998, substantially all of the assets and
liabilities of our predecessor were conveyed to us at historical cost. Net
assets assumed by the operating partnership are as follows (restated) (in
thousands):
Cash and cash equivalents $ 224
Accounts receivable 109,311
Inventory 22,906
Prepaid expenses and other current assets 1,059
Property and equipment, net 375,948
Pipeline linefill 48,264
Intangible assets, net 11,001
---------
Total assets conveyed 568,713
---------
Accounts payable and other current liabilities 107,405
Due to affiliates 8,942
Bank debt 183,600
---------
Total liabilities assumed 299,947
---------
Net assets assumed by the Partnership $ 268,766
=========
Interest paid totaled $22.3 million, $0.1 million, $8.5 million and $4.5
million for the year ended December 31, 1999, the period from November 23, 1998
to December 31, 1998, the period from January 1, 1998 through November 23, 1998
and the year ended December 31, 1997, respectively.
NOTE 12 -- MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Customers accounting for 10% or more of revenues were as follows for the
periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE
-------------------------------------------------------------
NOVEMBER 23, JANUARY 1,
YEAR ENDED 1998 TO 1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 22, DECEMBER 31,
CUSTOMER 1999 1998 1998 1997
--------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sempra Energy Trading Corporation 22% 20% 31% 12%
Koch Oil Company 19% - 19% 30%
Exxon Company USA - 11% - -
Basis Petroleum Inc. - - - 11%
</TABLE>
Financial instruments which potentially subject us to concentrations of credit
risk consist principally of trade receivables. Our accounts receivable are
primarily from purchasers and shippers of crude oil. This industry concentration
has the potential to impact our overall exposure to credit risk, either
positively or negatively, in that the customers may be similarly affected by
changes in economic, industry or other conditions. We generally require letters
of credit for receivables from customers which are not considered investment
grade, unless the credit risk can otherwise be reduced. We believe that the loss
of an individual customer would not have a material adverse effect.
NOTE 13 -- RELATED PARTY TRANSACTIONS
Reimbursement of Expenses of Our General Partner and Its Affiliates
We do not directly employ any persons to manage or operate our business. These
functions are provided by employees of our general partner and Plains Resources.
Our general partner does not receive a management fee or other compensation in
connection with its management of us. We reimburse our general partner and
Plains Resources for all direct and indirect costs of services provided,
including the costs of employee, officer and director compensation and benefits
properly allocable to us, and all other expenses necessary or appropriate to the
conduct of the business of, and allocable to us. Our agreement provides that our
general partner will determine the expenses that are allocable to us in any
reasonable manner determined by our general partner in its sole discretion.
Total costs reimbursed to our general partner and Plains Resources by us were
approximately $44.7 million and $0.5 million for the year ended December 31,
1999 and for period from November 23, 1998
F-20
<PAGE>
to December 31, 1998, respectively. Such costs include, (1) allocated personnel
costs (such as salaries and employee benefits) of the personnel providing such
services, (2) rent on office space allocated to our general partner in Plains
Resources' offices in Houston, Texas (3) property and casualty insurance
premiums and (4) out-of-pocket expenses related to the provision of such
services.
Plains Resources allocated certain general and administrative expenses to the
Plains Midstream Subsidiaries during 1998 and 1997. The types of indirect
expenses allocated to the Plains Midstream Subsidiaries during this period were
office rent, utilities, telephone services, data processing services, office
supplies and equipment maintenance. Direct expenses allocated by Plains
Resources were primarily salaries and benefits of employees engaged in the
business activities of the Plains Midstream Subsidiaries.
Crude Oil Marketing Agreement
We are the exclusive marketer/purchaser for all of Plains Resources' equity
crude oil production. The marketing agreement with Plains Resources provides
that we will purchase for resale at market prices all of Plains Resources' crude
oil production for which we charge a fee of $0.20 per barrel. For the year ended
December 31, 1999 and the period from November 23, 1998 to December 31, 1998, we
paid Plains Resources approximately $131.5 million and $4.1 million,
respectively, for the purchase of crude oil under the agreement and recognized
profits of approximately $1.5 million and $0.1 million from the marketing fee
for the same periods, respectively. Prior to the marketing agreement, our
predecessor marketed crude oil production of Plains Resources, its subsidiaries
and its royalty owners. Our predecessor paid approximately $83.4 million and
$101.2 million for the purchase of these products for the period from January 1,
1998 to November 22, 1998 and the year ended December 31, 1997, respectively. In
management's opinion, these purchases were made at prevailing market prices. Our
predecessor did not recognize a profit on the sale of the crude oil purchased
from Plains Resources.
Financing
In December 1999, our general partner loaned us $114.0 million. This
subordinated debt is due not later than November 30, 2005 (see Note 6). Interest
expense related to the notes was $0.6 million for the year ended December 31,
1999.
To finance a portion of the purchase price of the Scurlock acquisition, we
sold to our general partner 1.3 million Class B common units at $19.125 per
unit, the market value of our common units on May 12, 1999 (see Note 4).
The balance of amounts due to affiliates at December 31, 1999 and 1998 was
$42.7 million and $7.8 million, respectively, and was related to the
transactions discussed above.
NOTE 14 -- LONG-TERM INCENTIVE PLANS
Our general partner has adopted the Plains All American Inc. 1998 Long-Term
Incentive Plan for employees and directors of our general partner and its
affiliates who perform services for us. The Long-Term Incentive Plan consists of
two components, a restricted unit plan and a unit option plan. The Long-Term
Incentive Plan currently permits the grant of restricted units and unit options
covering an aggregate of 975,000 common units. The plan is administered by the
Compensation Committee of our general partner's board of directors.
Restricted Unit Plan. A restricted unit is a "phantom" unit that entitles the
grantee to receive a common unit upon the vesting of the phantom unit. As of
March 15, 2000, an aggregate of approximately 500,000 restricted units have been
authorized for grants to employees of our general partner, 170,000 of which have
been granted with the remaining 330,000 to be granted in the near future. The
Compensation Committee may, in the future, make additional grants under the plan
to employees and directors containing such terms as the Compensation Committee
shall determine. In general, restricted units granted to employees during the
subordination period will vest only upon, and in the same proportions as, the
conversion of the subordinated units to common units. Grants made to non-
employee directors of our general partner will be eligible to vest prior to
termination of the subordination period.
If a grantee terminates employment or membership on the board for any reason,
the grantee's restricted units will be automatically forfeited unless, and to
the extent, the Compensation Committee provides otherwise. Common units to be
delivered upon the vesting of rights may be common units acquired by our general
partner in the open market, common units already owned by our general partner,
common units acquired by our general partner directly from us or any other
person, or any combination of the foregoing. Our general partner will be
entitled to reimbursement by us for the cost incurred in acquiring common units.
If we issue new common units upon vesting of the restricted units, the total
number of common
F-21
<PAGE>
units outstanding will increase. Following the subordination period, the
Compensation Committee, in its discretion, may grant tandem distribution
equivalent rights with respect to restricted units.
The issuance of the common units pursuant to the restricted unit plan is
primarily intended to serve as a means of incentive compensation for
performance. Therefore, no consideration will be paid to us by the plan
participants upon receipt of the common units.
Unit Option Plan. The Unit Option Plan currently permits the grant of options
covering common units. No grants have been made under the Unit Option Plan to
date. However, the Compensation Committee may, in the future, make grants under
the plan to employees and directors containing such terms as the committee shall
determine, provided that unit options have an exercise price equal to the fair
market value of the units on the date of grant. Unit options granted during the
subordination period will become exercisable automatically upon, and in the same
proportions as, the conversion of the subordinated units to common units, unless
a later vesting date is provided.
Upon exercise of a unit option, our general partner will deliver common units
acquired by it in the open market, purchased directly from us or any other
person, or use common units already owned by our general partner, or any
combination of the foregoing. Our general partner will be entitled to
reimbursement by us for the difference between the cost incurred by our general
partner in acquiring such common units and the proceeds received by our general
partner from an optionee at the time of exercise. Thus, the cost of the unit
options will be borne by us. If we issue new common units upon exercise of the
unit options, the total number of common units outstanding will increase, and
our general partner will remit to us the proceeds received by it from the
optionee upon exercise of the unit option.
We apply APB 25 and related interpretations in accounting for unit option
plans. In accordance with APB 25, no compensation expense has been recognized
for the unit option plan. Since no options have been granted to date, there is
no pro forma effect of a fair value based method of accounting in accordance
with Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" ("SFAS 123").
Transaction Grant Agreements. In addition to the grants made under the
Restricted Unit Plan described above, our general partner, at no cost to us,
agreed to transfer approximately 400,000 of its affiliates' common units
(including distribution equivalent rights attributable to such units) to certain
key employees of our general partner. A grant covering 50,000 of such common
units was terminated in 1999. Generally, approximately 69,444 of the remaining
common units vest in each of the years ending December 31, 1999, 2000 and 2001
if the operating surplus generated in such year equals or exceeds the amount
necessary to pay the minimum quarterly distribution on all outstanding common
units and the related distribution on our general partner interest. If a tranche
of common units does not vest in a particular year, such common units will vest
at the time the common unit arrearages for such year have been paid. In
addition, approximately 47,224 of the remaining common units vest in each of the
years ending December 31, 1999, 2000 and 2001 if the operating surplus generated
in such year exceeds the amount necessary to pay the minimum quarterly
distribution on all outstanding common units and subordinated units and the
related distribution on our general partner interest. In 1999, approximately
69,444 of such common units vested and 47,224 of such common units remain
unvested as no distribution on the subordinated units was made for the fourth
quarter of 1999. Any common units remaining unvested shall vest upon, and in the
same proportion as, the conversion of subordinated units to common units.
Distribution equivalent rights are paid in cash at the time of the vesting of
the associated common units. Notwithstanding the foregoing, all common units
become vested if Plains All American Inc. is removed as our general partner
prior to January 1, 2002.
We recognized noncash compensation expense of approximately $1.0 million for
the year ended December 31, 1999 related to the transaction grants which vested
in 1999. We reflected a capital contribution from our general partner for a like
amount.
F-22
<PAGE>
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
We lease certain real property, equipment and operating facilities under
various operating leases. We also incur costs associated with leased land,
rights-of-way, permits and regulatory fees whose contracts generally extend
beyond one year but can be canceled at any time should they not be required for
operations. Future non-cancelable commitments related to these items at December
31, 1999, are summarized below (in thousands):
2000 $ 7,484
2001 5,158
2002 1,706
2003 1,033
2004 933
Later years 1,528
Total lease expense incurred for 1999 was $8.9 million. Lease expense incurred
for the period from November 23, 1998 to December 31, 1998 and from January 1,
1998 to November 22, 1998 was $0.2 million and $0.9 million, respectively.
During 1997, the All American Pipeline experienced a leak in a segment of its
pipeline in California which resulted in an estimated 12,000 barrels of crude
oil being released into the soil. Immediate action was taken to repair the
pipeline leak, contain the spill and to recover the released crude oil. We have
expended approximately $400,000 to date in connection with this spill and do not
expect any additional expenditures to be material, although we can provide no
assurances in that regard.
Prior to being acquired by our predecessor in 1996, the Ingleside Terminal
experienced releases of refined petroleum products into the soil and groundwater
underlying the site due to activities on the property. We are undertaking a
voluntary state-administered remediation of the contamination on the property to
determine the extent of the contamination. We have proposed extending the scope
of our study and are awaiting the state's response. We have spent approximately
$130,000 to date in investigating the contamination at this site. We do not
anticipate the total additional costs related to this site to exceed $250,000,
although no assurance can be given that the actual cost could not exceed such
estimate. In addition, a portion of any such costs may be reimbursed to us from
Plains Resources.
Litigation
Texas Securities Litigation. On November 29, 1999, a class action lawsuit was
filed in the United States District Court for the Southern District of Texas
entitled Di Giacomo v. Plains All American Pipeline, et al. The suit alleged
that Plains All American Pipeline, L.P. and certain of our general partner's
officers and directors violated federal securities laws, primarily in connection
with unauthorized trading by a former employee. An additional nineteen cases
have been filed in the Southern District of Texas, some of which name our
general partner and Plains Resources as additional defendants. Plaintiffs allege
that the defendants are liable for securities fraud violations under Rule 10b-5
and Section 20(a) of the Securities Exchange Act of 1934 and for making false
registration statements under Sections 11 and 15 of the Securities Act of 1933.
The court has consolidated all subsequently filed cases under the first filed
action described above. Two unopposed motions are currently pending to appoint
lead plaintiffs. These motions ask the court to appoint two distinct lead
plaintiffs to represent two different plaintiff classes: (1) purchasers of
Plains Resources common stock and options and (2) purchasers of our common
units. Once lead plaintiffs have been appointed, the plaintiffs will file their
consolidated amended complaints. No answer or responsive pleading is due until
thirty days after a consolidated amended complaint is filed.
Delaware Derivative Litigation. On December 3, 1999, two derivative lawsuits
were filed in the Delaware Chancery Court, New Castle County, entitled Susser v.
Plains All American Inc., et al and Senderowitz v. Plains All American Inc., et
al. These suits, and three others which were filed in Delaware subsequently,
named our general partner, its directors and certain of its officers as
defendants, and allege that the defendants breached the fiduciary duties that
they owed to Plains All American Pipeline, L.P. and its unitholders by failing
to monitor properly the activities of its employees. The derivative complaints
allege, among other things, that Plains All American Pipeline has been harmed
due to the negligence or breach of loyalty of the officers and directors that
are named in the lawsuits. These cases are currently in the process of being
consolidated. No answer or responsive pleading is due until these cases have
been consolidated and a consolidated complaint has been filed.
We are a defendant, in the ordinary course of business, in various other legal
proceedings in which our exposure, individually and in the aggregate, is not
considered material to the accompanying financial statements.
F-23
<PAGE>
We may experience future releases of crude oil into the environment from our
pipeline and storage operations, or discover releases that were previously
unidentified. While we maintain an extensive inspection program designed to
prevent and, as applicable, to detect and address such releases promptly,
damages and liabilities incurred due to any future environmental releases from
our assets may substantially affect our business.
NOTE 16 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
1999(1)
Revenues $ 455,760 $ 862,524 $1,127,808 $2,255,829 $4,701,921
Gross margin (1,546) 4,985 (38,922) (20,643) (56,126)
Operating loss (6,965) (4,624) (51,892) (33,597) (97,078)
Net loss (10,061) (9,154) (60,131) (24,014) (103,360)
Net loss per limited partner unit (0.33) (0.29) (1.88) (0.69) (3.21)
Cash distributions per common unit(2) $ 0.450 $ 0.463 $ 0.481 $ 0.450 $ 1.844
1998(1)
Revenues $ 167,461 $ 163,222 $ 424,970 $ 374,036 $1,129,689
Gross margin 4,004 5,196 6,914 15,266 31,380
Operating income 2,715 3,823 3,410 10,764 20,712
Net income (loss) 1,240 2,014 (1,212) 3,992 6,034
Net income (loss) per limited partner
unit 0.07 0.12 (0.07) 0.17 (3.21)
Cash distributions per common unit(2) $ -- $ -- $ -- $ 0.193 $ 0.193
</TABLE>
- ---------
(1) As indicated in Note 3, quarterly results have been restated from amounts
previously reported due to the unauthorized trading losses.
(2) Represents cash distributions declared per common unit for the period
indicated. Distributions are paid in the quarter following declaration.
NOTE 17 -- OPERATING SEGMENTS
Our operations consist of two operating segments: (1) Pipeline Operations -
engages in interstate and intrastate crude oil pipeline transportation and
certain related merchant activities; (2) Marketing, Gathering, Terminalling and
Storage Operations - engages in purchases and resales of crude oil at various
points along the distribution chain and the leasing of certain terminalling and
storage assets. Prior to the July 1998 acquisition of the All American Pipeline
and SJV Gathering System, our predecessor had only marketing, gathering,
terminalling and storage operations. We evaluate segment performance based on
gross margin, gross profit and income before provision in lieu of income taxes
and extraordinary items.
F-24
<PAGE>
The following table summarizes segment revenues, gross margin, gross profit
and income (loss) before provision in lieu of income taxes and extraordinary
items:
<TABLE>
<CAPTION>
MARKETING,
GATHERING,
TERMINATING
(IN THOUSANDS) PIPELINE & STORAGE TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Revenues:
External Customers $ 854,377 $ 3,847,544 $ 4,701,921
Intersegment(a) 131,445 - 131,445
Other 195 763 958
--------- ----------- -----------
Total revenues of reportable segments $ 986,017 $ 3,848,307 $ 4,834,324
========= =========== ===========
Segment gross margin(b) $ 58,001 $ (114,127) $ (56,126)
Segment gross profit(c) 55,384 (133,708) (78,324)
Net income (loss) before extraordinary item 46,075 (147,890) (101,815)
Interest expense 13,572 7,567 21,139
Depreciation and amortization 10,979 6,365 17,344
Capital expenditures 69,375 119,911 189,286
Total assets 524,438 698,599 1,223,037
- ---------------------------------------------------------------------------------------------------
COMBINED TOTAL FOR THE YEAR ENDED DECEMBER 31, 1998 (RESTATED) (UNAUDITED)
Revenues:
External Customers $ 254,228 $ 875,461 $ 1,129,689
Intersegment(a) 23,195 2,820 26,015
Other 603 (19) 584
--------- ----------- -----------
Total revenues of reportable segments $ 278,026 $ 878,262 $ 1,156,288
========= =========== ===========
Segment gross margin(b) $ 16,768 $ 14,612 $ 31,380
Segment gross provision in lieu of profit(c) 15,723 10,360 26,083
Net income before provision in lieu of income taxes 3,187 5,478 8,665
Interest expense 9,108 3,523 12,631
Depreciation and amortization 4,031 1,340 5,371
Provision in lieu of income taxes 822 1,809 2,631
Capital expenditures 393,731 7,212 400,943
Total assets 471,864 135,322 607,186
- ---------------------------------------------------------------------------------------------------
NOVEMBER 23, 1998 TO DECEMBER 31, 1998 (RESTATED)
Revenues:
External Customers $ 54,089 $ 122,356 $ 176,445
Intersegment(a) 2,029 429 2,458
Other - 12 12
--------- ----------- -----------
Total revenues of reportable segments $ 56,118 $ 122,797 $ 178,915
========= =========== ===========
Segment gross margin(b) $ 3,546 $ 1,553 $ 5,099
Segment gross profit(c) 3,329 999 4,328
Net income 1,035 742 1,777
Interest expense 1,321 50 1,371
Depreciation and amortization 973 219 1,192
Capital expenditures 352 2,535 2,887
Total assets 471,864 135,322 607,186
- ---------------------------------------------------------------------------------------------------
JANUARY 1, 1998 TO NOVEMBER 22, 1998 (PREDECESSOR) (RESTATED)
Revenues:
External Customers $ 200,139 $ 753,105 $ 953,244
Intersegment(a) 21,166 2,391 23,557
Other 603 (31) 572
--------- ----------- -----------
Total revenues of reportable segments $ 221,908 $ 755,465 $ 977,373
========= =========== ===========
Segment gross margin(b) $ 13,222 $ 13,059 $ 26,281
Segment gross profit(c) 12,394 9,361 21,755
Net income before provision in lieu of income taxes 2,152 4,736 6,888
Interest expense 7,787 3,473 11,260
Depreciation and amortization 3,058 1,121 4,179
Provision in lieu of income taxes 822 1,809 2,631
Capital expenditures 393,379 4,677 398,056
- ---------------------------------------------------------------------------------------------------
</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 costs of sales and operations
expenses and general and administrative expenses.
F-25
<PAGE>
EXHIBIT 10.23
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") dated as of
the 1/st/ day of December, 1999, by and among ALL AMERICAN PIPELINE, L.P.
("Borrower"), PLAINS MARKETING, L.P. ("Marketing"), PLAINS ALL AMERICAN
PIPELINE, L.P. ("Plains MLP"), 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, Marketing, Plains MLP, Administrative Agent, and Lenders
entered into that certain Credit Agreement dated as of November 17, 1998 (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, Marketing, Plains MLP, Administrative Agent, and Lenders
desire to amend and restate 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, as amended and
restated hereby, 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; Restatement
---------------------------------------
(S) 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, as amended and restated hereby, shall have
the same meanings whenever used herein.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used herein shall have the meanings assigned to them in
this (S) 1.2.
"Amendment" means this Amended and Restated Credit Agreement.
---------
"Credit Agreement" means the Original Agreement as amended and
----------------
restated hereby.
(S) 1.3. Restatement. The Original Agreement is hereby restated in its
-----------
current form with the amendments set forth herein below. This Amendment,
together with the Original Agreement, shall be deemed to be an amendment and
restatement of the Original Agreement. All references to the Credit Agreement in
any other document, instrument, agreement, or writing shall hereafter
<PAGE>
be deemed to refer to this Amendment and to the Original Agreement as amended
and restated hereby.
(S) 2.1. Definitions.
-----------
(a) Modifications. References to the "Marketing Credit Agreement"
-------------
contained in the Original Credit Agreement shall be deemed to refer to such
agreement as amended from time to time, including as of the date hereof. The
definitions of Base Rate, Consolidated EBITDA, Consolidated Funded Indebtedness,
Default Rate, Interest Expense, Letter of Credit Fee Rate, Revolver Eurodollar
Rate Margin, and Term Loan Eurodollar Rate Margin contained in Section 1.1 of
the Original Agreement are hereby amended in their entirety to read as follows:
"Base Rate' means the sum of (a) the Base Rate Margin plus (b)
---------
the higher of (i) the annual rate of interest announced from time to time
by Administrative Agent at its "base rate" at its head office in Boston,
Massachusetts, or (ii) the Federal Funds Rate plus one-half percent (0.5%)
per annum; provided that such rate may not be the lowest rate at which
funds are made available to customers of Administrative Agent at such time.
Each change in the Base Rate shall become effective without prior notice to
Borrower automatically as of the opening of business on the date of such
change in the Base Rate."
"Consolidated EBITDA' means, for any four-Fiscal Quarter period,
-------------------
the sum of (1) the Consolidated Net Income of Plains MLP and its
Subsidiaries during such period, plus (2) all interest expense which was
deducted in determining such Consolidated Net Income for such period, plus
(3) all income taxes (including any franchise taxes to the extent based
upon net income) which were deducted in determining such Consolidated Net
Income, plus (4) all depreciation, amortization (including amortization of
good will and debt issue costs) and other non-cash charges (including any
provision for the reduction in the carrying value of assets recorded in
accordance with GAAP) which were deducted in determining such Consolidated
Net Income, plus (5) the Identified Loss Adjustment, minus (6) all non-cash
items of income which were included in determining such Consolidated Net
Income. The term "Identified Loss Adjustment" means (i) for each four-
--------------------------
Fiscal Quarter period ending on or prior to March 31, 2000, the portion of
the Identified Loss incurred in such period not to exceed an aggregate
amount of $180,000,000 and (ii) for each four-Fiscal Quarter period ending
after March 31, 2000, zero."
"Consolidated Funded Indebtedness' means as of any date, the
--------------------------------
sum of the following (without duplication): (i) all Indebtedness which is
classified as "long-term indebtedness" on a consolidated balance sheet of
Plains MLP and its Consolidated Subsidiaries prepared as of such date in
accordance with GAAP and any current maturities or other principal amount
in respect of such Indebtedness due within one year but which was
classified as "long-term indebtedness" at the creation thereof, (ii)
indebtedness for borrowed money of Plains MLP and its Consolidated
Subsidiaries outstanding under a revolving credit or similar agreement
providing for borrowings (and renewals and extensions thereof) over a
period of more than one year, notwithstanding
-2-
<PAGE>
the fact that any such borrowing is made within one year of the expiration
of such agreement, and (iii) Indebtedness in respect of Capital Leases of
Plains MLP and its Consolidated Subsidiaries; provided, however,
Consolidated Funded Indebtedness shall not include (i) Indebtedness in
respect of letters of credit or in respect of Cash and Carry Purchases and
(ii) subordinate Indebtedness referred to in subsection 7.1(g)."
"Default Rate' means, at the time in question, (i) four percent
------------
(4%) per annum plus the Adjusted Eurodollar Rate then in effect for any
Eurodollar Loan (up to the end of the applicable Interest Period) or (ii)
two percent (2%) per annum plus the Base Rate for each Base Rate Loan;
provided, however, the Default Rate shall never exceed the Highest Lawful
Rate."
"Interest Expense' means, with respect to any period, the sum
----------------
(without duplication) of the following (in each case, eliminating all
offsetting debits and credits between Plains MLP and its Subsidiaries and
all other items required to be eliminated in the course of the preparation
of Consolidated financial statements of Plains MLP and its Subsidiaries in
accordance with GAAP): (a) all interest and commitment fees in respect of
Indebtedness of Plains MLP or any of its Subsidiaries (including imputed
interest on Capital Lease Obligations) which are accrued during such period
and whether expensed in such period or capitalized; plus (b) all fees,
expenses and charges in respect of letters of credit issued for the account
of Plains MLP or any of its Subsidiaries, which are accrued during such
period and whether expensed in such period or capitalized. Interest which
is accrued but unpaid on the subordinate Indebtedness referred to in
subsection 7.1(g), the fees payable pursuant to the letter agreement
described in Section 2.12(d)(ii) of the Marketing Agreement, and the
amendment fee payable pursuant to Section 3.1(f) of the Third Amendment to
the Credit Agreement shall not be treated as Interest Expense.
"Letter of Credit Fee Rate' means two and one-quarter percent
-------------------------
(2.25%) per annum."
"Revolver Eurodollar Rate Margin' means two and one-quarter
-------------------------------
percent (2.25%) per annum."
"Term Loan Eurodollar Rate Margin' means two and one-quarter
--------------------------------
percent (2.25%) per annum."
(b) Additions. The following definitions are hereby added to
---------
Section 1.1 of the Original Agreement:
"Base Rate Margin' means three-quarters of one percent (0.75%)
----------------
per annum."
"Identified Loss' means (i) the loss in the aggregate amount of
---------------
$160,000,000 arising from unauthorized trading activity by Marketing during
the period of January 1, 1999 to November 20, 1999 plus (ii) the fees and
expenses of lawyers, accountants and
-3-
<PAGE>
other professionals and fees associated with amendments and waivers by
lenders, in each case associated with such loss in an aggregate amount up
to $20,000,000."
(c) Deletions. The definitions of "Applicable Leverage Ratio",
---------
"Applicable Rating Level", and "Term Loan Base Rate Margin" are hereby deleted
in their entirety from the Original Agreement.
(S) 2.2. Interest Rates and Fees. The reference to "Base Rate plus the
-----------------------
Term Loan Base Rate Margin" in Section 2.5(b) of the Original Agreement is
hereby deemed to read "Base Rate".
(S) 2.3. Indebtedness.
------------
(a) Section 7.1(e) of the Original Agreement is hereby amended in its
entirety to read as follows:
"(e) Indebtedness under the Marketing Credit Agreement, provided
that the principal amount of loans and face amount of letters of credit
thereunder at any one time outstanding shall not exceed $375,000,000;"
(b) Section 7.1 of the Original Agreement is hereby amended by
renumbering clause (g) to be clause (h) and to insert a new clause (g), to read
as follows:
"(g) Indebtedness in a principal amount not at any time in
excess of $114,000,000 (plus accrued unpaid interest on such principal
amount) owing by Marketing to General Partner and subordinated to the
Obligations under this Agreement and the Indebtedness under the Marketing
Agreement on terms and conditions satisfactory to Administrative Agent."
(S) 2.4. Limitation on Dividends and Redemptions. Section 7.6 of the
---------------------------------------
Original Agreement is hereby to read as follows:
"Section 7.6 Limitation on Dividends and Redemptions. No
---------------------------------------
Restricted Person will declare or pay any dividends on, or make any other
distribution in respect of, any class of its capital stock or any
partnership or other interest in it, nor will any Restricted Person
directly or indirectly make any capital contribution to or purchase,
redeem, acquire or retire any shares of the capital stock of or partnership
interests in any Restricted Person (whether such interests are now or
hereafter issued, outstanding or created), or cause or permit any reduction
or retirement of the capital stock of any Restricted Person, while any Loan
is outstanding. Notwithstanding the foregoing, but subject to Section 7.5,
(i) Subsidiaries of Plains MLP, Borrower, or of any Guarantor shall not be
restricted, directly or indirectly, from declaring and paying dividends or
making any other distributions to Plains MLP, Borrower, or any such
Guarantor, respectively, (ii) no Restricted Person shall be restricted from
making capital contributions to a Wholly Owned Subsidiary of such
Restricted Person that is a Guarantor, and (iii) Plains MLP may make a
regular quarterly distribution of Available
-4-
<PAGE>
Cash to its partners in accordance with the Partnership Agreement if, and
only if, Majority Lenders shall have given their prior written consent to
such distribution."
(S) 2.5. Current Ratio. Section 7.11 of the Original Agreement is hereby
amended in its entirety to read as follows:
"Section 7.11. Current Ratio. The ratio of (i) the sum of Plains
MLP's Consolidated current assets plus the excess, if any, of the Revolver
Commitment over the Revolver Usage to (ii) Plains MLP's Consolidated
current liabilities will never be less than 1.0 to 1.0. For purposes of
this section, Plains MLP's Consolidated current liabilities will be
calculated without including (a) any payments of principal on the Notes
which are required to be repaid within one year from the time of
calculation and (b) all Liabilities arising under permitted Hedging
Contracts. Further, Consolidated current liabilities shall be decreased by
(x) $105,000,000 for the period from December 1, 1999 to and including
January 31, 2000 and (y) $10,000,000 for the period from January 31, 2000
through and including February 28, 2000."
(S) 2.6. Debt to Capital Ratio. Section 7.15 of the Original Agreement is
---------------------
hereby amended in its entirety to read as follows:
"Section 7.15 Debt to Capital Ratio. On or before April 30,
---------------------
2000, the ratio of (a) all Consolidated Funded Indebtedness to (b) the sum
of Consolidated Funded Indebtedness plus Consolidated Net Worth plus one-
half (50%) of the Identified Loss will never be greater than .60 to 1.0 at
any time. After April 30, 2000, the ratio of (a) all Consolidated Funded
Indebtedness to (b) the sum of Consolidated Funded Indebtedness plus
Consolidated Net Worth will never be greater than .60 to 1.0 at any time."
(S) 2.7. Open Inventory Position. Section 7.16 is hereby added to the
Original Agreement to read as follows:
"Section 7.16. Open Inventory Position. Borrower shall not at
any time have an Open Position other than inventory consisting of tank
bottoms, pipeline line fill requirements and other working inventory not to
exceed at any time 600,000 barrels in the aggregate."
(S) 2.8. Waiver. This Amendment, upon its effectiveness as provided in
------
(S) 3.1, shall waive (i) the violations of Sections 7.6, 7.11, and 7.15 of the
Original Agreement by Borrower on and prior to the date hereof, based upon
unauthorized trading activities disclosed by Plains MLP in its press release of
November 29, 1999, (ii) the Events of Default arising under Sections 8.1(f) and
8.1(g) of the Original Agreement on and prior to the date hereof, based upon
unauthorized trading activities disclosed by Plains MLP in its press release of
November 29, 1999, and (iii) those Defaults and Events of Default occurring on
or before December 1, 1999 resulting from the foregoing.
-5-
<PAGE>
(S) 2.9. Consent. Each Lender a party hereto hereby consents to (i) the
-------
sale by Borrower of the linefill carried in the All American Pipeline during the
period from December 1, 1999 through February 29, 2000 as is contracted for on
the date of this Amendment, (ii) any earlier monetization of such linefill and
the contracts for the sale thereof (including, without limitation, a sale or
loan with recourse limited to such linefill and contracts), (iii) the retention
of the proceeds of such sale or monetization in a cash collateral account within
the control of Administrative Agent under the Credit Agreement to secure, on a
first priority basis, the Obligations and, on a second priority basis, the
Indebtedness under the Marketing Credit Agreement, in accordance with the
Intercreditor Agreement, (iv) the delivery of such proceeds to Marketing by the
Administrative Agent from time to time upon request by Marketing for the payment
of accounts payable of Marketing on the date such payables are actually paid and
(v) the release of the Lien under the Security Documents on such linefill and
such proceeds upon use of such proceeds for such purpose. The Restricted Persons
agree that the portion of the transferred proceeds owned by Borrower shall be
made as a loan from Borrower to Marketing, and that such loan shall evidenced in
a manner satisfactory to the Administrative Agent and shall be subordinated to
the Obligations under the Credit Agreement and to the Indebtedness under the
Marketing Credit Agreement on terms and conditions satisfactory to the
Administrative Agent.
ARTICLE III. -- Conditions of Effectiveness
---------------------------
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when:
(a) Administrative Agent shall have received, at Administrative
Agent's office: (i) a counterpart of this Amendment executed and delivered
by Borrower, Marketing, Plains MLP, Administrative Agent, and each Lender,
(ii) a certificate of a duly authorized officer of General Partner (A)
stating that all of the representations and warranties set forth in Article
IV hereof are true and correct at and as of the time of such effectiveness,
(B) stating that no Material Adverse Change shall have occurred other than
the Identified Loss, and (C) having attached thereto as an exhibit a copy
of resolutions duly adopted by the Board of Directors of General Partner in
full force and effect at the time that this Amendment is entered into, and
containing such other certifications as shall be required by Administrative
Agent, in form and substance acceptable to Administrative Agent, (iii) an
opinion of Fulbright & Jaworski, L.L.P., special Texas and New York counsel
to Restricted Persons, in form and substance acceptable to Administrative
Agent in Administrative Agent's sole and absolute discretion, and (iv) an
opinion of Michael R. Patterson, General Counsel for Restricted Persons.
(b) General Partner shall have made on or after November 21, 1999
a loan to Marketing in an amount not less than $64,000,000 which loan shall
have been subordinated to the Obligations upon terms and conditions
satisfactory to Administrative Agent.
(c) Marketing shall have used its best efforts to have pledged
all of the outstanding limited partnership interests in Plains Scurlock
Permian, L.P. as Collateral
-6-
<PAGE>
pursuant to Security Documents satisfactory to Administrative Agent, such
Collateral to be "Marketing Priority Collateral" (as such term is defined
in the Intercreditor Agreement).
(d) Payment of all fees and expenses of Thompson & Knight LLP,
counsel to Administrative Agent.
(e) A contemporaneous amendment to the Marketing Credit Agreement
which has the effect of increasing the Maximum Facility Amount (as defined
therein) to not less than $300,000,000 (as set forth on Schedule 3.1) but
no more than $450,000,000 and making substantially the same amendments and
waivers as set forth in (S)(S) 2.3 - 2.7 of this Amendment and amending the
definition of Consolidated EBITDA as set forth in (S) 2.1 of this
Amendment.
(f) The payment to each Lender of an amendment fee of .375% of
the sum of such Lender's Revolver Commitment plus such Lender's Term Loans.
(g) Administrative Agent shall have received all documents and
instruments which Administrative Agent has then requested, in addition to
those described in the foregoing (S) 3.1(a) through and including (S)
3.1(f).
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of Plains MLP and Borrower. In
---------------------------------------------------------
order to induce Administrative Agent and Lenders to enter into this Amendment,
Plains MLP and Borrower represent and warrant 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, 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 corporate action
necessary to authorize the execution and delivery of this Amendment and to
authorize the performance of their respective obligations hereunder.
(c) The execution and delivery by each Restricted Person of this
Amendment, 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 and other Permitted Liens. Except for
those which have been duly obtained, no consent, approval, authorization or
-7-
<PAGE>
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 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, 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).
(e) No Material Adverse Change has occurred other than the
Identified Loss.
ARTICLE V. -- Miscellaneous
-------------
-8-
<PAGE>
(S) 5.1. Ratification of Agreements; Release. The Original Agreement, as
-----------------------------------
hereby amended, is hereby ratified and confirmed in all respects. The Loan
Documents (including but not limited to each Guaranty), as they may be amended
or affected by this Amendment, are hereby ratified and confirmed in all respects
by each Restricted Person to the extent a party thereto. Any reference to the
Credit Agreement in any Loan Document shall be deemed to refer to this Amendment
also. The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, 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. As further consideration and to induce
each Lender Party to enter into and grant the accommodations contained in this
Amendment, each Restricted Person - on behalf of itself and, to the extent it is
permitted by law or is otherwise expressly authorized to do so, on behalf of all
of its affiliates (collectively, "Releasing Parties") -- hereby generally
release and forever discharge each Lender party and each of their respective
affiliates (collectively, "Released Parties"), from any and all claims, demands,
and causes of action of whatever kind or character which such Releasing party
has, or may have in the future, based on any actions, failures to act, or events
that have occurred prior to the effective date hereof, which in any way relate
to or are based upon (i) any transactions of any kind among the Releasing
Parties , on the one hand, and the Released Parties, on the other hand, or (ii)
any actual or alleged negotiations, discussions, representations, warranties,
promises, or other undertakings by Released Parties in connection with any of
the foregoing (the "Released Claims"). This release is to be construed as the
broadest type of general release and covers and releases any and all Released
Claims, whether known or unknown and however or whenever arising, whether by
contract or agreement, at law or under any statute (including without limitation
any law or statute pertaining to negligence, gross negligence, strict liability,
fraud, deceptive trade practices, negligent misrepresentation, securities
violations, breach of fiduciary duty, breach of contract, trade regulation,
regulation of business or competition, conspiracy or racketeering), or otherwise
arising, and expressly including any claims for punitive or exemplary damages,
attorneys' fees, or penalties. To the extent that any Released Claims with
respect to Released Parties have not been released by this letter agreement,
each Releasing Party hereby assign s such Released Claims to Released Parties.
(S) 5.2. Ratification of Security Documents. Restricted Persons,
----------------------------------
Administrative Agent, and Lenders each acknowledge and agree that any and all
indebtedness, liabilities or obligations arising under or in connection with the
LC Obligations, as amended hereby, or the Notes, as
-9-
<PAGE>
amended hereby, are Obligations and are secured indebtedness under, and are
secured by, each and every Security Document to which any Restricted Person is a
party. Each Restricted Person hereby re-pledges, re-grants and re-assigns a
security interest in and lien on every asset of the such Restricted Person
described as Collateral in any Security Document. Each Lender hereby
acknowledges and confirms that all Obligations under the Credit Agreement, as
amended hereby, shall be subject to the terms of the Intercreditor Agreement and
hereby acknowledges and agrees that the Collateral described in Section 3.1(c)
hereof shall be deemed "Marketing Priority Collateral" (as defined in the
Intercreditor Agreement).
(S) 5.3. Ratification of Intercreditor Agreement. Each Lender hereby
---------------------------------------
acknowledges and confirms that all Obligations under the Credit Agreement, as
amended hereby, and the "Obligations" under the Marketing Credit Agreement, as
amended on the date hereof, shall be and shall remain subject to the terms and
entitled to the benefits of the Intercreditor Agreement.
(S) 5.4. 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.
(S) 5.5. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
(S) 5.6. GOVERNING LAW. THIS AMENDMENT 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.
(S) 5.7. 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.
-10-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By: /s/ Phil Kramer
Phil Kramer
Executive Vice President
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By: /s/ Phil Kramer
-----------------------------------------
Phil Kramer
Executive Vice President
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By: /s/ Phil Kramer
-----------------------------------------
Phil Kramer
Executive Vice President
BANKBOSTON, N.A., as Administrative Agent
and Lender
By: /s/ T. Ronan
-----------------------------------------
Name: T. Ronan
Title: Director
-11-
<PAGE>
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as Lender
By: /s/ Ann Rhoads
-----------------------------------------
Name: Ann Rhoads
Title: Vice President
BANK OF SCOTLAND, as Lender
By: /s/ Jack S. Dykes
-----------------------------------------
Name: Jack S. Dykes
Title: Executive Vice President
HIBERNIA NATIONAL BANK, as Lender
By: /s/ David R. Reid
-----------------------------------------
Name: David R. Reid
Title: Senior Vice President
BANK OF AMERICA, N.A., as Lender
By: /s/ Irene C. Rummel
-----------------------------------------
Name: Irene C. Rummel
Title: Vice President
FIRST UNION NATIONAL BANK, Lender
By: /s/ Paul N. Riddle
-----------------------------------------
Name: Paul N. Riddle
Title: Senior Vice President
-12-
<PAGE>
CREDIT AGRICOLE INDOSUEZ, as Lender
By: /s/ Douglas A. Whiddon
-----------------------------------------
Name: Douglas A. Whiddon
Title: Senior Vice President
Senior Relationship Manager
By: /s/ Patrick Cocquerel
-----------------------------------------
Name: Patrick Cocquerel
Title: First Vice President, Managing
Director, Head of Houston
Representative Office
UNION BANK OF CALIFORNIA, N.A., as Lender
By: /s/ Dustin Gaspari
-----------------------------------------
Name: Dustin Gaspari
Title: Assistant Vice President
By: /s/ John A. Clark
-----------------------------------------
Name: John A. Clark
Title: Vice President
BANK ONE, TEXAS, N.A., as Lender
By: /s/ Charles Kingwell-Smith
-----------------------------------------
Name: Charles Kingwell-Smith
Title: First Vice President
<PAGE>
EXHIBIT 10.24
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") dated
as of the 1/st/ day of December, 1999, by and among PLAINS MARKETING, L.P.
("Borrower"), ALL AMERICAN PIPELINE, L.P. ("All American"), PLAINS ALL AMERICAN
PIPELINE, L.P. ("Plains MLP"), and BANKBOSTON, N.A., as Administrative Agent (in
such capacity, "Administrative Agent"), First Union National Bank, as
Syndication Agent, and Bank of America, N.A., as Documentation Agent, and the
Lenders party hereto.
W I T N E S S E T H:
WHEREAS, Borrower, All American, Plains MLP, Administrative Agent, and
Lenders entered into that certain Amended and Restated Credit Agreement dated as
of November 17, 1998 (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, All American, Plains MLP, Administrative Agent, and
Lenders desire to amend and restate 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, as amended and
restated hereby, 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; Restatement
---------------------------------------
(S) 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, as amended and restated hereby, shall have
the same meanings whenever used herein.
(S) 1.2. Other Defined Terms. Unless the context otherwise requires, the
-------------------
following terms when used herein shall have the meanings assigned to them in
this (S) 1.2.
"Amendment" means this Second Amended and Restated Credit
---------
Agreement.
"Credit Agreement" means the Original Agreement as amended and
----------------
restated hereby.
(S) 1.3. Restatement. The Original Agreement is hereby restated in its
-----------
current form with the amendments set forth herein below. This Amendment,
together with the Original Agreement, shall be deemed to be an amendment and
restatement of the Original Agreement. All references to the Credit Agreement in
any other document, instrument, agreement, or writing shall hereafter
<PAGE>
be deemed to refer to this Amendment and to the Original Agreement as amended
and restated hereby.
(S) 1.4. Agents. First Union National Bank is hereby designated as
------
Syndication Agent hereunder and Bank of America, N.A. is hereby designated as
Documentation Agent hereunder; provided, however, that neither First Union
National Bank, as Syndication Agent, nor Bank of America, N.A., as Documentation
Agent (the "Co-Agents"), shall have any duties or responsibilities whatsoever in
such agency capacities (as opposed to its capacity as a Lender) under or in
connection with the Original Agreement, as amended and restated hereby, or under
any of the other Loan Documents. The relationship between Borrower, on the one
hand, and the Co-Agents and Administrative Agent, on the other hand, shall be
solely that of borrower and lender. None of the Co-Agents nor the Administrative
Agent nor any Lender shall have any fiduciary responsibilities to Borrower or
any of its Affiliates. None of the Co-Agents nor the Administrative Agent nor
any Lender undertakes any responsibility to Borrower or any of its respective
Affiliates to review or inform Borrower of any matter in connection with any
phase of Borrower's or such Affiliate's business or operations.
ARTICLE II. -- Amendments and Waiver
---------------------
(S) 2.1. Definitions.
-----------
(a) Modifications. References to the "All American Agreement" contained in
-------------
the Original Credit Agreement shall be deemed to refer to such agreement as
amended from time to time, including as of the date hereof. The definitions of
Base Rate, Borrowing Base, Consolidated EBITDA, Consolidated Funded
Indebtedness, Default Rate, Eurodollar Rate Margin, First Purchase Crude
Payables, Interest Expense, Interest Payment Date, Material Market Open Position
Loss and Maximum Facility Amount contained in Section 1.1 of the Original
Agreement are hereby amended in their entirety to read as follows:
"Base Rate' means the sum of (a) the Base Rate Margin plus (b) the
---------
higher of (i) the annual rate of interest announced from time to time by
Administrative Agent at its "base rate" at its head office in Boston,
Massachusetts, or (ii) the Federal Funds Rate plus one-half percent (0.5%)
per annum; provided that such rate may not be the lowest rate at which
funds are made available to customers of Administrative Agent at such time.
Each change in the Base Rate shall become effective without prior notice to
Borrower automatically as of the opening of business on the date of such
change in the Base Rate."
"Borrowing Base' means the remainder of (a) minus (b) below as of the
--------------
date of determination:
(a) the sum of the following as of the date of determination:
(i) 100% of Eligible Cash Equivalents; plus
(ii) 90% of Approved Eligible Receivables; plus
(iii) 85% of Eligible Margin Deposits; plus
-2-
<PAGE>
(iv) the lesser of (A) 95% of Hedged Eligible Inventory plus 100% of
Other Eligible Inventory Value or (B) $40,000,000 prior to
November 30, 1999, $22,000,000 on and after December 1 and prior
to January 31, 2000 and zero thereafter; plus
(v) 80% of Eligible Exchange Balances, plus
(vi) 100% of all Paid but Unexpired Letters of Credit
MINUS (b) the following as of the date of determination:
(i) 100% of First Purchase Crude Payables; plus
(ii) 100% of Other Priority Claims, plus
(iii) The Estimate Adjustment Amount as provided in Section 2.13, plus
(iv) The amount of any setoff or contra account to any Eligible
Receivable which could arise from a purchase obligation of crude
oil in any future month to the extent not otherwise reflected as
a reduction of Eligible Receivables."
"Consolidated EBITDA' means, for any four-Fiscal Quarter period, the
-------------------
sum of (1) the Consolidated Net Income of Plains MLP and its Subsidiaries
during such period, plus (2) all interest expense which was deducted in
determining such Consolidated Net Income for such period, plus (3) all
income taxes (including any franchise taxes to the extent based upon net
income) which were deducted in determining such Consolidated Net Income,
plus (4) all depreciation, amortization (including amortization of good
will and debt issue costs) and other non-cash charges (including any
provision for the reduction in the carrying value of assets recorded in
accordance with GAAP) which were deducted in determining such Consolidated
Net Income, plus (5) the Identified Loss Adjustment, minus (6) all non-cash
items of income which were included in determining such Consolidated Net
Income. The term "Identified Loss Adjustment" means (i) for each four-
--------------------------
Fiscal Quarter period ending on or prior to March 31, 2000, the portion of
the Identified Loss incurred in such period not to exceed an aggregate
amount of $180,000,000 and (ii) for each four-Fiscal Quarter period ending
after March 31, 2000, zero."
"Consolidated Funded Indebtedness' means as of any date, the sum of
--------------------------------
the following (without duplication): (i) all Indebtedness which is
classified as "long-term indebtedness" on a consolidated balance sheet of
Plains MLP and its Consolidated Subsidiaries prepared as of such date in
accordance with GAAP and any current maturities or other principal amount
in respect of such Indebtedness due within one year but which was
classified as "long-term indebtedness" at the creation thereof, (ii)
indebtedness for borrowed money of Plains MLP and its Consolidated
Subsidiaries outstanding under a revolving credit or similar agreement
providing for borrowings (and renewals and extensions thereof) over a
period of more than one year, notwithstanding
-3-
<PAGE>
the fact that any such borrowing is made within one year of the expiration
of such agreement, and (iii) Indebtedness in respect of Capital Leases of
Plains MLP and its Consolidated Subsidiaries; provided, however,
Consolidated Funded Indebtedness shall not include (i) Indebtedness in
respect of letters of credit or in respect of Cash and Carry Purchases and
(ii) subordinate Indebtedness referred to in subsection 7.1(g)."
"Default Rate' means, at the time in question, (i) four percent (4%)
------------
per annum plus the Adjusted Eurodollar Rate then in effect for any
Eurodollar Loan (up to the end of the applicable Interest Period) or (ii)
two percent (2%) per annum plus the Base Rate for each Base Rate Loan;
provided, however, the Default Rate shall never exceed the Highest Lawful
Rate."
"Eurodollar Rate Margin' means two and one quarter percent (2.25%) per
----------------------
annum."
"First Purchase Crude Payables' means the unpaid amount of any payable
-----------------------------
obligation related to the purchase of crude oil by Borrower which
Administrative Agent determines will be secured by a statutory Lien,
including but not limited to the statutory Liens, if any, created under the
laws of Texas, New Mexico, Wyoming, Kansas, and/or Oklahoma to the extent
such payable obligation is not at the time in question covered by a Letter
of Credit."
"Interest Expense' means, with respect to any period, the sum
----------------
(without duplication) of the following (in each case, eliminating all
offsetting debits and credits between Plains MLP and its Subsidiaries and
all other items required to be eliminated in the course of the preparation
of Consolidated financial statements of Plains MLP and its Subsidiaries in
accordance with GAAP): (a) all interest and commitment fees in respect of
Indebtedness of Plains MLP or any of its Subsidiaries (including imputed
interest on Capital Lease Obligations) which are accrued during such period
and whether expensed in such period or capitalized; plus (b) all fees,
expenses and charges in respect of letters of credit issued for the account
of Plains MLP or any of its Subsidiaries, which are accrued during such
period and whether expensed in such period or capitalized. Interest which
is accrued but unpaid on the subordinate Indebtedness referred to in
subsection 7.1(g), the fees payable pursuant to the letter agreement
described in Section 2.12(d)(ii), and the amendment fee payable pursuant to
Section 3.1(f) of the Third Amendment to the All American Agreement shall
not be treated as Interest Expense.
"Interest Payment Date' means (a) with respect to each Base Rate
---------------------
the last day of each calendar month, and (b) with respect to each
Eurodollar Loan, the last day of each calendar month and the last day of
the Interest Period that is applicable to such Eurodollar Loan."
"Material Market Open Position Loss' means a cumulative amount of net
----------------------------------
losses resulting from open inventory positions (excluding inventory
consisting of tank bottoms, pipeline linefill requirements and other
working inventory of up to 600,000 barrels in the aggregate) of all
Restricted Persons on a mark to market basis during any period of 12
-4-
<PAGE>
consecutive months in excess of $5,000,000 (exclusive of linefill carried
in the All American Pipeline), calculated without inclusion of that portion
of the Identified Loss incurred during such period."
"Maximum Facility Amount' means the following amounts as such amounts
-----------------------
may be reduced by Borrower from time to time as provided in Section 2.12.:
(a) from November 17, 1998 to and including November 30, 1999,
$175,000,000;
(b) from and including December 1, 1999 to and including December 31, 1999,
$255,000,000 for Letters of Credit, plus an aggregate amount for Loans of
$40,000,000 of which no more than $22,000,000 shall be for Cash and Carry
Purchases;
(c) from and including January 1, 2000 to and including January 31, 2000,
$301,000,000 for Letters of Credit and Cash and Carry Purchases of which no
more than $22,000,000 shall be for Cash and Carry Purchases, plus an
aggregate amount for other Loans of $14,000,000;
(d) from and including February 1, 2000 to and including April 30, 2000,
$225,000,000 for Letters of Credit plus an aggregate amount for Loans of
$14,000,000;
(e) from and including May 1, 2000 to and including June 30, 2000,
$225,000,000 for Letters of Credit; and
(f) from and including July 1, 2000 to the last day of the Commitment
Period, $200,000,000 for Letters of Credit."
(b) Deletions. The definitions of "Applicable Leverage Ratio" and
---------
"Applicable Rating Level" are hereby deleted in their entirety from the Original
Agreement.
(c) Additions. The following definitions are hereby added to Section 1.1
---------
of the Original Agreement:
"Base Rate Margin' three-quarters of one percent (0.75%) per annum."
----------------
"Back to Back Transaction' means a specific transaction for either (i)
------------------------
a specific purchase of crude oil that is matched, alone or with one or more
other specifically identified purchases, with one or more specifically
identified sales of crude oil having substantially the same or equivalent
volume, price basis, delivery location, delivery time and commodity
specifications so as to represent back to back transactions satisfactory to
the Administrative Agent or any Person designated by Administrative Agent
for the purpose of reviewing such transactions, or (ii) a specific exchange
of equal volumes of crude oil that have the same or substantially
equivalent price basis, delivery time and commodity specification
satisfactory to the Administrative Agent or any Person designated by
Administrative Agent for the purpose of reviewing such transactions."
-5-
<PAGE>
"Identified Loss' means (i) the loss in the aggregate amount of
---------------
$160,000,000 arising from unauthorized trading activity by Borrower during
the period of January 1, 1999 to November 20, 1999 plus (ii) the fees and
expenses of lawyers, accountants and other professionals and fees
associated with amendments and waivers by lenders, in each case associated
with such loss in an aggregate amount up to $20,000,000."
"Maximum Loan Amount' means:
-------------------
(a) from November 17, 1998 to and including November 30, 1999, $40,000,000;
(b) from and including December 1, 1999 to and including December 31, 1999,
$40,000,000;
(c) from and including January 1, 2000 to and including January 31, 2000,
$36,000,000;
(c) from and including February 1, 2000 to and including April 30, 2000,
$14,000,000; and
(d) from and including May 1, 2000 to the last day of the Commitment
Period, zero."
(S) 2.2. Commitments to Lend; Notes. Section 2.1 of the Original Agreement
--------------------------
is hereby amended in its entirety to read as follows:
"Section 2.1. Loans; Notes. Subject to the terms and conditions
------------
hereof, each Lender agrees to make loans to Borrower (herein called such
Lender's "Loans") upon Borrower's request from time to time prior to
January 1, 2000, provided that (a) subject to Sections 3.3, 3.4 and 3.6,
all Lenders are requested to make Loans of the same Type in accordance with
their respective Percentage Shares and as part of the same Borrowing, (b)
after giving effect to such loans, the aggregate principal amount of
outstanding Loans will not exceed the Maximum Loan Amount, and (c) after
giving effect to such Loans, the Facility Usage does not exceed the lesser
of (i) the Maximum Facility Amount and (ii) the Borrowing Base determined
as of the date on which the requested Loans are to be made. The aggregate
amount of all Loans in any Borrowing must be equal to $2,000,000 or any
higher integral multiple of $250,000. Borrower may have no more than five
Borrowings of Eurodollar Loans outstanding at any time. The obligation of
Borrower to repay to each Lender the aggregate amount of all Loans made by
such Lender, together with interest accruing in connection therewith, shall
be evidenced by a single promissory note (herein called such Lender's
"Note") made by Borrower payable to the order of such Lender in the form of
Exhibit A with appropriate insertions. The amount of principal owing on any
Lender's Note at any given time shall be the aggregate amount of all Loans
theretofore made by such Lender minus all payments of principal theretofore
received by such Lender on such Note. Interest on each Note shall accrue
and be due and payable as provided herein and therein. Each Note shall be
due and payable as provided herein and therein. Prior to November 30, 1999,
subject to the terms and conditions of this Agreement, Borrower may borrow,
repay and reborrow hereunder. Notwithstanding anything to the contrary
contained in this Agreement or in any Note, Borrower shall pay the
principal amount of the Loan on each day to the extent that the aggregate
Loans
-6-
<PAGE>
exceed the Maximum Loan Amount on such day and shall pay all Loans on April
30, 2000.
(S) 2.3. Use of Proceeds. Section 2.4 of the Original Agreement is hereby
---------------
amended in its entirety to read as follows:
"Section 2.4. Use of Proceeds. Borrower shall use the
---------------
proceeds of all Loans (a) made prior to November 30, 1999, to make
Qualified Inventory Purchases and to refinance Matured LC Obligations and
(b) made on or after December 1, 1999 solely for those Cash and Carry
Purchases not to exceed 2,000,000 barrels committed by Borrower prior to
November 30, 1999 and to pay transaction costs incurred in connection with
the Third Amendment to this Agreement, the Third Amendment to the All
American Agreement, and related transactions, including without limitation
the fees and expenses of lawyers, accountants and other professionals, in
each case limited as set forth in the definition of Maximum Facility
Amount. In no event shall any Loan or any Letter of Credit be used (i) to
fund distributions by Plains MLP, (ii) directly or indirectly by any Person
for personal, family, household or agricultural purposes, (iii) for the
purpose, whether immediate, incidental or ultimate, of purchasing,
acquiring or carrying any "margin stock" (as such term is defined in
Regulation U promulgated by the Board of Governors of the Federal Reserve
System) or (iv) to extend credit to others directly or indirectly for the
purpose of purchasing or carrying any such margin stock. Borrower
represents and warrants that Borrower is not engaged principally, or as one
of Borrower's important activities, in the business of extending credit to
others for the purpose of purchasing or carrying such margin stock."
(S) 2.4. Letters of Credit. Section 2.7 of the Original Agreement is
-----------------
hereby amended in its entirety to read as follows:
"Section 2.7 Letters of Credit. Subject to the terms and
-----------------
conditions hereof, Borrower may during the Commitment Period request LC
Issuer to issue, amend, or extend the expiration date of, one or more
Letters of Credit, provided that:
(a) after taking such Letter of Credit into account the Facility
Usage does not exceed the lesser of (i) the Maximum Facility Amount at such
time or (ii) the Borrowing Base at such time;
(b) the expiration date of such Letter of Credit is prior to the
earlier of (i) 70 days (or 100 days, if the beneficiary thereof is Exxon
Company U.S.A.) after the date of issuance of such Letter of Credit (or 180
days after the date of issuance in the case of a Surety Letter of Credit)
or (ii) 30 days prior to the end of the Commitment Period;
(c) the issuance of such Letter of Credit will be in compliance with
all applicable governmental restrictions, policies, and guidelines and will
not subject LC Issuer to any cost which is not reimbursable under Article
III;
(d) either (i) such Letter of Credit is related to the purchase or
exchange by Borrower of crude oil and is in the Form of Exhibit D hereto or
such other form and terms
-7-
<PAGE>
as shall be acceptable to LC Issuer in its sole and absolute discretion and
Currently Approved by Majority Lenders; provided, however, that on and
after December 1, 1999 such Letter of Credit may only be issued to support
a Back to Back Transaction, or (ii) such Letter of Credit is a Surety
Letter of Credit and after taking such Letter of Credit into account the
aggregate amount of LC Obligations in respect to all Surety Letters of
Credit does not exceed $1,000,000;
(e) from and after December 1, 1999, LC Issuer shall have received
all reports and other information, in form and substance satisfactory to LC
Issuer, required under Section 6.2, and all such reports and other
information confirm to LC Issuer's satisfaction that such Letter of Credit
is a Back to Back Transaction Letter of Credit; and
(f) all other conditions in this Agreement to the issuance of such
Letter of Credit have been satisfied.
LC Issuer will honor any such request if the foregoing conditions (a)
through (f) (in the following Section 2.8 called the "LC Conditions") have
-------------
been met as of the date of issuance, amendment, or extension of such Letter
of Credit. The outstanding letters of credit issued by LC Issuer under the
Existing Agreement shall be deemed to be Letters of Credit issued
hereunder; Borrower hereby represents and warrants that the LC Conditions
have been met as of the date hereof with respect to each such Letter of
Credit."
(S) 2.5. Requesting Letters of Credit. Section 2.8 of the Original
----------------------------
Agreement is hereby amended in its entirety to read as follows:
"Section 2.8. Requesting Letters of Credit. Borrower must make
----------------------------
application electronically transmitted by means of Administrative Agent's
Trade Key System for any Letter of Credit at least two Business Days (other
than Letters of Credit issued on December 1 or 2, 1999) before the date on
which Borrower desires for LC Issuer to issue such Letter of Credit. By
making any such application, unless otherwise expressly stated therein,
Borrower shall be deemed to have represented and warranted that the LC
Conditions described in Section 2.7 will be met as of the date of issuance
of such Letter of Credit and to have agreed to all terms and provisions of
the application for a letter of credit in the form of Exhibit E, the terms
and provisions of which are hereby incorporated herein by reference. If all
LC Conditions for a Letter of Credit have been met as described in Section
2.7 on any Business Day before 11:00 a.m., Boston, Massachusetts time, LC
Issuer will issue such Letter of Credit on the same Business Day at LC
Issuer's office in Boston, Massachusetts. If the LC Conditions are met as
described in Section 2.7 on any Business Day on or after 11:00 a.m.,
Boston, Massachusetts time, LC Issuer will issue such Letter of Credit on
the next succeeding Business Day at LC Issuer's office in Boston,
Massachusetts. If any provisions of any LC Application conflict with any
provisions of this Agreement, the provisions of this Agreement shall govern
and control."
(S) 2.6. Letters of Credit. Subsections (a) and (b) of Section 2.9 of the
-----------------
Original Agreement are hereby amended in their entirety to read as follows:
"Section 2.9. Reimbursement and Participations.
--------------------------------
-8-
<PAGE>
(a) Reimbursement by Borrower. Each Matured LC Obligation shall
-------------------------
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured
LC Obligation, together with interest thereon at the Default Rate.
(b) [Intentionally deleted]"
(S) 2.7. Interest Rates and Fees. Subsections (b), (c), and (d) of
-----------------------
Section 2.12. of the Original Agreement are hereby amended in their entirety to
read as follows, and the following Section 2.12(e) is hereby added to the
Original Agreement as follows:
"(b) Commitment Fees. In consideration of each Lender's
---------------
commitment to make Loans and to participate in Letters of Credit, Borrower
will pay to Administrative Agent for the account of each Lender a
commitment fee determined on a daily basis by applying a rate of one half
of one percent (0.50%) per annum to such Lender's Percentage Share of the
unused portion of the Maximum Facility Amount on each day during the
Commitment Period, determined for each such day by deducting from the
amount of the Maximum Facility Amount at the end of such day the Facility
Usage. This commitment fee shall be due and payable in arrears on the last
day of each Fiscal Quarter and at the end of the Commitment Period.
Borrower shall have the right from time to time to permanently reduce the
Maximum Facility Amount, provided that (i) notice of such reduction is
given not less than 2 business Days prior to such reduction, (ii) the
resulting Maximum Facility Amount is not less than the Facility Usage, and
(iii) each partial reduction shall be in an amount at least equal to
$500,000 and in multiples of $100,000 in excess thereof.
(c) Letter of Credit Fees. In consideration of LC Issuer's
---------------------
issuance of any Letter of Credit after December 1, 1999, Borrower agrees to
pay (i) to Administrative Agent, for the account of all Lenders in
accordance with their respective Percentage Shares, a letter of credit fee
at a rate equal to two and one quarter percent (2.25%) per annum, and (ii)
to such LC Issuer for its own account, a letter of credit fronting fee at a
rate equal to one eighth of one percent (.125%) per annum. Each such fee
will be calculated on the face amount of each Letter of Credit outstanding
on each day at the above applicable rates and will be payable monthly in
arrears on the last day of each month and upon drawing on or expiration of
such Letter of Credit, as applicable. In addition, Borrower will pay to LC
Issuer a minimum administrative issuance fee of $100 for each Letter of
Credit and such other fees and charges customarily charged by the LC Issuer
in respect of any amendment or negotiation of any Letter of Credit in
accordance with the LC Issuer's published schedule of such charges as of
the date of such amendment or negotiation.
(d) Other Fees. In addition to all other amounts due to
----------
Administrative Agent under the Loan Documents, Borrower will pay all fees
(i) to Administrative Agent as described in a letter agreement dated
December 1, 1999 between Administrative Agent and Borrower, (ii) to certain
Lenders and their affiliates as described in a letter agreement dated
December 1, 1999 between such Lenders and Borrower and (iii) to Lenders as
described in a letter agreement dated December 1, 1999.
-9-
<PAGE>
(S) 2.8. Books, Financial Statements, and Reports. Section 6.2 of the
----------------------------------------
Original Agreement is amended by adding thereto the following Subsections
6.2(i), 6.2(j), 6.2(k), 6.2(l),6.2(m), and 6.2(n):
"(i) concurrently with the request for the issuance of any
Letter of Credit, and on or prior to the 28/th/ day of each month, a
schedule forecasting report by a firm of independent consultants or
accountants acceptable to Administrative Agent confirming Borrower's
compliance with (A) the requirements of Back to Back Transactions and (B)
Section 6.20(b) with regard to transactions described in the most recent
Borrowing Base Report, in form and substance satisfactory to Administrative
Agent, which shall list for the immediately succeeding calendar month, each
purchase, sale or exchange of crude oil, the volumes for each such
purchase, sale or exchange, the counterparties for each such purchase, sale
or exchange, and related pricing indices, and shall have attached thereto
(i) copies of all material purchase, sales or exchange contracts related to
transactions for which Letters of Credit are requested or issued and (ii)
calculations of Borrower's estimated gross margin and operating income for
such calendar month, all in form and substance satisfactory to
Administrative Agent.
(j) On each Business Day, a MERC position report of Restricted
Persons as of such date.
(k) On a daily, weekly, or other periodic basis determined by
Administrative Agent, a report of inventory positions of Restricted Persons
in form satisfactory to Administrative Agent.
(l) On the last day of each calendar week a report on the
status of the Borrowing Base in form satisfactory to Administrative Agent
completed by an authorized officer of General Partner.
(m) On or before 1:00 p.m., Boston, Massachusetts time, on the
10/th/ day of each calendar month, a Consolidated statement of Plains MLP's
earnings and cash flows for the immediately preceding calendar month in
form satisfactory to Administrative Agent.
(n) On the 15/th/ and the last day of each calendar month,
Borrower's earnings and cash flow forecast for the current and two
succeeding months, both including and excluding Plains Scurlock Permian,
L.P., and accompanying the forecast due on the 15/th/ day of each calendar
month, a report in form and substance satisfactory to Administrative Agent
from PricewaterhouseCoopers, Arthur Andersen or other independent certified
public accountants selected by General Partner and acceptable to Majority
Lenders, regarding the methodology used by Borrower for its cash flows and
the reasonableness of the assumptions used by Borrower in connection with
its forecast."
(S) 2.9. Other Information and Inspections. Section 6.3 of the Original
---------------------------------
Agreement is hereby amended to add the following sentence immediately before the
last sentence thereof:
-10-
<PAGE>
"Borrower shall (i) at all times provide all information and shall provide
access to all Restricted Persons' books and records to a firm of
independent public accountants or independent consultants retained by the
Administrative Agent for purposes of confirming the Borrowing Base,
Borrower's compliance with all conditions related to Letters of Credit and
such other matters relating to the Restricted Persons as may be determined
from time to time by Administrative Agent and (ii) shall pay within 20 days
after an invoice therefor has been delivered to Borrower all fees and
expenses of such independent public accountants or independent consultants
incurred in connection with their activities."
(S) 2.10. Operating Practices; Linefill Contracts. The following Sections
---------------------------------------
6.21 and 6.22 are hereby added to the Original Agreement:
"Section 6.21. Operating Practices.
-------------------
(a) Borrower shall operate its business in a manner that is
consistent with the best practices of companies in similar businesses and
similarly situated. Borrower shall, during the month of December, 1999 and
from time to time thereafter as requested by Administrative Agent, review
its policies and procedures regarding its crude oil purchases, sales,
exchanges and Hedging Contracts, as soon as possible adopt such policies
and procedures relating thereto as may be recommended by Restricted
Persons' or Administrative Agent's third party consultants and accountants,
and provide a report to Lenders regarding such policies and procedures,
including such policies and procedures which Borrower could adopt and has
adopted to represent such best practices.
(b) Borrower shall not enter into any transaction involving any
crude oil purchase, sale, exchange or Hedging Contract unless such
transaction is a Back to Back Transaction or is a Cash and Carry
Transaction described on Schedule 8.
Section 6.22. Monetize Linefill Contracts. On or prior to
---------------------------
January 20, 2000, Borrower shall monetize all contracts for the sale of
linefill contained in the All American Pipeline and the linefill related to
such contracts, with respect to the deliveries to be made in January and
February, 2000 providing for a discount of not more than 10% of the full
purchase price, and otherwise in a form and on terms reasonably
satisfactory to Lenders whose combined Percentage Share is not less than
80%. The foregoing covenant shall have no grace period as otherwise
specified in Section 8.1(e). All cash proceeds from such monetization shall
be used to fund the working capital shortages resulting from the Identified
Loss. Any such cash proceeds not immediately needed for such working
capital shortages shall be held as cash collateral in a lockbox maintained
by Administrative Agent to secure first the obligations of Borrower under
the All American Agreement and second the obligations of Borrower under
this Credit Agreement until it is needed for such working capital
shortages.
(S) 2.11. Indebtedness. Section 7.1 of the Original Agreement is hereby
------------
amended by renumbering clause (g) to be clause (h) and to insert a new clause
(g), to read as follows:
-11-
<PAGE>
"(g) Indebtedness in a principal amount not at any time in
excess of $114,000,000 (plus accrued unpaid interest on such principal
amount) owing by Borrower to General Partner and subordinated to the
Obligations under this Agreement and the Indebtedness under the All
American Agreement on terms and conditions satisfactory to Administrative
Agent."
(S) 2.12. Limitation on Dividends and Redemptions. Section 7.6 of the
---------------------------------------
Original Agreement is hereby to read as follows:
"Section 7.6 Limitation on Dividends and Redemptions. No
---------------------------------------
Restricted Person will declare or pay any dividends on, or make any other
distribution in respect of, any class of its capital stock or any
partnership or other interest in it, nor will any Restricted Person
directly or indirectly make any capital contribution to or purchase,
redeem, acquire or retire any shares of the capital stock of or partnership
interests in any Restricted Person (whether such interests are now or
hereafter issued, outstanding or created), or cause or permit any reduction
or retirement of the capital stock of any Restricted Person, while any Loan
is outstanding. Notwithstanding the foregoing, but subject to Section 7.5,
(i) Subsidiaries of Plains MLP, Borrower, or of any Guarantor shall not be
restricted, directly or indirectly, from declaring and paying dividends or
making any other distributions to Plains MLP, Borrower, or any such
Guarantor, respectively, (ii) no Restricted Person shall be restricted from
making capital contributions to a Wholly Owned Subsidiary of such
Restricted Person that is a Guarantor, and (iii) Plains MLP may make a
regular quarterly distribution of Available Cash to its partners in
accordance with the Partnership Agreement if, and only if, all Lenders (or,
if no Lender shall have a Percentage Share exceeding 25%, Majority Lenders)
shall have given their prior written consent to such distribution."
(S) 2.13. Current Ratio. Section 7.11 of the Original Agreement is hereby
amended in its entirety to read as follows:
"Section 7.11. Current Ratio. The ratio of (i) the sum of Plains
MLP's Consolidated current assets plus the All American Revolver
Availability to (ii) Plains MLP's Consolidated current liabilities will
never be less than 1.0 to 1.0. For purposes of this section, Plains MLP's
Consolidated current liabilities will be calculated without including (a)
any payments of principal on the Notes which are required to be repaid
within one year from the time of calculation and (b) all Liabilities
arising under permitted Hedging Contracts. Further, Consolidated current
liabilities shall be decreased by (x) $105,000,000 for the period from
December 1, 1999 to and including January 31, 2000 and (y) $10,000,000 for
the period from January 31, 2000 through and including February 28, 2000."
(S) 2.14. Debt to Capital Ratio. Section 7.15 of the Original Agreement
---------------------
is hereby amended in its entirety to read as follows:
"Section 7.15 Debt to Capital Ratio. On or before April 30,
---------------------
2000, the ratio of (a) all Consolidated Funded Indebtedness to (b) the sum
of Consolidated Funded Indebtedness plus Consolidated Net Worth plus one-
half (50%) of the Identified Loss
-12-
<PAGE>
will never be greater than .60 to 1.0 at any time. After April 30, 2000,
the ratio of (a) all Consolidated Funded Indebtedness to (b) the sum of
Consolidated Funded Indebtedness plus Consolidated Net Worth will never be
greater than .60 to 1.0 at any time."
(S) 2.15. Open Inventory Position. Section 7.16 of the Original Agreement
-----------------------
is hereby amended in its entirety as follows:
"Section 7.16 Open Inventory Position. Borrower shall not at
-----------------------
any time have an Open Position other than inventory consisting of tank
bottoms, pipeline linefill requirements and other working inventory not to
exceed at any time 600,000 barrels in the aggregate."
(S) 2.16. Future Delivery Contracts. The Agreement is amended to add
-------------------------
following Sections 7.18 and 7.19 to the Original Agreement:
"Section 7.18 Future Delivery Contracts.
-------------------------
(a) No contract shall be entered into after December 1, 1999 for
delivery or receipt of crude oil (including but not limited to a futures
contract, open market contract or forward sale) other than (i) for delivery
or receipt during the next succeeding two months after the date of the such
contract or (ii) involving sales solely on a floating market price basis.
(b) Once a contract giving rise to an "Eligible Receivable" is
reflected in a Borrowing Base Report representing the obligation to deliver
crude oil in the month next succeeding the month in which the Borrowing
Base Report is delivered, such a contract may not be modified, sold or
exchanged in any respect which would affect the Borrowing Base without the
consent of the Administrative Agent and a re-certification of the Borrowing
Base in a Borrowing Base Report satisfactory to Administrative Agent.
Section 7.19. No Contango Transactions. Borrower shall not
------------------------
engage in any contango transactions except for (a) the sale of the linefill
contained in the All American Pipeline permitted hereunder and (b) other
such transactions to which Borrower is committed as of December 1, 1999,
which have been disclosed to Lenders in writing, and which do not in the
aggregate exceed $28,000,000.
(S) 2.17. Events of Default. Section 8.1 of the Original Agreement is
-----------------
hereby amended by adding a new subsection (m) to read as follows:
(m) General Partner shall fail to make on or after December 2,
1999, but on or before January 10, 2000, a loan to or other investment in
Borrower in an amount not less than $50,000,000, which loan shall have been
subordinated to the Obligations upon terms and conditions satisfactory to
Administrative Agent, or Borrower shall use any proceeds of such loan or
investment to pay any portion of the Identified Loss.
-13-
<PAGE>
(S) 2.18. Schedules. Schedules 1 and 2 to the Original Agreement are
---------
hereby deleted in their entirety and replaced with Schedules 1 and 2 hereto.
Schedule 8 hereto is hereby added to the Original Agreement.
(S) 2.19. Waiver. This Amendment, upon its effectiveness as provided in
------
(S) 3.1, shall waive (i) the violations of Sections 7.6, 7.11, 7.15, and 7.16 of
the Original Agreement by Borrower on and prior to the date hereof, based upon
unauthorized trading activities disclosed by Plains MLP in its press release of
November 29, 1999, (ii) the Events of Default arising under Sections 8.1(f),
8.1(g), 8.1(l) of the Original Agreement on and prior to the date hereof, based
upon unauthorized trading activities disclosed by Plains MLP in its press
release of November 29, 1999 and (iii) those Defaults and Events of Default
occurring on or before December 1, 1999 resulting from the foregoing, based upon
unauthorized trading activities disclosed by Plains MLP in its press release of
November 29, 1999.
(S) 2.20. Consent. Each Lender a party hereto hereby consents to (i) the
-------
sale by All American of the linefill carried in the All American Pipeline during
the period from December 1, 1999 through February 29, 2000 as is contracted for
on the date of this Amendment, (ii) any earlier monetization of such linefill
and the contracts for the sale thereof (including, without limitation, a sale or
loan with recourse limited to such linefill and contracts), (iii) the retention
of the proceeds of such sale or monetization in a cash collateral account within
the control of "Administrative Agent" under the All American Agreement to
secure, on a first priority basis, the Indebtedness under the All American
Agreement and, on a second priority basis, the Obligations, in accordance with
the Intercreditor Agreement, (iv) the delivery of such proceeds to Borrower by
the Administrative Agent from time to time upon request by Borrower for the
payment of accounts payable of Borrower on the date such payables are actually
paid and (v) the release of the Lien under the Security Documents on such
linefill and such proceeds upon use of such proceeds for such purpose. The
Restricted Persons agree that the portion of such transferred proceeds owned by
All American shall be made as a loan from All American to Borrower, and that
such loan shall be evidenced in a manner satisfactory to the Administrative
Agent and shall be subordinated to the Obligations under the Credit Agreement
and to the Indebtedness under the All American Credit Agreement on terms and
conditions satisfactory to the Administrative Agent.
ARTICLE III. -- Conditions of Effectiveness
---------------------------
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when and only when:
(a) Administrative Agent shall have received, at Administrative
Agent's office: (i) a counterpart of this Amendment executed and delivered
by Borrower, All American, Plains MLP, Administrative Agent, and Majority
Lenders, (ii) new Notes, renewing and increasing the Notes issued pursuant
to the Original Agreement, executed and delivered by Borrower to each
Lender as of the date hereof, (iii) a certificate of a duly authorized
officer of General Partner (A) stating that all of the representations and
warranties set forth in Article IV hereof are true and correct at and as of
the time of such effectiveness, (B) stating that no Material Adverse Change
shall have occurred other than the Identified Loss, and (C) having attached
thereto as an exhibit a copy of resolutions
-14-
<PAGE>
duly adopted by the Board of Directors of General Partner in full force and
effect at the time that this Amendment is entered into, and containing such
other certifications as shall be required by Administrative Agent, in form
and substance acceptable to Administrative Agent, (iv) an opinion of
Fulbright & Jaworski, L.L.P., special Texas and New York counsel to
Restricted Persons, in form and substance acceptable to Administrative
Agent in Administrative Agent's sole and absolute discretion, and (v) an
opinion of Michael R. Patterson, General Counsel for Restricted Persons.
(b) Each "Underwriter" (as defined in that certain letter
agreement of even date herewith among certain Lenders and Borrower) shall
have received a report, in form and substance satisfactory to such Persons,
prepared by Arthur Andersen & Co. regarding its review of the accounting
records, loss assessments, transaction reviews, borrowing base reports,
cash flow methodology, and letter of credit requirements of the Restricted
Persons.
(c) Borrower shall have used its best efforts to have pledged all
of the outstanding limited partnership interests in Plains Scurlock
Permian, L.P. as Collateral pursuant to Security Documents satisfactory to
Administrative Agent, such Collateral to be "Marketing Priority Collateral"
(as such term is defined in the Intercreditor Agreement).
(d) General Partner shall have made on or after November 21, 1999
a loan to Borrower in an amount not less than $64,000,000 and each of
General Partner and Borrower shall have certified the making of such loan,
which loan shall have been subordinated to the Obligations upon terms and
conditions satisfactory to Administrative Agent.
(e) Amendments to the Security Documents amending the description
of secured indebtedness therein to reflect the Maximum Facility Amount,
together with favorable opinions of local counsel for the states of
Arizona, California, New Mexico and Oklahoma, as requested by and
satisfactory to Administrative Agent.
(f) Documents satisfactory to Administrative Agent regarding the
sale of the linefill contained in the All American Pipeline.
(g) Payment of all underwriting, agency and other fees required
to be paid to any Lender pursuant to any Loan Documents and all fees and
expenses of Thompson & Knight LLP, and Vinson & Elkins, L.L.P. counsel to
Administrative Agent.
(h) A contemporaneous amendment to the All American Credit
Agreement executed by all "Lenders" under the All American Agreement
amending the All American Credit Agreement to permit the increased Maximum
Facility Amount, amending other provisions therein, and waiving all
existing Defaults and Events of Default as of the date hereof, in form
satisfactory to Administrative Agent.
-15-
<PAGE>
(i) Administrative Agent shall have received all documents and
instruments which Administrative Agent has then requested, in addition to
those described in the foregoing (S) 3.1(a) through and including (S)
3.1(g).
(j) Administrative Agent shall have received assurances from
Borrower that Borrower will be able to monetize the Letter of Credit
contracts for the sale of the linefill contained in the All American
Pipeline as required by Section 6.21 of the Credit Agreement.
(k) Administrative Agent shall have received satisfactory
evidence that the Sempra "rings" transactions (as described to Lenders by
Borrower) shall have been effectuated and closed on or prior to December 1,
1999.
ARTICLE IV. -- Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of Plains MLP and Borrower. In
---------------------------------------------------------
order to induce Administrative Agent and Lenders to enter into this Amendment,
Plains MLP and Borrower represent and warrant 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, 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 corporate action
necessary to authorize the execution and delivery of this Amendment and to
authorize the performance of their respective obligations hereunder.
(c) The execution and delivery by each Restricted Person of this
Amendment, 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 and other Permitted Liens. 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 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, enforceable
in accordance with its terms,
-16-
<PAGE>
(subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency and similar laws applicable to creditors' rights generally and
to general principles of equity).
(e) No Material Adverse Change has occurred other than the
Identified Loss.
ARTICLE V. -- Miscellaneous
-------------
-17-
<PAGE>
(S) 5.1. Ratification of Agreements; Release. The Original Agreement, as
-----------------------------------
hereby amended, is hereby ratified and confirmed in all respects. The Loan
Documents (including but not limited to each Guaranty), as they may be amended
or affected by this Amendment, are hereby ratified and confirmed in all respects
by each Restricted Person to the extent a party thereto. Any reference to the
Credit Agreement in any Loan Document shall be deemed to refer to this Amendment
also. The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, 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. As further consideration and to induce
each Lender Party to enter into and grant the accommodations contained in this
Amendment, EACH RESTRICTED PERSON - ON BEHALF OF ITSELF AND, TO THE EXTENT IT IS
PERMITTED BY LAW OR IS OTHERWISE EXPRESSLY AUTHORIZED TO DO SO, ON BEHALF OF ALL
OF ITS AFFILIATES (COLLECTIVELY, "RELEASING PARTIES") -- HEREBY GENERALLY
RELEASE AND FOREVER DISCHARGE EACH LENDER PARTY AND EACH OF THEIR RESPECTIVE
AFFILIATES (COLLECTIVELY, "RELEASED PARTIES"), FROM ANY AND ALL CLAIMS, DEMANDS,
AND CAUSES OF ACTION OF WHATEVER KIND OR CHARACTER WHICH SUCH RELEASING PARTY
HAS, OR MAY HAVE IN THE FUTURE, BASED ON ANY ACTIONS, FAILURES TO ACT, OR EVENTS
THAT HAVE OCCURRED PRIOR TO THE EFFECTIVE DATE HEREOF, WHICH IN ANY WAY RELATE
TO OR ARE BASED UPON (I) ANY TRANSACTIONS OF ANY KIND AMONG THE RELEASING
PARTIES , ON THE ONE HAND, AND THE RELEASED PARTIES, ON THE OTHER HAND, OR (II)
ANY ACTUAL OR ALLEGED NEGOTIATIONS, DISCUSSIONS, REPRESENTATIONS, WARRANTIES,
PROMISES, OR OTHER UNDERTAKINGS BY RELEASED PARTIES IN CONNECTION WITH ANY OF
THE FOREGOING (THE "RELEASED CLAIMS"). THIS RELEASE IS TO BE CONSTRUED AS THE
BROADEST TYPE OF GENERAL RELEASE AND COVERS AND RELEASES ANY AND ALL RELEASED
CLAIMS, WHETHER KNOWN OR UNKNOWN AND HOWEVER OR WHENEVER ARISING, WHETHER BY
CONTRACT OR AGREEMENT, AT LAW OR UNDER ANY STATUTE (INCLUDING WITHOUT LIMITATION
ANY LAW OR STATUTE PERTAINING TO NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY,
FRAUD, DECEPTIVE TRADE PRACTICES, NEGLIGENT MISREPRESENTATION, SECURITIES
VIOLATIONS, BREACH OF FIDUCIARY DUTY, BREACH OF CONTRACT, TRADE REGULATION,
REGULATION OF BUSINESS OR COMPETITION, CONSPIRACY OR RACKETEERING), OR OTHERWISE
ARISING, AND EXPRESSLY INCLUDING ANY CLAIMS FOR PUNITIVE OR EXEMPLARY DAMAGES,
ATTORNEYS' FEES, OR PENALTIES. TO THE EXTENT THAT ANY RELEASED CLAIMS WITH
RESPECT TO RELEASED PARTIES HAVE NOT BEEN RELEASED BY THIS LETTER AGREEMENT,
EACH RELEASING PARTY HEREBY ASSIGN S SUCH RELEASED CLAIMS TO RELEASED PARTIES.
(S) 5.2. Ratification of Security Documents. Restricted Persons,
----------------------------------
Administrative Agent, and Lenders each acknowledge and agree that any and all
indebtedness, liabilities or obligations arising under or in connection with the
LC Obligations, as amended hereby, or the Notes, as amended hereby, are
Obligations and are secured indebtedness under, are guarantied by, and are
secured by, each and every Security Document to which any Restricted Person is a
party. Each
-18-
<PAGE>
Restricted Person hereby re-pledges, re-grants and re-assigns a security
interest in and lien on every asset of the such Restricted Person described as
Collateral in any Security Document and re-guaranties all Obligations, as
amended hereby.
(S) 5.3. Ratification of Intercreditor Agreement. Each Lender hereby
---------------------------------------
acknowledges and confirms that all Obligations under the Credit Agreement, as
amended hereby, and the "Obligations" under the All American Credit Agreement,
as amended on the date hereof, shall be and shall remain subject to the terms
and entitled to the benefits of the Intercreditor Agreement.
(S) 5.4. 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.
(S) 5.5. Loan Documents. This Amendment is a Loan Document, and all
--------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
(S) 5.6. GOVERNING LAW. THIS AMENDMENT 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.
- ----------------
(S) 5.7. 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.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By: /s/ Phil Kramer
--------------------------------
Phil Kramer
Executive Vice President
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
-19-
<PAGE>
By: /s/ Phil Kramer
--------------------------------
Phil Kramer
Executive Vice President
ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By: /s/ Phil Kramer
--------------------------------
Phil Kramer
Executive Vice President
BANKBOSTON, N.A., as Administrative Agent
and Lender
By: /s/ Terrence Ronan, Director
--------------------------------
Terrence Ronan, Director
FIRST UNION NATIONAL BANK, Lender
By: /s/ Paul N. Riddle
--------------------------------
Name: Paul N. Riddle
Title: Senior Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, Lender
By: /s/ Ann Rhoads
--------------------------------
Name: Ann Rhoads
Title: Vice President
BANK OF AMERICA, N.A., Lender
By: /s/ Irene C. Rummell
-----------------------
Name: Irene C. Rummell
Title: Vice President
-20-
<PAGE>
[Pipeline] EXHIBIT 10.25
AMENDMENT AND LIMITED CONSENT
RECITALS:
Reference is hereby made to that certain Amended and Restated Credit
Agreement dated as of December 1, 1999 (as amended, restated or supplemented to
the date hereof, the "Agreement") by and between All American Pipeline, L.P., as
Borrower ("Borrower"), Plains Marketing, L.P. ("Marketing"), Plains All American
Pipeline, L.P. ("Plains MLP"), and BankBoston, N.A., as Administrative Agent
("Administrative Agent"), and certain financial institutions, as Lenders
(collectively, "Lenders" and each, individually, a "Lender"). Terms used and
not defined herein shall have the meanings given them in the Agreement.
Borrower has requested that Lenders consent to certain amendments to the
Agreement.
AMENDMENT AND CONSENT:
Subject to the conditions and limitations set forth hereinbelow, each
Lender signing below hereby consents to the following amendments:
A. The last sentence of the definition of "Consolidated EBITDA" set forth in
Section 1.1 of the Agreement is hereby amended in its entirety to read as
follows:
The term "Identified Loss Adjustment" means for any four-Fiscal Quarter
period, the portion of the Identified Loss incurred in such period not to
exceed an aggregate amount of $180,000,000.
B. Section 7.15 of the Agreement is hereby amended in its entirety to read as
follows:
Section 7.15 Debt to Capital Ratio. The ratio of (a) all
Consolidated Funded Indebtedness to (b) the sum of Consolidated Funded
Indebtedness plus Consolidated Net Worth plus one-half (50%) of the
Identified Loss will never be greater than .60 to 1.0 at any time.
LIMITATIONS AND CONDITIONS:
1. Except as expressly waived or agreed herein, all covenants, obligations and
agreements of Restricted Persons contained in the Agreement shall remain in
full force and effect in accordance with their terms. Without limitation
of the foregoing, the consents, waivers and agreements set forth herein are
limited precisely to the extent set forth herein and shall not be deemed to
(a) be a consent or agreement to, or waiver or modification of, any other
term or condition of the Agreement or any of the documents referred to
therein, or (b) except as expressly set forth herein, prejudice any right
or rights which any Lender Party may now have or may have in the future
under or in connection with the Agreement or any of the documents referred
to therein. Except as expressly modified hereby, the terms and
1
<PAGE>
provisions of the Agreement and any other documents or instruments executed
in connection with any of the foregoing, are and shall remain in full force
and effect, and the same are hereby ratified and confirmed by Restricted
Persons in all respects. As further consideration and to induce each Lender
Party to enter into and grant the accommodations contained in this
Amendment and Limited Consent, EACH RESTRICTED PERSON - ON BEHALF OF ITSELF
AND, TO THE EXTENT IT IS PERMITTED BY LAW OR IS OTHERWISE EXPRESSLY
AUTHORIZED TO DO SO, ON BEHALF OF ALL OF ITS AFFILIATES (COLLECTIVELY,
"RELEASING PARTIES") -- HEREBY GENERALLY RELEASE AND FOREVER DISCHARGE EACH
LENDER PARTY AND EACH OF THEIR RESPECTIVE AFFILIATES (COLLECTIVELY,
"RELEASED PARTIES"), FROM ANY AND ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION
OF WHATEVER KIND OR CHARACTER WHICH SUCH RELEASING PARTY HAS, OR MAY HAVE
IN THE FUTURE, BASED ON ANY ACTIONS, FAILURES TO ACT, OR EVENTS THAT HAVE
OCCURRED PRIOR TO THE EFFECTIVE DATE HEREOF, WHICH IN ANY WAY RELATE TO OR
ARE BASED UPON (I) ANY TRANSACTIONS OF ANY KIND AMONG THE RELEASING PARTIES
, ON THE ONE HAND, AND THE RELEASED PARTIES, ON THE OTHER HAND, OR (II) ANY
ACTUAL OR ALLEGED NEGOTIATIONS, DISCUSSIONS, REPRESENTATIONS, WARRANTIES,
PROMISES, OR OTHER UNDERTAKINGS BY RELEASED PARTIES IN CONNECTION WITH ANY
OF THE FOREGOING (THE "RELEASED CLAIMS"). THIS RELEASE IS TO BE CONSTRUED
AS THE BROADEST TYPE OF GENERAL RELEASE AND COVERS AND RELEASES ANY AND ALL
RELEASED CLAIMS, WHETHER KNOWN OR UNKNOWN AND HOWEVER OR WHENEVER ARISING,
WHETHER BY CONTRACT OR AGREEMENT, AT LAW OR UNDER ANY STATUTE (INCLUDING
WITHOUT LIMITATION ANY LAW OR STATUTE PERTAINING TO NEGLIGENCE, GROSS
NEGLIGENCE, STRICT LIABILITY, FRAUD, DECEPTIVE TRADE PRACTICES, NEGLIGENT
MISREPRESENTATION, SECURITIES VIOLATIONS, BREACH OF FIDUCIARY DUTY, BREACH
OF CONTRACT, TRADE REGULATION, REGULATION OF BUSINESS OR COMPETITION,
CONSPIRACY OR RACKETEERING), OR OTHERWISE ARISING, AND EXPRESSLY INCLUDING
ANY CLAIMS FOR PUNITIVE OR EXEMPLARY DAMAGES, ATTORNEYS' FEES, OR
PENALTIES. TO THE EXTENT THAT ANY RELEASED CLAIMS WITH RESPECT TO RELEASED
PARTIES HAVE NOT BEEN RELEASED BY THIS LETTER AGREEMENT, EACH RELEASING
PARTY HEREBY ASSIGNS SUCH RELEASED CLAIMS TO RELEASED PARTIES.
2. Borrower agrees to reimburse and save Administrative Agent and each Lender
Party harmless from and against liabilities for the payment of all out-of-
pocket costs and expenses arising in connection with the preparation,
execution, delivery, amendment, modification, waiver and enforcement of, or
the preservation of any rights under, this Amendment and Limited Consent,
including, without limitation, the reasonable fees and expenses of legal
counsel to Administrative Agent which may be payable in respect of, or in
respect of any modification of, this Amendment and Limited Consent.
2
<PAGE>
3. This Amendment and Limited Consent and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by
the laws of the State of New York.
4. This Amendment and Limited Consent and the documents referred to herein
represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof.
5. This Amendment and Limited Consent is a "Loan Document" as defined and
described in the Agreement and all of the terms and provisions of the
Agreement relating to Loan Documents shall apply hereto.
6. This Amendment and Limited Consent 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 agreement.
Executed as of February 29, 2000.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment and Limited Consent as of date first written above.
ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By:/s/ Phil Kramer
--------------------------------------
Phil Kramer, Executive Vice President
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By:/s/ Phil Kramer
--------------------------------------
Phil Kramer, Executive Vice President
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By:/s/ Phil Kramer
--------------------------------------
Phil Kramer, Executive Vice President
3
<PAGE>
BANKBOSTON, N.A.,
as Administrative Agent and Lender
By:/s/ Terrence Ronan
---------------------------
Terrence Ronan, Director
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, as Lender
By:
---------------------------
Name:
Title:
MEESPIERSON CAPITAL CORP., as Lender
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
BANK OF SCOTLAND, as Lender
By:/s/ Annie Glynn
-------------------------------
Name: Annie Glynn
Title: Senior Vice President
HIBERNIA NATIONAL BANK, as Lender
By:/s/ David R. Reid
--------------------------------
Name: David R. Reid
Title: Senior Vice President
BANK OF AMERICA, N.A., as Lender
By:/s/ Irene C. Rummel
--------------------------------
Name: Irene C. Rummel
Title: Vice President
4
<PAGE>
FIRST UNION NATIONAL BANK, Lender
By:/s/ Robert R. Wetteroff
----------------------------------------------
Name: Robert R. Wetteroff
Title: Senior Vice President
CREDIT AGRICOLE INDOSUEZ, as Lender
By:/s/ Patrick Cocquerel
----------------------------------------------
Name: Patrick Cocquerel
Title: First Vice President, Managing Director
Head of Houston Representative Office
By:/s/ Douglas A. Whiddon
---------------------------------------------
Name: Douglas A. Whiddon
Title: Vice President Senior Relationship
Manager
UNION BANK OF CALIFORNIA, N.A., as Lender
By:/s/ Dustin Gaspari
----------------------------------------------
Name: Dustin Gaspari
Title: Assistant Vice President
BANK ONE, TEXAS, N.A., as Lender
By:/s/ Charles Kingswell-Smith
-----------------------------------------------
Name: Charles Kingswell-Smith
Title: First Vice President
ELC (CAYMAN) LTD., Lender
By:/s/ Joseph H. Towell
-----------------------------------------------
Name: Joseph T. Howell
Title: Senior Vice President
5
<PAGE>
[Marketing] EXHIBIT 10.26
AMENDMENT AND LIMITED CONSENT
RECITALS:
Reference is hereby made to that certain Second Amended and Restated Credit
Agreement dated as of December 1, 1999 (as amended, restated or supplemented to
the date hereof, the "Agreement") by and between Plains Marketing, L.P., as
Borrower ("Borrower"), All American Pipeline, L.P. ("All American"), Plains All
American Pipeline, L.P. ("Plains MLP"), and BankBoston, N.A., as Administrative
Agent ("Administrative Agent"), and certain financial institutions, as Lenders
(collectively, "Lenders" and each, individually, a "Lender"). Terms used and
not defined herein shall have the meanings given them in the Agreement.
Borrower has requested that Lenders consent to certain amendments to the
Agreement.
AMENDMENT AND CONSENT:
Subject to the conditions and limitations set forth hereinbelow, each
Lender signing below hereby consents to the following amendments:
A. The last sentence of the definition of "Consolidated EBITDA" set forth in
Section 1.1 of the Agreement is hereby amended in its entirety to read as
follows:
The term "Identified Loss Adjustment" means for any four-Fiscal Quarter
period, the portion of the Identified Loss incurred in such period not to
exceed an aggregate amount of $180,000,000.
B. Section 7.15 of the Agreement is hereby amended in its entirety to read as
follows:
Section 7.15 Debt to Capital Ratio. The ratio of (a) all
Consolidated Funded Indebtedness to (b) the sum of Consolidated Funded
Indebtedness plus Consolidated Net Worth plus one-half (50%) of the
Identified Loss will never be greater than .60 to 1.0 at any time.
LIMITATIONS AND CONDITIONS:
1. Except as expressly waived or agreed herein, all covenants, obligations and
agreements of Restricted Persons contained in the Agreement shall remain in
full force and effect in accordance with their terms. Without limitation
of the foregoing, the consents, waivers and agreements set forth herein are
limited precisely to the extent set forth herein and shall not be deemed to
(a) be a consent or agreement to, or waiver or modification of, any other
term or condition of the Agreement or any of the documents referred to
therein, or (b) except as expressly set forth herein, prejudice any right
or rights which any Lender Party may now have or may have in the future
under or in connection with the Agreement or any of the documents referred
to therein. Except as expressly modified hereby, the terms and
1
<PAGE>
provisions of the Agreement and any other documents or instruments executed
in connection with any of the foregoing, are and shall remain in full force
and effect, and the same are hereby ratified and confirmed by Restricted
Persons in all respects. As further consideration and to induce each Lender
Party to enter into and grant the accommodations contained in this
Amendment and Limited Consent, EACH RESTRICTED PERSON - ON BEHALF OF ITSELF
AND, TO THE EXTENT IT IS PERMITTED BY LAW OR IS OTHERWISE EXPRESSLY
AUTHORIZED TO DO SO, ON BEHALF OF ALL OF ITS AFFILIATES (COLLECTIVELY,
"RELEASING PARTIES") -- HEREBY GENERALLY RELEASE AND FOREVER DISCHARGE EACH
LENDER PARTY AND EACH OF THEIR RESPECTIVE AFFILIATES (COLLECTIVELY,
"RELEASED PARTIES"), FROM ANY AND ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION
OF WHATEVER KIND OR CHARACTER WHICH SUCH RELEASING PARTY HAS, OR MAY HAVE
IN THE FUTURE, BASED ON ANY ACTIONS, FAILURES TO ACT, OR EVENTS THAT HAVE
OCCURRED PRIOR TO THE EFFECTIVE DATE HEREOF, WHICH IN ANY WAY RELATE TO OR
ARE BASED UPON (I) ANY TRANSACTIONS OF ANY KIND AMONG THE RELEASING
PARTIES, ON THE ONE HAND, AND THE RELEASED PARTIES, ON THE OTHER HAND, OR
(II) ANY ACTUAL OR ALLEGED NEGOTIATIONS, DISCUSSIONS, REPRESENTATIONS,
WARRANTIES, PROMISES, OR OTHER UNDERTAKINGS BY RELEASED PARTIES IN
CONNECTION WITH ANY OF THE FOREGOING (THE "RELEASED CLAIMS"). THIS RELEASE
IS TO BE CONSTRUED AS THE BROADEST TYPE OF GENERAL RELEASE AND COVERS AND
RELEASES ANY AND ALL RELEASED CLAIMS, WHETHER KNOWN OR UNKNOWN AND HOWEVER
OR WHENEVER ARISING, WHETHER BY CONTRACT OR AGREEMENT, AT LAW OR UNDER ANY
STATUTE (INCLUDING WITHOUT LIMITATION ANY LAW OR STATUTE PERTAINING TO
NEGLIGENCE, GROSS NEGLIGENCE, STRICT LIABILITY, FRAUD, DECEPTIVE TRADE
PRACTICES, NEGLIGENT MISREPRESENTATION, SECURITIES VIOLATIONS, BREACH OF
FIDUCIARY DUTY, BREACH OF CONTRACT, TRADE REGULATION, REGULATION OF
BUSINESS OR COMPETITION, CONSPIRACY OR RACKETEERING), OR OTHERWISE ARISING,
AND EXPRESSLY INCLUDING ANY CLAIMS FOR PUNITIVE OR EXEMPLARY DAMAGES,
ATTORNEYS' FEES, OR PENALTIES. TO THE EXTENT THAT ANY RELEASED CLAIMS WITH
RESPECT TO RELEASED PARTIES HAVE NOT BEEN RELEASED BY THIS LETTER
AGREEMENT, EACH RELEASING PARTY HEREBY ASSIGNS SUCH RELEASED CLAIMS TO
RELEASED PARTIES.
2. Borrower agrees to reimburse and save Administrative Agent and each Lender
Party harmless from and against liabilities for the payment of all out-of-
pocket costs and expenses arising in connection with the preparation,
execution, delivery, amendment, modification, waiver and enforcement of, or
the preservation of any rights under, this Amendment and Limited Consent,
including, without limitation, the reasonable fees and expenses of legal
counsel to Administrative Agent which may be payable in respect of, or in
respect of any modification of, this Amendment and Limited Consent.
2
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3. This Amendment and Limited Consent and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by
the laws of the State of New York.
4. This Amendment and Limited Consent and the documents referred to herein
represent the entire understanding of the parties hereto regarding the
subject matter hereof and supersede all prior and contemporaneous oral and
written agreements of the parties hereto with respect to the subject matter
hereof.
5. This Amendment and Limited Consent is a "Loan Document" as defined and
described in the Agreement and all of the terms and provisions of the
Agreement relating to Loan Documents shall apply hereto.
6. This Amendment and Limited Consent 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 agreement.
Executed as of February 29, 2000.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment and Limited Consent as of date first written above.
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By:/s/ Phil Kramer
--------------------------------------
Phil Kramer, Executive Vice President
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By:/s/ Phil Kramer
--------------------------------------
Phil Kramer, Executive Vice President
ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
its general partner
By:/s/ Phil Kramer
--------------------------------------
Phil Kramer, Executive Vice President
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BANKBOSTON, N.A.,
as Administrative Agent, LC Issuer and Lender
By:/s/ Terrence Ronan
---------------------------
Terrence Ronan, Director
FIRST UNION NATIONAL BANK,
Lender
By:/s/ Robert R. Wetteroff
---------------------------
Name: Robert R. Wetteroff
Title: Senior Vice President
BANK OF AMERICA, N.A., Lender
By:/s/ Irene C. Rummel
---------------------------
Name: Irene C. Rummel
Title: Vice President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, Lender
By:__________________________
Name:
Title:
4
<PAGE>
SUBSIDIARIES OF PLAINS RESOURCES INC.
State of Organization
---------------------
. Calumet Florida, Inc. Delaware
. Plains Illinois Inc. Delaware
. Stocker Resources, Inc. California
. Stocker Resources, L.P. California
. Plains Resources International Inc. Delaware
. PMCT Inc. Delaware
. Plains All American Inc. Delaware
. Arguello Inc. Delaware
. Plains All American Pipeline, L.P. Delaware
. Plains Marketing, L.P. Delaware
. All American Pipeline, L.P. Texas
. Plains Scurlock Permian, L.P. Delaware
. Scurlock Permian LLC Delaware
. Scurlock Permian Pipe Line LLC Delaware
. PAAI LLC Delaware
5
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EXHIBIT 10.27
- -------------------------------------------------------------------------------
PIPELINE SALE AND PURCHASE AGREEMENT
AMONG
PLAINS ALL AMERICAN PIPELINE, L.P.
ALL AMERICAN PIPELINE, L.P.
EL PASO NATURAL GAS COMPANY
AND
EPNG PIPELINE COMPANY
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DESCRIPTION OF SALE PROPERTY
1.1 Description of Sale Property......................................... 1
1.2 Description of Pipeline System....................................... 1
1.3 Description of Additional Property................................... 2
1.4 Description of Excluded Property..................................... 2
1.5 Description of Transitional Property................................. 2
1.6 Description of Excluded Liabilities.................................. 2
ARTICLE II
PURCHASE AND SALE OF SALE PROPERTY
2.1 Sale and Delivery of Sale Property................................... 3
2.2 Consideration........................................................ 3
2.3 Closing.............................................................. 3
2.4 Deliveries at Closing................................................ 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 Organization and Authority........................................... 5
3.2 Execution and Effect................................................. 5
3.3 No Violation......................................................... 5
3.4 Title to Fee Property................................................ 6
3.5 Title to Rights of Way............................................... 6
3.6 Title to Personal Property........................................... 7
3.7 Litigation........................................................... 7
3.8 Compliance with Applicable Law....................................... 7
3.9 Taxes................................................................ 7
3.10 Preferential Purchase Rights......................................... 7
3.11 Environmental Matters................................................ 8
3.12 Disclosure........................................................... 8
3.13 All Property......................................................... 8
3.14 Free of Contracts.................................................... 8
3.15 Purged of Oil........................................................ 8
3.16 No Unsatisfied Liabilities........................................... 8
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
4.1 Organization and Authority........................................... 9
4.2 Execution and Effect................................................. 9
4.3 No Violation......................................................... 9
4.4 Sufficiency of Funds................................................. 9
ARTICLE V
OTHER AGREEMENTS AND OBLIGATIONS OF THE PARTIES
5.1 Tariffs.............................................................. 10
5.2 Conduct of Business Pending Closing.................................. 10
5.3 Access to Books, Records and Facilities.............................. 10
5.4 Mutual Assurance; Cooperation........................................ 10
5.5 Assignments Requiring Consents, Preferential Purchase Rights......... 11
5.6 Publicity............................................................ 11
5.7 Notice Regarding Representations and Warranties...................... 12
5.8 Seller's Environmental, Removal and Remediation Obligations.......... 12
5.9 No Solicitation of Employees......................................... 13
5.10 Escrow Agent......................................................... 13
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER AND PARENT
6.1 Representations and Warranties True.................................. 13
6.2 Performance.......................................................... 13
6.3 Officer's Certificate................................................ 14
6.4 HSR Act Waiting Periods.............................................. 14
6.5 Litigation........................................................... 14
6.6 Sale of Linefill..................................................... 14
6.7 Receipt of Cancellation of Tariff.................................... 14
ARTICLE VII
CONDITIONS TO SELLERS' OBLIGATIONS
7.1 Representations and Warranties True.................................. 14
7.2 Performance.......................................................... 14
7.3 Officer's Certificate................................................ 14
7.4 HSR Act Waiting Periods.............................................. 15
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7.5 Litigation........................................................... 15
7.6 Receipt of Cancellation of Tariff.................................... 15
ARTICLE VIII
BUYER AND PARENT'S ASSUMPTION OF RIGHTS AND OBLIGATIONS
8.1 Assumption of Obligations............................................ 15
8.2 Further Assurances Regarding Assumption of Liabilities............... 15
ARTICLE IX
SURVIVAL OF OBLIGATIONS; INDEMNIFICATION
9.1 Survival of Obligations............................................... 15
9.2 Definitions........................................................... 15
9.3 Damages............................................................... 17
9.4 Environmental Damages................................................. 18
9.5 Indemnification Procedure............................................. 19
9.6 Additional Indemnity Provisions....................................... 19
ARTICLE X
DAMAGE OR CONDEMNATION
10.1 Damage or Condemnation............................................... 20
ARTICLE XI
DISPUTE RESOLUTION
11.1 Dispute Resolution................................................... 20
ARTICLE XII
TERMINATION OF AGREEMENT
12.1 Termination of Agreement............................................. 21
12.2 Procedure Upon Termination........................................... 21
12.3 Right to Cure........................................................ 22
12.4 Specific Performance................................................. 22
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<PAGE>
ARTICLE XIII
TAXES -PRORATIONS AND ADJUSTMENTS
13.1 Proration............................................................ 23
13.2 Deposits............................................................. 23
13.3 Sales Taxes.......................................................... 24
13.4 Cooperation.......................................................... 24
13.5 Document Retention................................................... 24
13.6 Payables............................................................. 25
ARTICLE XIV
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 Investigation of Books and Records................................... 25
14.2 Investigation of Environmental Conditions............................ 25
14.3 Further Disclaimer................................................... 26
ARTICLE XV
MISCELLANEOUS
15.1 No Brokers........................................................... 26
15.2 Expenses; Taxes...................................................... 26
15.3 Further Assurances................................................... 26
15.4 Assignment; Parties in Interest...................................... 26
15.5 Entire Agreement; Amendments......................................... 27
15.6 Severability......................................................... 27
15.7 Interpretation....................................................... 27
15.8 Notices.............................................................. 27
15.9 Waiver of Rescission................................................. 28
15.10 DTPA Waiver.......................................................... 28
15.11 Governing Law........................................................ 29
15.12 Counterparts......................................................... 29
15.13 Exhibits............................................................. 29
15.14 Special Damages...................................................... 29
15.15 No Third-Party Beneficiary........................................... 29
15.16 Use of AAP's Name.................................................... 29
15.17 Interpretation of Certain Terms...................................... 29
15.18 Joint Facilities..................................................... 30
15.19 Conflict with Assignment............................................. 31
15.20 PAA Obligations...................................................... 31
15.21 Survival............................................................. 31
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List of Exhibits:
A - Description of Pipeline System
B - Real Property
C - Right of Way
D - Contracts
E - Additional Property
F - Excluded Property
2.4(a)(i) - Form of Special Warranty Deed
2.4(a)(ii) - Form of Pipeline Deed and Assignment of Right of Way Interest
2.4(a)(iii) - Form of Bill of Sale
2.4(a)(viii) - Form of Sellers' Legal Opinion
2.4(b)(v) - Form of Buyer's Legal Opinion
3.3 - Required Consents
3.7 - Litigation
3.8 - Compliance with Applicable Law
3.11 - Notices of Violation of Environmental Requirements
13.2 - Deposits
15.18(a)(i) - Form of Easement Agreement
15.18(a)(ii) - Form of Partial Assignment of Right of Way Agreement
- -v-
<PAGE>
PIPELINE SALE AND PURCHASE AGREEMENT
This Pipeline Sale and Purchase Agreement (this "Agreement") is made and
entered into on this 31/st/ day of January, 2000, among Plains All American
Pipeline, L.P., a Delaware limited partnership ("PAA"), All American Pipeline,
L.P., a Texas limited partnership ("AAP" and together with PAA, collectively
referred to herein as the "Sellers"), and EPNG Pipeline Company ("Buyer"), a
Delaware corporation and a wholly owned subsidiary of El Paso Natural Gas
Company ("Parent"). Sellers, Buyer and Parent are sometimes referred to herein
individually as a "Party" and collectively as the "Parties."
RECITAL
Sellers desire to sell to Buyer, and Buyer desires to purchase from
Sellers, the Pipeline System (as hereinafter defined) and related assets on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
conditions contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I
DESCRIPTION OF SALE PROPERTY
1.1 DESCRIPTION OF SALE PROPERTY. The property that is the subject of
this Agreement (the "Sale Property") shall consist of the Pipeline System and
the Additional Property (as hereinafter defined), but shall exclude the Excluded
Property and the Transitional Property (each as hereinafter defined).
1.2 DESCRIPTION OF PIPELINE SYSTEM. (a) As used herein, the term
"Pipeline System" shall mean the crude oil pipeline system consisting of a
thirty-inch (30") mainline segment extending from outside the east fence at
Emidio Station, California to the north fence at McCamey Station, Texas as
generally described in Exhibit A. The Pipeline System constitutes a portion of
a larger pipeline system known as AAP's "All American Pipeline".
(b) The specific assets and properties comprising the Pipeline System shall
also include the following:
(i) the fee property real estate described in Exhibit B;
(ii) the surface leases, easements, rights of way, permits, licenses
and other grants described in Exhibit C (collectively, the "Rights of
Way"); and
(iii) the contracts, agreements and instruments listed in Exhibit D.
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(iv) all items of tangible personal property owned by AAP and used in
connection with the Pipeline System other than the Excluded Property and
the Transitional Property;
(v) all studies, analyses, drawings, blueprints, plans, construction
specifications, surveys, reports, diagrams, and repair records related to
the Pipeline System;
(vi) to the extent transferable to Buyer, all warranties, indemnities
and guarantees to AAP from AAP's vendors and suppliers with respect to
materials, goods or services supplied to AAP in connection with the
construction, operation, repair, maintenance and purging of the Pipeline
System; and
(vii) all rights, claims or causes of action pertaining to the Sale
Property.
(c) It is the intent of Sellers, Buyer and Parent that, except for the
Excluded Property and the Transitional Property, the Pipeline System include all
assets and properties of AAP of the type described in clauses (a) and (b)(i)-
(vii) immediately above, together with any claims and causes of action of AAP
relating thereto. Sellers, Buyer and Parent agree to take such further actions
and execute such additional documents as may be necessary to reflect such
intent.
1.3 DESCRIPTION OF ADDITIONAL PROPERTY. As used herein, the term
"Additional Property" shall mean the Fiber Optic Rights (as defined in Section
3.5) described in Exhibit E.
1.4 DESCRIPTION OF EXCLUDED PROPERTY. As used herein, the term "Excluded
Property" shall mean the real and personal property described on Exhibit F.
1.5 DESCRIPTION OF TRANSITIONAL PROPERTY. As used herein, the term
"Transitional Property" shall mean the personal property retained by AAP as
designated on Exhibit F.
1.6 DESCRIPTION OF EXCLUDED LIABILITIES. Notwithstanding anything herein
to the contrary, the Buyer shall not and does not assume or agree to pay,
perform or discharge any Excluded Liabilities. "Excluded Liabilities" means all
debts, liabilities and obligations relating to the Sale Property, whether
accrued or fixed, absolute or contingent, matured or unmatured, or determined or
determinable (i) arising from or based on any event, action, or facts or
circumstances existing at any time on or prior to the Closing Date or (ii) based
upon, resulting from, arising out of, or otherwise related to any Excluded
Property; provided, however, the Excluded Liabilities shall not include any
liability for sales, use, transfer and other similar taxes imposed or assessed
against the transfer of the Sale Property to Buyer under this Agreement,
including any interest or penalties assessed thereon.
2
<PAGE>
ARTICLE II
PURCHASE AND SALE OF SALE PROPERTY
2.1 SALE AND DELIVERY OF SALE PROPERTY. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing provided for in Section
2.3, AAP shall sell, transfer, convey, assign and deliver to Buyer, and Buyer
shall purchase, acquire and accept from AAP, effective as of 12 noon Central
Time on the Closing Date (as defined in Section 2.3 hereof), all of AAP's right,
title and interest in and to the Sale Property free of all liens, charges,
mortgages, security interests, pledges or other encumbrances of any nature
whatsoever, except for Permitted Encumbrances.
2.2 CONSIDERATION. Upon the terms and subject to the conditions set forth
in this Agreement, in consideration of the aforesaid sale, conveyance,
assignment, transfer and delivery of AAP's interest in and to the Sale Property,
Buyer shall pay to Sellers the total amount of $129 million (the "Purchase
Price") in immediately available funds by Federal Reserve wire transfer;
provided, however, that if required under Article X of this Agreement, a portion
of such funds may be paid to an escrow agent, as provided for in Section 5.10.
2.3 CLOSING. The closing of the sale and purchase contemplated by this
Agreement (the "Closing") shall take place at the offices of Andrews & Kurth
L.L.P., counsel to Sellers, located at 600 Travis, Suite 4200, Houston, Texas
77002, within 10 days after the later to occur of the following: (i) the
satisfaction of the conditions set forth in Articles VI and VII (or the waiver
by the Party entitled to the benefit thereof), (ii) the date on which the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act") has expired or been terminated with respect to the transactions
contemplated by this Agreement or (iii) the date on which the Pipeline System
has been purged of not less than 99.5% of the aggregate volume of crude oil
petroleum products and other petrochemicals in accordance with AAP's contractual
arrangements with Nigen International, L.L.C. ("Nigen"), dated November 24,
1999. The date and time on which the Closing occurs is referred to herein as the
"Closing Date."
2.4 DELIVERIES AT CLOSING. (a) At the Closing, Sellers shall convey, or
cause to be conveyed, the Sale Property to Buyer, and shall deliver, or cause to
be delivered to Buyer the following (the documents referred to in clauses (i),
(ii) and (iii) below being herein referred to as the "Conveyance Agreements"):
(i) a Special Warranty Deed in substantially the form attached hereto
as Exhibit 2.4(a)(i) conveying the fee properties described on Exhibit B to
Buyer;
(ii) a Pipeline Deed and Assignment of Right of Way Interest in
substantially the form attached hereto as Exhibit 2.4(a)(ii) conveying the
Rights-of-Way to Buyer;
(iii) a Bill of Sale in substantially the form attached hereto as
Exhibit 2.4(a)(iii) conveying all personal property comprising a part of
the Sale Property to Buyer;
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(iv) a certified copy of the resolutions of the Board of Directors
of the general partner of PAA and AAP by which the disposition of the Sale
Property was authorized;
(v) a certificate of the Secretary or Assistant Secretary of the
general partner of PAA and AAP evidencing the incumbency and specimen
signature of each of the corporate officers executing documents to be
delivered at the Closing on behalf of PAA and AAP;
(vi) one or more agreements in the forms attached hereto as Exhibit
15.18(a) (the "Easement Agreements"), in each case as contemplated by
Section 15.18;
(vii) any other agreements, documents, instruments and writings
required to be delivered by Sellers to Buyer at or prior to the Closing
pursuant to this Agreement;
(viii) a legal opinion from counsel to the Sellers in the form
attached hereto as Exhibit 2.4(a)(viii) (the "Sellers' Legal Opinion");
(ix) a certification to Buyer in a form acceptable to Buyer and
Parent as required by regulations under Section 1445 of the Internal
Revenue Code, that neither of the Sellers is a "foreign person" within the
meaning of Treasury Regulations 1.1445-2(b)(2)(i) (the "FIRPTA Affidavit");
and
(x) all Required Consents.
(b) At the Closing, Buyer and Parent will deliver or cause to be delivered
to Sellers the following:
(i) the Purchase Price;
(ii) a certified copy of the resolutions of the Board of Directors of
each of Parent and Buyer by which the acquisition of the Sale Property was
authorized;
(iii) a certificate of the Secretary or Assistant Secretary of each
of Parent and Buyer evidencing the incumbency and specimen signature of
each of the corporate officers executing documents to be delivered at the
Closing on behalf of Buyer and Parent;
(iv) executed counterparts of the Conveyance Agreements and the
Easement Agreements;
(v) a legal opinion from counsel to Buyer and Parent in the form
attached hereto as Exhibit 2.4(b)(v) (the "Buyer's Legal Opinion" ); and
(vi) any other agreements, documents, instruments and writings
required to be delivered by Buyer and Parent to Sellers at or prior to the
Closing pursuant to this Agreement.
4
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer and Parent that as of the
date first above written and the Closing Date as follows:
3.1 ORGANIZATION AND AUTHORITY. (a) AAP is a limited partnership duly
organized and validly existing under the laws of the State of Texas, is duly
qualified to transact business in the States of Arizona, California, New Mexico
and Texas, and has full power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by
AAP have been duly and validly authorized by all necessary partnership action of
AAP.
(b) PAA is a limited partnership duly organized, validly existing under the
laws of the State of Delaware, is duly qualified to transact business in the
State of Texas, and has full power and authority to enter into this Agreement
and to carry out the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by PAA have been duly and validly authorized by all necessary partnership
action of PAA.
3.2 EXECUTION AND EFFECT. This Agreement has been (and at Closing each
other agreement, instrument, certificate, exhibit, schedule or documents (each
an "Ancillary Agreement") that is required by this Agreement to be executed and
delivered by Sellers at Closing will be) duly and validly executed and delivered
by Sellers and assuming the due authorization, execution and delivery of this
Agreement (and such other agreements) by Buyer and Parent, constitutes (or at
Closing will constitute) a valid, binding and enforceable obligation of Sellers;
subject, however, to the effect of bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect relating to the rights
and remedies of creditors, as well as to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.3 NO VIOLATION. Assuming receipt of the approvals described in Exhibit
3.3 (the "Required Consents") and subject to Section 5.5, neither the execution
and delivery of this Agreement by Sellers nor the consummation by Sellers of the
transactions contemplated hereby (a) violates any provision of the Amended and
Restated Agreement of Limited Partnership of AAP or the Second Amended and
Restated Agreement of Limited Partnership of PAA, (b) constitutes a breach of or
default under (or an event that, with the giving of notice or passage of time or
both, would constitute a breach of or default under), or will result in the
termination of, or accelerate the performance required by, or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon Sellers' interest in the Sale Property under, any material
contract, commitment, understanding, agreement, arrangement or restriction of
any kind or character to which Sellers are a party or by which Sellers or any of
their assets are bound (provided, however, that this Section 3.3(b) shall not be
construed as constituting a representation or warranty as to either (i) whether
or not the consent of any third party is required to assign any of the Sale
Property or (ii) the effect of failing to obtain any such required consent) or
(c) to the knowledge of Sellers violates any statute, law, regulation or rule,
or any judgment, decree, order, writ or injunction of any court or governmental
authority applicable to Sellers or the Sale Property.
5
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3.4 TITLE TO FEE PROPERTY. The real property identified in Exhibit B
hereto constitutes all of the real property comprising and used in connection
with the Pipeline System, other than the Excluded Property and the Transitional
Property. AAP has good and defensible title to all real estate identified in
Exhibit B, free and clear of all liens, charges, mortgages, security interests,
pledges or other encumbrances of any nature whatsoever, except for the following
(collectively, the "Permitted Encumbrances"):
(a) Any state of facts that an accurate survey would show, in each case
including any easements, rights of way or encroachments;
(b) Restrictions, easements, rights of way, exceptions, reservations,
covenants, terms and conditions (i) contained in prior instruments of record in
the chain of title to such property or (ii) otherwise validly burdening such
property (to the extent previously disclosed or made available in writing by
Sellers to Buyer and Parent);
(c) Any lien for taxes that are not yet due and payable;
(d) Pre-printed standard Schedule A exceptions or exclusions from coverage
in an owner's policy of title insurance on a standard form issued by a reputable
title insurance company operating in the area where the property in question is
located;
(e) Materialmen's, mechanic's, repairmen's, employees', contractors', tax
and other similar liens or charges arising in the ordinary course of business
for obligations that are not delinquent or that will be paid and discharged by
AAP in the ordinary course of business no later than 90 days after the Closing
Date (unless being contested in good faith at such time but in that event no
later than 270 days) or, if delinquent, that are being contested in good faith
by appropriate action;
(f) All required third-party or governmental consents to assignment that
will not have a material adverse effect on the ownership or operation of the
Sale Property if not obtained;
(g) All rights reserved to or vested in any governmental, statutorial or
public authority to control or regulate any of the real property interests
constituting a part of the Sale Property;
(h) Any matters that are waived or otherwise released by Buyer or Parent in
writing or satisfied by Sellers on or prior to the Closing Date; and
(i) Other minor defects (i.e., any encumbrances affecting the property that
individually or in the aggregate are not such as to materially and adversely
affect the ownership or operation of the Sale Property).
3.5 TITLE TO RIGHTS OF WAY. (a) The Rights of Way as identified in
Exhibit C constitute all of the Rights of Way encompassing or relating to the
Pipeline System, and AAP has good and defensible title to the Rights of Way,
free and clear of all liens, charges, mortgages, security
6
<PAGE>
interests, pledges or other encumbrances of any nature whatsoever, except for
the Permitted Encumbrances.
(b) Although Sellers believe that certain portions of the Rights of Way and
the Additional Property identified on Exhibit C and Exhibit E provide for and
allow the installation, operation and maintenance of fiber optic conduit, fibers
and other fiber optic improvements (the "Fiber Optic Rights"), Sellers make no
representation that any such Right of Way or Additional Property will permit
Buyer to use the Fiber Optic Rights without additional agreements for such use
between Buyer and the grantor of the Right of Way or Additional Property. Buyer
and Parent acknowledge that they have reviewed the documents creating the Rights
of Way and the Additional Property, and that they are accepting the risk that
certain of the Rights of Way and Additional Property may not provide Fiber Optic
Rights across certain property.
3.6 TITLE TO PERSONAL PROPERTY. AAP has good title to all personal
property included in the Sale Property, free and clear of all liens, claims,
charges, mortgages, security interests, pledges or other encumbrances of any
nature whatsoever, except for the Permitted Encumbrances (to the extent same
pertain to or affect personal property).
3.7 LITIGATION. Except as set forth in Exhibit 3.7 (a) there are no
judgments, orders, writs or injunctions of any court or governmental authority
or other regulatory or administrative agency, commission or arbitration panel,
domestic or foreign, presently in effect or pending against Sellers with respect
to its interest in the Sale Property or the operation thereof, and (b) there are
no claims, actions, suits, proceedings, or investigations by or before any court
or governmental authority or other regulatory or administrative agency,
commission or arbitration panel pending by or against Sellers with respect to
its interest in the Sale Property or the operation thereof.
3.8 COMPLIANCE WITH APPLICABLE LAW. Except (a) as disclosed in Exhibit
3.8 and (b) with respect to Environmental Requirements (as defined in Section
9.2(e) below), which are addressed in Section 3.11(b) below, AAP is in
compliance with all material provisions of all laws, rules, regulations,
ordinances, orders, judgments and decrees applicable to its operation and use of
the Sale Property as presently conducted and AAP has not received any written
notification, and is not aware of any planned written notification, that it is
not presently in compliance therewith.
3.9 TAXES. All returns required to be filed by federal, state or local
laws with respect to the Sale Property or its operations prior to Closing have
been filed by AAP or will be filed prior to Closing, and all taxes (other than
income taxes) imposed or assessed, whether federal, state or local, on the Sale
Property, which are due or payable for any period ending on or prior to the
Closing Date, have been or will be paid prior to Closing.
3.10 PREFERENTIAL PURCHASE RIGHTS. There are no preferential purchase
rights, options, or other rights in any person or entity, not a party to this
Agreement, to purchase or acquire any interest in the Sale Property, in whole or
in part, as a result of the transactions contemplated by this Agreement.
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3.11 ENVIRONMENTAL MATTERS. (a) Except as disclosed in Exhibit 3.11, (i)
Sellers have not received any written notification that asserts (and do not have
any knowledge) that any portion of the Sale Property is not in compliance with
applicable Environmental Requirements and (ii) no condition exists on any Sale
Property which would give rise to any obligations or liabilities under any
applicable Environmental Requirements; and (iii) there are no published claims
or notices that any person or entity is or may be a potentially responsible
person ("PRP") or otherwise liable in respect of any Sale Property under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or any analogous state law.
(b) Except for such permits, licenses and authorizations as are not
material to the ownership or operation (as described in Section 15.17) of the
Pipeline System, all of the permits, licenses, and other governmental
authorizations required by applicable Environmental Requirements for AAP to own
or operate (as described in Section 15.17) the Pipeline System (i) have been
granted by the appropriate authority and (ii) are valid and in full force and
effect. To the knowledge of Sellers, there are no material actions or
proceedings for the revocation thereof or any other material action or
proceeding before any governmental department, commission, board, bureau,
agency, court, or instrumentality involving the permits and licenses.
3.12 DISCLOSURE. The representations and warranties contained in this
Article III do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article III not misleading. To the Sellers'
knowledge, there is no fact that has not been disclosed in this Agreement, the
Exhibits or the written materials or data made available to Buyer or Parent
pursuant to Section 5.3 below that has or could be reasonably expected to impair
the ability of either Seller to perform this Agreement, any undertaking herein
or the transactions contemplated hereby.
3.13 ALL PROPERTY. The Sale Property constitutes all of the assets, rights
and property of any kind, other than the Additional Property, the Excluded
Property and the Transitional Property, used by the Sellers or any of their
affiliates in connection with the Pipeline System.
3.14 FREE OF CONTRACTS. Upon cancellation of the AAP FERC Tariffs, neither
of the Sellers, any of their affiliates nor the Sale Property is subject to any
contract, agreement, arrangement or understanding (whether written or oral),
requiring the transmission of anything through the Sale Property at any time
from and after the Closing Date.
3.15 PURGED OF OIL. On the Closing Date, the Sale Property shall be free
of all crude oil, petroleum products and petrochemicals. For the purposes
hereof, the purging from the Sale Property of no less than 99.5% of the
aggregate volume of the Pipeline System shall be deemed to satisfy this Section
3.15.
3.16 NO UNSATISFIED LIABILITIES. There are no debts, liabilities or
obligations of the Sellers secured by the Sale Property other than such debts,
liabilities or obligations that will be satisfied, or the security interest
released, in full at or prior to Closing.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby represent and warrant to Sellers as follows:
4.1 ORGANIZATION AND AUTHORITY. Each of Buyer and Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is (or on or prior to the Closing will be) duly qualified to
transact business in the States of Arizona, California, New Mexico and Texas and
has full corporate power and authority to enter into this Agreement and to carry
out the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by Buyer
and Parent have been duly and validly authorized by all necessary action of
Buyer and Parent.
4.2 EXECUTION AND EFFECT. This Agreement has been (and at Closing each
other agreement that is required by this Agreement to be executed and delivered
by Buyer and Parent at Closing will be) duly and validly executed and delivered
by Buyer and Parent and, assuming the due authorization, execution and delivery
of this Agreement (and such other agreements) by Sellers, constitutes (or at
Closing will constitute) a valid, binding, and enforceable obligation of Buyer
and Parent; subject, however, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect relating
to the rights and remedies of creditors, as well as to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
4.3 NO VIOLATION. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby (a) violates any
provision of the Certificate of Incorporation or Bylaws of either Buyer or
Parent, (b) constitutes a material breach of or default under (or an event that,
with the giving of notice or passage of time or both, would constitute a
material breach of or default under), or will result in the termination of, or
accelerate the performance required by, or result in the creation or imposition
of any security interest, lien, charge or other encumbrance upon any of the
assets of Buyer or Parent under, any material contract, commitment,
understanding, agreement, arrangement or restriction of any kind or character to
which either of Buyer or Parent is a party or by which Buyer, Parent or any of
their assets are bound, or (c) violates in any material respect any statute,
law, regulation or rule, or any judgment, decree, order, writ or injunction of
any court or governmental authority applicable to Buyer, Parent or any of their
assets.
4.4 SUFFICIENCY OF FUNDS. Parent has, and at Closing Buyer will have,
funds sufficient to consummate the transactions contemplated hereby.
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ARTICLE V
OTHER AGREEMENTS AND OBLIGATIONS OF THE PARTIES
5.1 TARIFFS. AAP will cause all of its existing FERC tariffs, rules and
regulations governing interstate transportation of materials in the Sale
Property (the "AAP FERC Tariffs") to be canceled prior to the Closing Date.
5.2 CONDUCT OF BUSINESS PENDING CLOSING. From the date hereof through the
Closing Date, Sellers shall not, without the prior written consent of Buyer or
Parent:
(a) sell, transfer, encumber, or otherwise dispose of any assets comprising
the Sale Property;
(b) enter into any agreements, commitments or contracts affecting the Sale
Property other than as contemplated by this Agreement;
(c) release or waive any claims, rights or causes of action pertaining to
the Sale Property;
(d) enter into any utility, relocation or similar agreements that would
obligate Buyer to incur utility, relocation or similar costs with respect to the
Sale Property;
(e) agree or commit to do any of the foregoing; or
(f) operate the Sale Property in any manner other than as contemplated by
this Agreement.
5.3 ACCESS TO BOOKS, RECORDS AND FACILITIES. (a) Prior to the Closing
Date, Sellers will permit Buyer and Parent reasonable access during normal
business hours, upon such advance notice to Sellers as is reasonable under the
circumstances existing at the time notice is given, to the Sale Property and the
books, contracts, commitments and records pertaining thereto (including
information pertaining to any outstanding litigation with respect to the Sale
Property), and will furnish Buyer and Parent during such period with such
information concerning AAP's ownership and operation of the Sale Property as
Buyer and Parent may reasonably request.
(b) Buyer and Parent agree to protect, indemnify, defend and hold harmless
Sellers, their general partner and their directors, officers, employees, agents
and representatives from and against any and all claims, liabilities, losses,
costs and expenses (including, without limitation, court costs and reasonable
attorneys' fees) in connection with personal injuries, including death, or
property damage to the extent caused by Buyer or Parent and arising out of or
relating to the access of Buyer, Parent and any of their officers, employees and
representatives to the Sale Property and the records and other information
relating thereto as permitted under this Agreement.
5.4 MUTUAL ASSURANCE; COOPERATION. Upon the terms and subject to the
conditions set forth in this Agreement, each of the Parties agrees to use its
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to cause
the conditions to the Parties' respective obligations hereunder to be satisfied
and
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to consummate and make effective the transactions contemplated by this
Agreement and shall use its commercially reasonable efforts to obtain promptly
all waivers, permits, consents and approvals of, and to effect all
registrations, filings and notices with or to, third parties or governmental or
public bodies or authorities which are necessary or desirable in connection with
the transactions contemplated by this Agreement. Without limiting the
foregoing, each of the Parties undertakes and agrees to file as soon as
practicable (and in any event not later than ten days after the date hereof) a
Notification and Report Form under the HSR Act. Buyer shall pay all filing fees
attributable to such filing. To the extent it is reasonable to do so under the
circumstances (taking into account any applicable time constraints and the
materiality of the particular notice), all notices to third parties shall be
jointly coordinated between the Parties.
5.5 ASSIGNMENTS REQUIRING CONSENTS, PREFERENTIAL PURCHASE RIGHTS. (a) To
the extent that the assignment of any rights of AAP under leases, easements,
rights of way, permits, including permits relating to environmental laws or any
occupational health or safety laws, licenses, franchises or any other assets
comprising a part of the Sale Property shall require the consent of any other
party thereto, Sellers shall, subject to the terms of Section 5.4, use
reasonable commercial efforts to promptly obtain all required consents prior to
Closing and if not so obtained, for a reasonable time following Closing. The
refusal of any of said other parties (other than an affiliate that controls, is
controlled by or under common control with the Sellers) to give such consent or
the fact that the attempted assignment of any rights by Sellers is ineffective
shall not constitute a breach of any of the representations, warranties or
covenants of Sellers hereunder, including, without limitation, the
representation and warranty in Section 3.3(b), provided that Sellers have
complied with Section 5.4 above and, further, have assisted Buyer and Parent in
making or seeking alternative arrangements (including, but not limited to,
granting right-of-way licenses to Buyer). Buyer and Parent also agree that they
shall have no claim against Sellers based upon any failure to obtain a consent
necessary to assign any portion of the Sale Property (provided that Sellers
shall otherwise have complied with the terms of this Agreement).
(b) In each instance where such consents cannot be obtained prior to the
Closing, Sellers shall, for no additional consideration, to the extent permitted
by applicable law or the terms of the applicable contract, enter into such
alternative arrangements and agreements with Buyer and Parent as may be
appropriate in order to permit Buyer to realize, receive, and enjoy
substantially similar rights and benefits and to enable Buyer to conduct the
operation of the Pipeline System until such consents are obtained. If, after the
exercise of efforts consistent with the standard set forth in clause (a)
immediately above, any such consents are not obtained, to the extent permitted
by applicable law or the terms of the applicable contract, Sellers shall
cooperate with Buyer and Parent in any reasonable efforts of Buyer and Parent to
provide for alternative arrangements (including, but not limited to, the
obtaining by Buyer of new right-of-way licenses) designed to provide for the
benefit of Buyer any and all rights of AAP in and to such right-of-way grant. To
the extent an assignment of a right-of-way grant is prohibited by law or
otherwise, nothing herein shall constitute or be construed as an attempt of an
assignment thereof.
5.6 PUBLICITY. Each of the Parties shall consult with the other in
advance of issuing or permitting any of its affiliates or representatives to
issue any press release or otherwise make any public statement with respect to
the transactions contemplated hereby, including the signing of this
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Agreement, and shall obtain the prior approval of the other Party as to the
content of any such disclosure, which approval shall not be unreasonably
withheld. This provision shall not apply, however, to any announcement or
written statement that, upon advice of counsel, is required by law or the rules
and regulations of the New York Stock Exchange to be made, except that any Party
required to make such announcement or statement shall, whenever practicable,
consult with the other Party concerning the timing and content of such
announcement or statement before it is made.
5.7 NOTICE REGARDING REPRESENTATIONS AND WARRANTIES. Prior to the
Closing, Sellers, Buyer and Parent each shall promptly notify the other of any
matter that it becomes aware of that would (a) cause the responsible Party's
representations and warranties to be untrue in any material respect as of the
Closing Date, (b) constitute a breach of any of their agreements and covenants
hereunder or (c) result in a Party's inability to satisfy any condition to
Closing contained in Articles VI or VII.
5.8 SELLER'S ENVIRONMENTAL, REMOVAL AND REMEDIATION OBLIGATIONS. (a)
Sellers shall, at their own cost and expense, within eight months following the
Closing Date, remove from the pump and heater station sites identified on
Exhibit F(b)-(q) all underground station piping, turbines, pumps and other
facilities and equipment not included in the Sale Property. Sellers shall
undertake and complete such remediation and removal in accordance with all
applicable Environmental Requirements and other laws and regulations, and shall
undertake and complete all remediation or other activities in connection with
such removal in order to comply with any applicable Environmental Requirement.
Sellers agree to protect, indemnify, defend and hold harmless Buyer and Parent,
and their directors, officers, employees, agents and representatives from and
against any and all claims, liabilities, losses, costs and expenses (including
without limitation courts costs and reasonable attorneys' fees) in connection
with personal injuries, including death, or property damage to the extent caused
by Sellers or arising out of or relating to the activities conducted pursuant to
this Section 5.8 by Sellers their partners, officers, employees, and
representatives.
(b) During the eight month period referred to in Section 5.8(a), including
any extensions of such period as provided for in Section 5.8(c), Sellers shall
have sole discretion and control over the removal and remediation methods and
operations to be conducted by Sellers, and Buyer and Parent shall grant Sellers
sufficient access to the Sale Property to enable Sellers to complete such
removal and remediation; provided, however, that Sellers shall use commercially
reasonable efforts to minimize interference with Buyer's operations. Buyer and
Parent acknowledge that such actions may include on-site remediation.
(c) Sellers shall use their commercially reasonable efforts to complete the
removal and remediation required by Section 5.8(a) within eight months of the
Closing Date. To the extent that Sellers experience delays (other than delays
resulting from the Sellers' actions or failure to act) related to obtaining
permits or other approvals necessary to conduct the removal and remediation
operations required by Section 5.8(a), the eight month period shall be extended
by the length of time required for Sellers to obtain such permits or regulatory
approvals.
(d) In connection with the removal of underground station pipeline,
turbines, pumps and other facilities pursuant to this Section 5.8, Sellers shall
use recognized and duly licensed contractors
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and shall, at Buyer's request, to the extent transferable, assign to Buyer all
guarantees, indemnifications and performance bonds, if any, provided by such
contractors to the Sellers.
(e) With regard to the personal property identified as retained by Sellers
on Exhibit F(b)-(q) hereto (the "Transitional Property"), such Transitional
Property shall remain the property of Sellers, but Sellers shall have no
obligation, under this Section 5.8 or otherwise, to remove such property, and
all costs, expenses and liabilities concerning the maintenance, removal or use
of such property shall be the sole and exclusive obligation of Buyer. Buyer
shall have the obligation to deliver the Transitional Property to Sellers as
soon as reasonably practicable, but if the Transitional Property has not been
delivered by June 1, 2001, the Buyer shall purchase the Transitional Property
from Sellers at a salvage value reasonably agreed upon by the Parties.
5.9 NO SOLICITATION OF EMPLOYEES. For a period of one year following the
Closing, Buyer and Parent will not, without Sellers' prior written consent,
directly or indirectly, (i) cause or attempt to cause any employee of Sellers to
terminate his or her employment relationship with Sellers (or their general
partner), (ii) interfere or attempt to interfere with the relationship between
the Sellers and any employee of Sellers (or their general partner) or (iii)
solicit or attempt to solicit any employee of Sellers (or their general
partner); provided, however, that the restrictions set forth in this Section 5.9
shall not be applicable with respect to any employee who is terminated by
Sellers (or their general partner) after the Closing or who is solicited by
Buyer or Parent with the written consent of Sellers.
5.10 ESCROW AGENT. If required under Article X, the Parties will appoint
an escrow agent and execute an escrow agreement on terms reasonably satisfactory
to the Parties.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER AND PARENT
The obligations of Buyer and Parent to effect the transactions contemplated
by this Agreement on the Closing Date shall be subject to the fulfillment, prior
to or at the Closing, of each of the conditions set forth in this Article VI
(unless waived in writing by Buyer and Parent).
6.1 REPRESENTATIONS AND WARRANTIES TRUE. All representations and
warranties made by Sellers in this Agreement shall have been true in all
material respects when made and shall be true in all material respects at and as
of the Closing Date as though such representations and warranties were made at
and as of such date, except for any changes contemplated by the terms of this
Agreement or consented to by Buyer and Parent in writing.
6.2 PERFORMANCE. Sellers shall have performed and complied with, in all
material respects, all agreements, obligations, covenants and conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date, including having obtained the Required Consents identified on
Exhibit 3.3.
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6.3 OFFICER'S CERTIFICATE. The corporate general partner of the Sellers
shall have delivered to Buyer a certificate of a corporate officer, dated the
date of Closing, certifying on behalf of Sellers that the conditions set forth
in Section 6.1 and 6.2 have been fulfilled.
6.4 HSR ACT WAITING PERIODS. All filings applicable to this Agreement or
the transactions contemplated hereby under the HSR Act shall have been made and
the waiting period and any extensions thereof, with respect to the transactions
contemplated by this Agreement shall have expired or been terminated.
6.5 LITIGATION. No action or proceeding shall be pending against Buyer or
Parent in any court of law or by any administrative or governmental agency on
the Closing Date, wherein an unfavorable judgment, decree or order could
prevent, make unlawful or materially affect the consummation of the transactions
contemplated by this Agreement or materially affect the Sale Property.
6.6 SALE OF LINEFILL. Sellers shall have completed the purging of not
less that 99.5% of the aggregate volume of crude oil linefill including all
other petroleum products and petrochemicals contained in the Pipeline System in
accordance with AAP's contractual arrangements with Nigen. Sellers shall have
made all payments required to be paid through the Closing Date pursuant to such
contractual arrangements.
6.7 RECEIPT OF CANCELLATION OF TARIFF. Sellers shall have received
evidence of the cancellation of the AAP FERC Tariffs as required under Section
5.1.
ARTICLE VII
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to effect the transactions contemplated by this
Agreement on the Closing Date shall be subject to the fulfillment, prior to or
at the Closing, of each of the following conditions (unless waived in writing by
Sellers):
7.1 REPRESENTATIONS AND WARRANTIES TRUE. All representations and
warranties of Buyer and Parent contained herein shall have been true in all
material respects when made and shall be true in all material respects at and as
of the Closing Date as though such representations and warranties were made at
and as of such date, except for any changes contemplated by the terms of this
Agreement or consented to by Sellers in writing.
7.2 PERFORMANCE. Each of Buyer and Parent shall have performed and
complied with, in all material respects, all agreements, obligations, covenants
and conditions required by this Agreement to be performed or complied with by it
on or prior to the Closing Date and Sellers shall have obtained the Required
Consents identified on Exhibit 3.3.
7.3 OFFICER'S CERTIFICATE. Each of Buyer and Parent shall have delivered
to Sellers a certificate of a corporate officer, dated the date of Closing,
certifying on behalf of each of Buyer and Parent that the conditions set forth
in Sections 7.1 and 7.2 have been fulfilled.
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7.4 HSR ACT WAITING PERIODS. All filings applicable to this Agreement or
the transactions contemplated hereby under the HSR Act shall have been made and
the waiting period (and any extensions thereof) thereunder with respect to the
transactions contemplated by this Agreement shall have expired or been
terminated.
7.5 LITIGATION. No action or proceeding shall be pending against Sellers
in any court of law or by any administrative or governmental agency on the
Closing Date, wherein an unfavorable judgment, decree or order could prevent,
make unlawful or materially affect the consummation of the transactions
contemplated by this Agreement.
7.6 RECEIPT OF CANCELLATION OF TARIFF. Sellers shall have received
evidence of the cancellation of the AAP FERC Tariffs as required under Section
5.1.
ARTICLE VIII
BUYER AND PARENT'S ASSUMPTION OF RIGHTS AND OBLIGATIONS
8.1 ASSUMPTION OF OBLIGATIONS. Without limiting Buyer's and Parent's
obligations under the indemnification provisions of this Agreement, from and
after the Closing Date, Buyer and Parent agree to pay, perform and discharge all
liabilities and obligations (other than Excluded Liabilities), under the
contracts, agreements and instruments listed on Exhibits C, D and E, only to the
extent that such obligations accrue or arise out of or in respect of the Sale
Property and solely from and after Closing.
8.2 FURTHER ASSURANCES REGARDING ASSUMPTION OF LIABILITIES. Upon the
request of Sellers, Buyer and Parent agree to execute and deliver mutually
agreeable, specific assumption agreements with respect to the obligations and
liabilities assumed by Buyer and Parent pursuant to Section 8.1.
ARTICLE IX
SURVIVAL OF OBLIGATIONS; INDEMNIFICATION
9.1 SURVIVAL OF OBLIGATIONS. The representations, warranties, covenants,
agreements and indemnification obligations of the Parties under this Agreement
shall survive the Closing for a period of three years and any claim with respect
thereto must be made on or before the third anniversary of the Closing Date;
except that (i) any claim with respect to the breach of Section 3.9 may be made
if Buyer shall have notified Seller on or before the date upon which the
applicable tax period, including any period for recovery of a deficiency, is
closed and (ii) the indemnification obligations contained in Section 9.4 (x)
shall survive without limitation with respect to any claims based on or arising
out of crude oil contamination and (y) shall survive for a period of three years
with respect to all other claims made pursuant to Section 9.4, and any claim
with respect thereto must be made on or before the third anniversary of the
Closing Date.
9.2 DEFINITIONS. For the purposes of this Agreement, the following terms
shall have the meanings indicated:
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(a) "Damages" shall mean losses, damages (whether compensatory, punitive,
consequential, or special in nature), obligations, liabilities, demands, claims,
costs and expenses (including, but not limited to, reasonable attorneys' fees,
expenses and court costs), whether suffered by a Party or a third party and
whether resulting from or consisting of injury to or death of any person or
persons or damage to or loss of any property.
(b) "Environmental Damages" shall mean Damages, together with the costs of
remediation including, but not limited to, reasonable consultant and lab fees,
that arise out of or relate to the Sale Property under any Environmental
Requirements.
(c) "Sellers" shall mean, when Sellers are indemnifying parties, Plains All
American Pipeline, L.P., Plains All American Inc., Plains Marketing, L.P. and
All American Pipeline, L.P., and their successors or assigns (collectively, the
"Plains Parties"), but shall specifically exclude Plains Scurlock Permian, L.P.
and Plains Resources Inc. and its subsidiaries other than the Plains Parties;
and when Sellers are indemnified parties, the Plains Parties and their
affiliates, successors and assigns, and any of their general partners,
employees, officers, directors, agents and representatives, including Plains
Scurlock Permian, L.P. and Plains Resources Inc. and its subsidiaries other than
the Plains Parties.
(d) "Buyer" shall mean, when Buyer is an indemnifying party, EPNG Pipeline
Company, and its successors or assigns; and when Buyer is an indemnified party,
EPNG Pipeline Company, its stockholders, their subsidiaries, affiliates,
successors and assigns, and any of their employees, officers, directors, agents,
and representatives.
(e) "Environmental Requirements" shall mean all applicable laws, statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises, and similar items, as amended,
of all governmental agencies, departments, commissions, boards, bureaus, or
instrumentalities of the United States, and the states and political
subdivisions thereof, and all principles of common law, pertaining to the
health, safety or protection of the environment, and/or damages to, including,
without limitation, CERCLA, the Clean Air Act, the Federal Water Pollution
Control Act, the Resource Conservation and Recovery Act, the Safe Drinking Water
Act, the Toxic Substances Control Act, the Hazardous Materials Transportation
Act, and the Oil Pollution Act.
(f) "knowledge," when used with respect to Sellers, means that which is
known, after reasonable inquiry, by any of the following individuals in their
respective areas of responsibility: Greg Armstrong (Chief Executive Officer),
Harry Pefanis (President and Chief Operating Officer), Mark Shires (Vice
President - Operations), Larry Dreyfuss (General Counsel), Mike Madden (Manager
- - Land and Contracts), Jordan Janak (Director of Regulatory Compliance &
Safety), and Mark Olson (Manager - Western Region Operations).
(g) "Parent" shall mean, when Parent is an indemnifying party, El Paso
Natural Gas Company and its successors or assigns; and when Parent is an
indemnified party, El Paso Natural Gas Company, its stockholders, their
subsidiaries, affiliates, successors and assigns, and any of their employees,
officers, directors, agents, and representatives.
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9.3 DAMAGES. (a) Subject to the terms and conditions of this Article IX
and except with respect to (x) Environmental Damages, which are dealt with
exclusively in Section 9.4 below and (y) any liabilities associated with
Sellers' remediation obligations, which are dealt with exclusively in Section
5.8 above, Sellers shall indemnify, defend and hold harmless Buyer from and
against, and shall reimburse Buyer for any and all Damages attributable to:
(i) any breach by Sellers of any representation or warranty of
Sellers contained in this Agreement;
(ii) any breach by Sellers of any covenant or agreement contained in
this Agreement;
(iii) any injury to or death of any person or persons, but only
relating to the Sale Property and the activities thereon, including
omissions and failures to act, to the extent occurring prior to and up to
the Closing Date;
(iv) any damage to or loss of any third party property relating to
the Sale Property and the activities thereon, including omissions and
failures to act, to the extent occurring prior to and up to the Closing
Date and relating solely to actions or omissions before the Closing Date;
(v) any violation of or failure to comply with any applicable law,
regulation, decree, understanding, ordinance, rule or order relating to the
Sale Property and activities thereon, including omissions and failures to
act, but only to the extent occurring prior to and up to the Closing Date
and relating solely to actions or omissions before the Closing Date;
(vi) any other obligation or liability based upon or arising out of
the ownership or operation of the Sale Property, including claims brought
by employees of AAP, to the extent same are attributable to the period
prior to and up to the Closing Date and relating solely to actions or
omissions before the Closing Date; and
(vii) all Excluded Liabilities.
(b) Subject to the terms and conditions of this Article IX and except with
respect to Environmental Damages, which are dealt with exclusively in Section
9.4 below, Buyer and Parent shall indemnify, defend and hold harmless Sellers
from and against and shall reimburse Sellers for any and all Damages
attributable to:
(i) any breach by Buyer or Parent of any representation or warranty
of Buyer or Parent contained in this Agreement;
(ii) any breach by Buyer or Parent of any covenant or agreement
contained in this Agreement;
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(iii) any injury to or death of any person or persons but only
relating to the Sale Property and activities thereon, including omissions
and failures to act, to the extent occurring from and after the Closing
Date;
(iv) any damage to or loss of any third party property relating to
the Sale Property and activities thereon, including omissions and failures
to act, to the extent occurring from and after the Closing Date and
relating solely to actions or omissions after the Closing Date;
(v) any violation of or failure to comply with any applicable law
regulation, decree, understanding, ordinance, rule or order relating to the
Sale Property and activities thereon, including omissions and failures to
act, but only to the extent occurring from and after the Closing Date and
relating solely to actions or omissions after the Closing Date; and
(vi) any other obligation or liability based upon or arising out of
the ownership or operation of the Sale Property, including claims brought
by employees of Buyer, to the extent same are attributable to the period
from and after the Closing Date and relating solely to actions or omissions
after the Closing Date.
9.4 ENVIRONMENTAL DAMAGES. (a) Notwithstanding the terms and provisions
of Section 9.3 above, but subject to Section 9.4(b) below, Buyer and Parent
agree to indemnify, defend, reimburse, and hold harmless Sellers from and
against any and all Environmental Damages based on or arising out of any
conditions, events, circumstances, facts, activities, practices, incidents,
actions or omissions, whether known, unknown, disclosed, undisclosed, fixed or
contingent, occurring or existing subsequent to the Closing Date at, on, under,
about, within or migrating from any Sale Property resulting from the operation
or use of such property by Buyer or Parent, including, without limitation, any
such Environmental Damages (except for any such Environmental Damages attributed
solely to Sellers' obligations under Section 5.8) arising from noncompliance
with any Environmental Requirements or the use, storage, treatment, disposal,
generation, transportation or release of any waste or substances at any on-site
or off-site location subsequent to the Closing Date, including, but not limited
to, remediation of any spills of crude oil subsequent to the Closing Date
resulting from construction activities not associated with Sellers' removal of
pump and heater station facilities.
(b) Notwithstanding the terms and provisions of Section 9.3 above, but
subject to Section 9.4(a) above, Sellers agree to indemnify, defend, reimburse
and hold harmless Buyer from and against any and all Environmental Damages based
on or arising out of any conditions, events, circumstances, facts, activities,
practices, incidents, actions or omissions, whether known, unknown, disclosed,
undisclosed, fixed or contingent, occurring or existing on or prior to the
Closing Date at, on, under, about, within or migrating from any Sale Property,
including, without limitation, any such Environmental Damages arising from (a)
noncompliance with any Environmental Requirements or the use, storage,
treatment, disposal, generation, transportation or release of any waste or
substances at any on-site or off-site location on or prior to the Closing Date,
or (b) in respect of the matters listed on Exhibits 3.7 and 3.11; provided,
however, that Sellers shall not indemnify Buyer for any Environmental Damages
resulting from Buyer's actions or omissions, whether occurring before or after
Closing.
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9.5 INDEMNIFICATION PROCEDURE. (a) In the event that either Party
receives written notice of (i) the commencement of any action or proceeding,
(ii) the assertion of any claim by a third party or (iii) the imposition of any
penalty or assessment for which indemnity may be sought pursuant to this Article
IX, and such Party intends to seek indemnity from the other Party pursuant to
this Article IX, such Party shall with reasonable promptness but no later than
15 days following the receipt of such notice (provided, however, that any
failure to give such notice will not waive any rights of the Party seeking
indemnification except to the extent the rights of the indemnifying party are
actually prejudiced), provide the other Party with written notice of such
intent, which notice shall include a copy of the written notice received by the
Party seeking indemnification and shall specify the nature of and specific basis
for such indemnification claim and the amount or estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final amount
of such claim and demand). The Party upon whom a request for indemnification is
made shall be entitled to participate in or, at such Party's option, assume
control of the defense, appeal or settlement of the action, proceeding, claim,
penalty or assessment with respect to which such indemnity has been invoked. The
Party that requested indemnification will fully cooperate with the other Party
in connection therewith; provided, however, that neither Party shall settle or
compromise any action, proceeding, claim, penalty or assessment with respect to
which indemnification has been sought without the other Party's prior written
consent, which consent shall not be unreasonably withheld.
(b) In the event either Party has a claim against the other Party pursuant
to the indemnification provisions hereof that does not involve a claim or demand
being asserted against or sought to be collected by a third party, the Party
seeking indemnification shall as promptly as practical send a claim notice to
the other Party, which notice shall specify the nature of and specific basis for
such claim or demand and the amount or estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim or demand); provided, however, that any failure to give such notice
will not waive any rights of the Party seeking indemnification except to the
extent the rights of the other Party are actually prejudiced as a result
thereof.
(c) Upon discovery of an event or condition that has or may give rise to a
claim pursuant to the indemnification provisions of this Agreement, each of the
Parties agree to notify the other Party and use reasonable efforts to cooperate
with the other Party to mitigate the damages associated with such condition or
event and the remediation or resolution thereof.
9.6 ADDITIONAL INDEMNITY PROVISIONS. (a) Notwithstanding any other
provision of this Article IX, (i) Sellers shall not have an indemnity obligation
to Buyer unless and until, and only to the extent that, the aggregate amount of
the Damages suffered by Buyer exceeds $1,000,000.
(b) Buyer and Parent further agree that if Sellers are obligated to
indemnify Buyer or Parent pursuant to Section 9.4(b) hereof, Sellers may satisfy
such obligation, in their sole discretion and at their sole expense, subject to
obtaining regulatory approval, through on-site remediation of the Environmental
Damages suffered by Buyer or Parent. Buyer and Parent shall reasonably cooperate
with Sellers in conjunction with obtaining such necessary approvals and
completing such on-site remediation.
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ARTICLE X
DAMAGE OR CONDEMNATION
10.1 DAMAGE OR CONDEMNATION. From the date of execution of this Agreement
until Closing, if the Sale Property is damaged or condemned, or condemnation
proceedings affecting a portion of the Sale Property are filed, in any such case
prior to the Closing Date, such that the costs to repair the damaged property or
replace the condemned property, as applicable, exceeds $1,000,000 in the
aggregate, Sellers, at their option, shall either (a) deduct from the Purchase
Price due at Closing the reasonable cost agreed to by Buyer and Parent to
substantially restore such Sale Property to its condition immediately prior to
such damage or condemnation, provided that such restoration can be completed by
a date reasonably acceptable to Buyer and Parent, (b) at its own expense restore
such Sale Property to its condition immediately prior to such damage or
condemnation, provided that such restoration can be completed no later than six
months after the Closing Date, and provided further that if such restoration has
not been completed prior to the Closing Date, at Closing the Sellers shall
obtain a performance bond or shall deposit with an escrow agent an amount of
money equal to the amount the Buyer and Parent reasonably estimates will be
required to complete such restoration or (c) if such costs exceed $20,000,000,
Sellers may declare this Agreement terminated without liability to either Buyer
or Parent. If prior to the Closing Date the Sale Property has been damaged or
condemned such that the total cost of repairing and replacing all such damaged
or condemned property (other than damaged or condemned property cured or able to
be cured pursuant to clause (a) or (b) immediately preceding) exceeds
$20,000,000 and Buyer and Parent do not elect to waive the damage or
condemnation, Buyer and Parent may declare this Agreement terminated, without
liability to Sellers. Notwithstanding anything to the contrary above, the
Parties agree that the $1,000,000 threshold shall not include any damages
attributable to the negligent actions of Sellers or their contractors, or their
employees or subcontractors; provided, however, that once the $1,000,000
threshold is reached, all damages, regardless of whether caused by Sellers,
Parent, Buyer or third parties, shall be subject to the options set forth in
clauses (a), (b) or (c) above.
ARTICLE XI
DISPUTE RESOLUTION
11.1 DISPUTE RESOLUTION. (a) The Parties agree that any dispute,
disagreement, controversy or claim ("Dispute") between them arising out of or
relating to this Agreement or any agreement or document executed by them in
connection with this Agreement, including, without limitation, any allegation of
default under or breach or violation of any term or provision of this Agreement
or such other agreement or document, shall, unless the Parties agree otherwise,
be subject to a good faith attempt to resolve the Dispute by mediation in
accordance with this Article XI.
(b) Either Party may initiate a mediation proceeding with respect to a
Dispute by a request in writing to the other Party. Upon receipt of such a
request by either Party, both Parties will be obligated to engage in a
mediation. If the Parties have not agreed within 30 days of the request for
mediation on the selection of a mediator willing to serve, either Party may
inform the Center for Public Resources ("CPR") of the nature of the Dispute and
request it to appoint a member of the CPR Panel of Neutrals as the mediator.
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(c) In the event of the failure of mediation to settle a Dispute in a
manner acceptable to all Parties within 60 days following the engagement of a
mediator, then either Party may seek all remedies which may be available to it
by law.
(d) The expenses of the mediator and CPR shall be borne equally by the
Buyer and Parent and the Sellers.
ARTICLE XII
TERMINATION OF AGREEMENT
12.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date:
(a) by Buyer and Parent if Sellers' representations or warranties hereunder
are not true and correct in all material respects or Sellers have failed to
perform in any material respect any of its covenants or obligations hereunder,
and such material breach or failure has not been cured or corrected by Sellers
as provided in Section 12.3;
(b) by Seller if Buyer's and Parent's representations or warranties
hereunder are not true and correct in all material respects or Buyer and Parent
have failed to perform in any material respect any of its covenants or
obligations hereunder, and such material breach or failure has not been cured or
corrected by Buyer and Parent as provided in Section 12.3;
(c) by Buyer and Parent, pursuant to the termination right provided in
Section 10.1;
(d) by either Party if the other Party becomes insolvent, files a voluntary
petition for bankruptcy, becomes a party to any involuntary bankruptcy or
receivership proceeding that is not dismissed within 30 days of its filing or
commencement or makes an assignment for the benefit of creditors;
(e) by mutual agreement of the Parties; and
(f) by either Party if the Closing does not occur by April 30, 2000;
provided, however, that if the Parties have not received FTC approval of the
transactions contemplated in this Agreement prior to April 30, 2000, Closing may
be delayed by either Party until no later than ten days after receipt of FTC
approval, but no later than December 31, 2000;
provided, further, that no Party may exercise any right of termination pursuant
to this Agreement if the event giving rise to such termination right directly
resulted from the failure by such Party to fulfill any material undertaking or
commitment provided for herein that is required to be fulfilled by such Party
prior to the Closing.
12.2 PROCEDURE UPON TERMINATION. In order to terminate this Agreement
pursuant to Section 12.1 hereof, written notice shall forthwith be given by the
Party electing to terminate this Agreement to the other Party and, except as
provided by Section 12.3 hereof, if applicable, and
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Section 12.4 hereof, this Agreement and the transactions contemplated by this
Agreement shall thereupon be terminated and abandoned, without further action by
Buyer and Parent or Sellers. If the transactions contemplated by this Agreement
are terminated and abandoned as provided herein:
(a) each Party will promptly redeliver to the other Party or certify the
destruction of all documents, work papers and other material furnished by such
Party relating to the transactions contemplated hereby (including all copies
made thereof), whether so obtained before or after the execution hereof; and
(b) all confidential information received by any Party with respect to the
other Party or any of its affiliates shall be treated in accordance with the
Confidentiality Agreement between the Parties, dated November 4, 1999.
12.3 RIGHT TO CURE. (a) Any termination notice delivered by one Party
pursuant to the termination right referenced in Section 12.1(a) or Section
12.1(b) of this Agreement shall be effective only if it specifies in reasonable
detail the applicable breach of representation or warranty by Sellers or
material undertaking or commitment failed to be fulfilled by the other Party.
The other Party shall then have the right for 30 days following receipt of such
notice to elect, by written notice to the first Party, to remedy such failure;
in such event, this Agreement shall not be terminated, but rather shall remain
in force and effect during such 30-day period, so long as the other Party is
engaged in a good faith effort to remedy the failure identified by the first
Party in its notice and remedy is effected within such 30 days.
(b) Upon receipt from Buyer of a termination notice delivered by Buyer
pursuant to the termination right referenced in Section 12.1(c), Sellers shall
have the right, for a period of up to 30 days following receipt of such notice
of termination, to attempt to cure to the reasonable satisfaction of Buyer the
problem or defect identified by Buyer. If Sellers fail to cure or provide for
the curing of such problem or defect to the reasonable satisfaction of Buyer,
this Agreement shall terminate as of the end of such 30-day period. If Sellers
cure or provide for the curing of such problem or defect to the reasonable
satisfaction of Buyer, this Agreement shall not be terminated on account of such
problem or defect and Buyer and Parent shall be deemed to have waived any rights
hereunder against Sellers, and Sellers shall have no liability to Buyer or
Parent, as a result of such problem or defect.
12.4 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
Terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the subject matter of this Agreement, in addition to any other
remedy to which it may be entitled, at law or in equity.
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ARTICLE XIII
TAXES -PRORATIONS AND ADJUSTMENTS
13.1 PRORATION. Proration of the following items relating to the Sale
Property will be made as of the Closing Date on the basis of the number of days
before and after the Closing Date that are included in the period, with all such
items attributable to any period prior to and including the Closing Date being
for the sole account of Sellers and all such items attributable to any period
after the Closing Date being for the sole account of Buyer:
(a) water taxes on or with respect to the Sale Property (there will be an
initial proration of such taxes, if necessary, based on the most recent tax
bills plus or minus any increase or decrease known as of the Closing Date and a
final proration based on the actual tax bills relating thereto; such final
proration and remittance of any balance due shall be accomplished between Buyer,
Parent and Sellers promptly following receipt of the actual tax bills and
determination of amounts owed);
(b) personal property, ad valorem and real estate taxes on or with respect
to the Sale Property (such taxes will be prorated based on the most recent tax
bills, plus or minus any increase or decrease known as of the Closing Date and a
final proration based on the actual bills relating thereto; the owner of record
on the assessment date shall file all required reports and returns and shall pay
all such taxes due with respect to the tax period within which the Closing Date
occurs; if AAP is the owner of record on the assessment date, then Buyer shall
pay its prorated portion of taxes within 30 days after receipt of AAP's invoice
therefor; if Buyer is the owner of record on the assessment date, AAP shall pay
its prorated portion of taxes within 30 days after receipt of Buyer's invoice
therefor);
(c) the amount of rents and charges for water, sewer, telephone,
electricity and other utilities and fuel;
(d) such other amounts and charges as are normally subject to proration
between a buyer and a seller of real and personal property interests such as
rents, fees and other amounts paid by or to AAP under any lease or other
contract or arrangement covering the Sale Property; and
(e) annual permits and/or inspection fees.
All refunds, credits, debits and liabilities for taxes attributable to the
Sellers' interest in the Sale Property for periods prior to and including the
Closing Date shall be the sole property and entitlement or detriment of Sellers,
and to the extent received or incurred by Buyer or Parent after the Closing
Date, Buyer and Parent shall fully disclose, account for, and except as
otherwise provided for herein, remit same to or receive same from Sellers
promptly. Sellers, Buyer and Parent shall furnish each other with such documents
and other records as shall be reasonably requested in order to confirm all
proration calculations.
13.2 DEPOSITS. All deposits and prepayments which AAP has made in respect
of the operation of the Sale Property as of the Closing Date and which can be
transferred to Buyer shall be purchased at their face amounts by Buyer from
Sellers on the Closing Date. The amount and nature
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of such deposits as of the date hereof are set forth in Exhibit 13.2. Prior to
the Closing Date, Exhibit 13.2 shall be revised by Sellers to reflect the amount
of such deposits as of the Closing Date.
13.3 SALES TAXES. The Purchase Price provided for hereunder excludes any
sales, use, transfer or other taxes required to be paid to any state or other
taxing authority in connection with the sale and transfer of property pursuant
to this Agreement; however, in the event any taxing authority deems any such
tax, fee or levy imposed on or assessed against the transfer of the Sale
Property to Buyer under this Agreement, Buyer shall be liable and responsible
for timely payment thereof and shall indemnify and hold Sellers harmless with
respect to the payment of any such taxes, fees or levies, including any interest
or penalties assessed thereon. Buyer shall also pay all fees for recording all
instruments of conveyance or applications for permits or licenses or the
transfer thereof relating to the transfer of the interests included in the Sale
Property.
13.4 COOPERATION. Each Party shall provide the other Party with reasonable
access to all relevant documents, data and other information which may be
required by the other Party for the purpose of preparing tax returns and
responding to any audit by any taxing jurisdiction. Each Party shall cooperate
with all reasonable requests of the other Party made in connection with
determining or contesting tax liabilities attributable to the Sale Property.
Notwithstanding anything to the contrary contained in this Agreement, neither
Party to this Agreement shall be required at any time to disclose to the other
Party any tax returns or other confidential tax information.
13.5 DOCUMENT RETENTION. (a) (i) Within 120 days after Closing, Sellers
shall turn over to Buyer at AAP's offices the originals (or copies where
originals are not available) of the following types of records and information
relating to the Sale Property, in each case to the extent same are reasonably
necessary for the ownership of the Pipeline System by Buyer: maps, alignment
sheets, drawings, photographs, videotapes, studies, analyses, assessments,
reports, operating records and data, leak and spill reports, upset reports,
information and data on hard drives in the form of computer tapes and disks,
correspondence, inventory records, test records, delivery tickets, and any other
letters, memos, instruments, contracts, leases, right-of-way grants, permits,
and documents which evidence or memorialize the business and operations of the
Pipeline System. However, if a right-of-way grant would contain a pipeline
which is part of the Pipeline System and a pipeline which will be retained by
AAP, AAP shall retain the original of such right-of-way grant and shall at its
own expense provide a copy of the entire file for such right-of-way grant to
Buyer. Sellers and Buyer agree to cooperate with each other and act in good
faith in connection with the turnover of records and information pursuant to
this Section 13.5.
(ii) Subject to the provisions of 13.5(b), Buyer and Parent agree
that all books and records delivered to Buyer and Parent by Sellers
pursuant to the provisions of this Agreement shall be open for inspection
by representatives of Sellers at reasonable times and upon reasonable
notice during regular business hours following the Closing Date for such
period as may be required by law or governmental regulation, and that
Sellers may during such period at its expense make such copies thereof as
it may reasonably request; provided, however, that Buyer and Parent may
condition Sellers' access to such books and records upon the adequate
protection of information concerning Buyer's post-Closing affairs. Sellers
agree that such documents and materials as shall be retained by Sellers
shall be open
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for inspection by Buyer and Parent, provided such inspection is related to
the Sale Property, or the conduct of business or the operation of the Sale
Property at reasonable times and upon reasonable notice during regular
business hours for such period following the Closing Date as may be
required by law or governmental regulation, and that Buyer and Parent may
during such period at its expense make such copies thereof as it may
reasonably request.
(b) From and after the Closing Date, Sellers and Buyer and Parent each
shall use its reasonable efforts to afford the other access to its employees who
are familiar with the operations of the Sale Property for proper corporate
purposes, including, without limitation, the defense of legal proceedings. Such
access may include interviews or attendance at depositions or legal proceedings;
provided, however, that in any event all expenses (including wages and salaries)
reasonably incurred by either Party in connection with this Section 13.5(b)
shall be paid or promptly reimbursed by the Party requesting such services.
13.6 PAYABLES. Notwithstanding the Closing and except to the extent
covered by Sections 13.1 through 13.3, all of the accounts payable due to third
parities by AAP based upon its ownership or operation of the Pipeline System
through the Closing Date shall be paid and borne by AAP.
ARTICLE XIV
INDEPENDENT INVESTIGATION AND DISCLAIMER
14.1 INVESTIGATION OF BOOKS AND RECORDS. Each of Buyer and Parent
acknowledge that (a) it has had or, assuming Sellers comply with their
obligations set forth in Section 5.3(a), will have prior to the Closing, access
to the Sale Property, the books and records relating thereto and the officers
and employees of Sellers and (b) in making the decision to enter into this
Agreement and consummate the transactions contemplated hereby, it has relied
solely on the basis of its own independent investigation and examination of the
Sale Property itself, such books and records, and the express representations,
warranties, covenants and agreements of Sellers set forth in this Agreement.
14.2 INVESTIGATION OF ENVIRONMENTAL CONDITIONS. Except as limited pursuant
to the terms of Section 5.8, Buyer and Parent acknowledge that (a) it has had,
or, assuming Sellers comply with Section 5.3, prior to the Closing Date will
have had, access to and an opportunity to inspect the Sale Property for all
purposes, including, without limitation, for the purposes of detecting the
presence of hazardous or toxic substances, environmental hazards as other
contamination or pollution, (b) it has, or prior to the Closing Date will have,
satisfied itself as to the physical and environmental condition of the Sale
Property and, except as specifically set forth in this Agreement, agrees that
the assignment of the Sale Property on the Closing Date shall be on an "AS IS,
WHERE IS, WITH ALL FAULTS" basis, and (c) in making the decision to enter into
this Agreement and consummate the transactions contemplated hereby, Buyer and
Parent have relied solely on its own independent investigation of the Sale
Property, the records and environmental reports related thereto and the express
representations, warranties and covenants and agreements of Sellers in this
Agreement. AAP MAKES NO, AND EXPRESSLY DISCLAIMS AND NEGATES ANY, REPRESENTATION
OR WARRANTY WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF ANY TESTS,
EVALUATIONS OR REPORTS CONDUCTED OR
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PREPARED BY OR ON BEHALF OF AAP PERTAINING TO THE ENVIRONMENTAL CONDITION OF THE
SALE PROPERTY.
14.3 FURTHER DISCLAIMER. Buyer and Parent further acknowledge that, except
as expressly set forth in this Agreement, Sellers have not made, AND HEREBY
EXPRESSLY DISCLAIM AND NEGATE, ANY REPRESENTATION OR WARRANTY, EXPRESSED,
IMPLIED, AT COMMON LAW, BY STATUTE, OR OTHERWISE, RELATING TO (I) THE CONDITION
OF THE SALE PROPERTY (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY
TO MODELS OR SAMPLES OF MATERIALS, OR ENVIRONMENTAL CONDITION), (II) THE
ACCURACY OR COMPLETENESS OF EXHIBIT E HERETO, AND (III) ANY INFORMATION, DATA OR
OTHER MATERIALS (WRITTEN OR ORAL) PREVIOUSLY OR HEREAFTER FURNISHED TO BUYER BY
OR ON BEHALF OF AAP; AND BUYER WILL HAVE SOLE RESPONSIBILITY FOR ANY ACTION
TAKEN BY BUYER, OR BY OTHERS RELYING ON BUYER'S ADVICE, IN RELIANCE ON SUCH
INFORMATION, DATA OR MATERIALS. As used in the disclaimer provisions of this
Article XIV, "Sellers" shall include the general partner of Sellers as well as
Sellers' agents, representatives and consultants.
ARTICLE XV
MISCELLANEOUS
15.1 NO BROKERS. Each Party represents and warrants to the other that
there are no claims for brokerage commissions or finders' fees or other like
payments owed by such Party to another person or entity in connection with the
transactions contemplated by this Agreement. Each Party will pay or discharge,
and will indemnify and hold harmless the other from and against, any and all
claims for brokerage commissions or finders' fees incurred by reason of any
action taken by such indemnifying Party.
15.2 EXPENSES; TAXES. Except as otherwise provided herein, each Party will
pay all fees and expenses incurred by it in connection with this Agreement and
the consummation of the transactions contemplated hereby.
15.3 FURTHER ASSURANCES. Each Party will from time to time after the
Closing and without further consideration, upon the request of the other Party,
execute and deliver such documents and take such actions as the other Party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
15.4 ASSIGNMENT; PARTIES IN INTEREST. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by the respective successors
and permitted assigns of the Parties; provided that neither Party may transfer
or assign any of its rights or obligations hereunder or any interest herein
without the prior written consent of the other Party; and provided further that
the assignment by either Party of its rights under this Agreement to a corporate
subsidiary or affiliate of the Party (including assignment to the Parent in the
case of the Buyer) shall be a permitted assignment for the purposes of this
Section, but no such assignment shall relieve the assigning Party
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of its obligations hereunder; and provided further that in the case of an
assignment by Buyer to Parent, the Parent will assume Buyer's obligations under
this Agreement.
15.5 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the exhibits
and any agreements delivered pursuant hereto, contains the entire understanding
of the Parties with respect to the matters addressed by their terms. There are
no restrictions, agreements, promises, representations, warranties, covenants or
undertakings other than those expressly set forth or referred to herein. This
Agreement and such other agreements supersede all prior agreements and
undertakings between the Parties with respect to the subject matter hereof and
thereof, except to the extent any such prior agreement is specifically referred
to herein. This Agreement may be amended or modified only by a written
instrument duly executed by each of the Parties. Unless otherwise provided
herein, any condition to a Party's obligations hereunder may be waived only in
writing by such Party.
15.6 SEVERABILITY. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions had never been
contained herein, unless the deletion of such provision or provisions would
result in such a material change as to cause completion of the transactions
contemplated hereby to be unreasonable.
15.7 INTERPRETATION. The article and section headings are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
15.8 NOTICES. Notices and other communications provided for herein shall
be in writing (which shall include notice by telex or facsimile machine with
answer back capability) and shall be delivered or mailed (or if by telex,
graphic scanning or other facsimile communications equipment of the sending
Party hereto, delivered by such equipment provided that such delivery is made
during normal business hours), addressed as follows:
(a) If to Buyer or Parent:
El Paso Natural Gas Company
P. O. Box 1492
El Paso, Texas 79978-1492
Fax No.: (915) 496-5008
Attention: Patricia A. Shelton
with a copy (which shall not constitute notice) to:
Gary Paul Cooperstein, Esq.
Fried, Frank, Harris Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
FAX: 212 859 4000
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(b) If to Sellers
Plains All American Pipeline, L.P.
333 Clay Street, Suite 2900
Houston, Texas 77002
Fax No.: (713) 646-4216
Attention: Harry N. Pefanis
All American Pipeline, L.P.
333 Clay Street, Suite 2900
Houston, Texas 77002
Fax No.: (713) 646-4216
Attention: Harry N. Pefanis
with a copy (which shall not constitute notice) to:
David P. Oelman, Esq.
Andrews & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
FAX: (713) 238-7242
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above;
provided, however, that any notice of change of address shall not be deemed to
have been given to any Party until actually received by such Party.
15.9 WAIVER OF RESCISSION. Anything herein to the contrary
notwithstanding, no breach of any representation, warranty, covenant or
agreement contained herein shall give rise to any right on the part of either
Party after the consummation of the Closing to rescind this Agreement or any of
the transactions contemplated hereby.
15.10 DTPA WAIVER. Except as otherwise provided herein, Buyer and Parent
hereby waive the provisions of the Texas Deceptive Trade Practices Act, Chapter
17, Subchapter E, Section 17.41 through 17.63, inclusive (other than Section
17.555, which is not waived), of the Texas Business and Commerce Code. To
evidence its ability to grant such waiver, Buyer and Parent hereby represent and
warrant to Sellers that they (a) are in the business of seeking or acquiring, by
purchase or lease, goods or services for commercial or business use, (b) have
assets of $5 million or more according to its most recent financial statement
prepared in accordance with generally accepted accounting principles, (c) have
knowledge and experience in financial and business matters that enable it to
evaluate the merits and risks of the transaction contemplated hereby, and (d)
are not in a significantly disparate bargaining position from the position of
Sellers.
28
<PAGE>
15.11 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Texas, without regard
to any conflict of law rules that would direct application of the laws of
another jurisdiction, except to the extent that it is mandatory that the law of
some other jurisdiction, wherein the Sale Property is located, shall apply.
15.12 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same instrument.
15.13 EXHIBITS. All Exhibits attached hereto are hereby made a part of
this Agreement and incorporated herein by this reference. Any terms used but not
defined in the Exhibits shall have the meanings assigned to such terms in this
Agreement.
15.14 SPECIAL DAMAGES. The Parties waive any rights to incidental,
consequential or punitive damages resulting from a breach of this Agreement,
including, without limitation, loss of profits.
15.15 NO THIRD-PARTY BENEFICIARY. Except as expressly provided herein,
this Agreement is not intended to create nor shall it be construed to create,
any rights in any third party beneficiaries.
15.16 USE OF AAP'S NAME. As soon as practicable after Closing, Buyer and
Parent shall cease to use and shall remove or cause to be removed the names and
marks used by AAP and all variations and derivatives thereof and logos relating
thereto from the Sale Property and shall not thereafter make any use whatsoever
of such names, marks and logos whether as identification for the Sale Property
or in connection with documentation and correspondence relating thereto, except
as may be necessary to complete the transfer of the Sale Property and any
consents related thereto. In the event Buyer and Parent have not completed such
removal within 180 days after Closing, Sellers shall have the right but not the
obligation to cause such removal and Buyer and Parent shall reimburse Sellers
for any costs or expenses incurred by Sellers in connection therewith.
15.17 INTERPRETATION OF CERTAIN TERMS. Whenever a provision of this
Agreement makes reference to the manner in which the Sale Property or the
Pipeline System is "presently being operated by Sellers" or the "assets and
properties presently utilized by Sellers in connection with the operation of the
Pipeline System," or uses words or phrases intended to have the same or similar
meanings, such references shall be construed to be a reference to the manner in
which the Sale Property or the Pipeline System was operated by AAP in November
1999, or the assets and properties that were utilized by AAP at such time in
connection with the operation of the Pipeline System, as applicable, in each
case taking into account the following factors:
(a) the Pipeline System has heretofore been operated by AAP as a part of a
larger system known as AAP's "All American Pipeline" and as a result of the fact
that AAP intends to sell a substantial part of such All American Pipeline
pursuant to the transaction contemplated by this Agreement, AAP has modified, or
will modify prior to Closing, operation of the Pipeline System as necessary to
account for the fact that the Pipeline System will be sold pursuant to such
transaction and thereafter operated as a separate pipeline system;
29
<PAGE>
(b) that, in connection with such modifications, AAP has entered into
agreements for the sale of the crude oil linefill contained in the Pipeline
System and that the evacuation of such linefill is currently in process and will
be completed prior to Closing;
(c) since November 1999, the makeup of the assets and properties utilized
by AAP in connection with the operation of the Pipeline System has changed as a
result of the sale, retirement or modification of such assets and properties;
and
(d) Buyer is acquiring the Sale Property with the current intention of
using such assets for the transportation of natural gas or such use other than
crude oil transportation, and all costs, expenses, and risks associated with
carrying out such intentions are specifically acknowledged by Buyer to be the
sole responsibility and liability of Buyer.
15.18 JOINT FACILITIES. Sellers, Buyer and Parent acknowledge and agree
that certain of the assets and properties heretofore utilized by AAP in
connection with its operation of the Pipeline System are located on facilities
that are also utilized by AAP in connection with its operation of other assets
and properties that are not a part of the Pipeline System and which will
continue to be operated by AAP following closing. In an effort to clarify the
rights and obligations of AAP, Buyer and Parent with respect to such joint
facilities, a list of such joint facilities and the agreement between AAP, Buyer
and Parent regarding each such facility is set forth below:
(a) with respect to the stations located in Wink, Texas (Wink South and
Wink North), AAP shall retain ownership of the real property upon which each
such station is located, together with the tankage and related equipment, and
shall grant Buyer nonexclusive perpetual easements as may be necessary (i) to
permit Buyer to operate the portion of the Pipeline System that runs through
such stations, including any necessary equipment and appurtenances related
thereto at such stations or (ii) to enjoy its Fiber Optic Rights through such
stations, which easements shall be in substantially the form attached hereto as
Exhibit 15.18(a)(i);
(b) with respect to any portion of the Rights of Way constituting the
Additional Property that are also used in connection with the conduct by AAP of
its retained operations, Sellers and Buyer and Parent agree that AAP shall, at
Closing, partially assign its rights with respect to such Rights of Way as may
be necessary to permit Buyer to enjoy the benefit of the Fiber Optic Rights
conveyed to Buyer as the Additional Property, which partial assignment shall be
effected pursuant to a form of partial assignment instrument to be negotiated
and agreed upon by Sellers, Buyer and Parent prior to Closing (which instrument
shall contain terms and conditions that are similar to those contained in the
form of Easement Agreement attached hereto as Exhibit 15.18(a)(ii));
(c) with respect to any portion of the Rights of Way that traverse that
portion of Cadiz Station, California, which is excluded pursuant to Exhibit F
hereto, Sellers, Buyer and Parent agree that AAP shall, at Closing, grant to
Buyer nonexclusive perpetual easements as may be necessary to permit Buyer to
operate that portion of the Pipeline System that runs through such excluded part
of the station, or to enjoy its Fiber Optic Rights through such property, which
easement shall be in substantially the form attached hereto as Exhibit
15.18(a)(i);
30
<PAGE>
(d) with respect to any Fiber Optic Rights which run through Emidio
Station, California, Sellers, Buyer and Parent agree that AAP shall, at Closing,
grant to Buyer nonexclusive perpetual easements as may be necessary to permit
Buyer to enjoy its Fiber Optic Rights through such property, which easement
shall be in substantially the form attached hereto as Exhibit 15.18(a)(i);
(e) In the event Buyer requires access to Sellers' property in connection
with the use of the Fiber Optic Rights identified on Exhibit E, Buyer will
submit plan specifications and a time line to Sellers. The information
submitted by Buyer will include the anticipated length of time that Buyer will
need access to portions of Seller's property and identify the property to which
the Buyer requires access. Sellers may require Buyer to provide Sellers
reasonable written notice for access to Sellers' property, so that Sellers may
have a monitor present, at their sole expense, if they so desire. Sellers agree
to cooperate in good faith with Buyer in coordinating Buyer's access to Sellers'
property in connection with the use of the Fiber Optic Rights identified on
Exhibit E; and
(f) with respect to each of the agreements referenced in subparagraphs (a)-
(d) preceding, on or before the Closing Date, Sellers, Buyer and Parent agree to
cause the exhibits attached hereto to be amended as necessary to give effect to
such agreements.
15.19 CONFLICT WITH ASSIGNMENT. Sellers, Buyer and Parent acknowledge and
agree that in the event of any conflict or inconsistency between the terms and
provisions of this Agreement and the terms and provisions of the Conveyance
Agreements to be executed and delivered at Closing by Sellers and Buyer, the
terms and provisions of this Agreement shall control; provided, however, that in
the event of any conflict or inconsistency between any of the indemnification
provisions set forth in Article IX of this Agreement and the indemnification
provisions set forth in the joint facility agreements referenced in Section
15.18, the indemnification provisions set forth in such joint facility
agreements shall control.
15.20 PAA OBLIGATIONS. All obligations undertaken hereunder shall be
binding on the Plains Parties, but specifically excluding Plains Scurlock
Permian, L.P. and Plains Resources Inc., and its subsidiaries other than the
Plains Parties.
15.21 SURVIVAL. The following Articles shall survive the termination of
this Agreement: Article XII and Article XV.
31
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
set forth in the first paragraph hereof.
PAA
PLAINS ALL AMERICAN PIPELINE, L.P.
By: Plains All American, Inc., its general
partner
By: /s/ Greg L. Armstrong
--------------------------
Name: Greg L. Armstrong
------------------------
Title: Chief Executive Officer
------------------------
AAP
ALL AMERICAN PIPELINE, L.P.
By: Plains All American, Inc., its general
partner
By: /s/ Greg L. Armstrong
---------------------------
Name: Greg L. Armstrong
------------------------
Title: Chief Executive Officer
------------------------
EL PASO NATURAL GAS COMPANY
By: /s/ Patricia A. Shelton
--------------------------
Name: Patricia A. Shelton
------------------------
Title: President
------------------------
EPNG PIPELINE COMPANY
By: /s/ Patricia A. Shelton
---------------------------
Name: Patricia A. Shelton
-------------------------
Title: President
-------------------------
32
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-91141) of Plains All American Pipeline, L.P. of
our report dated March 29, 2000, relating to the financial statements which
appear in this Form 10-K.
PricewaterhouseCoopers L.L.P
Houston, Texas
March 29, 2000
<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 DECEMBER 31, 1999 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 53,768
<SECURITIES> 0
<RECEIVABLES> 508,920
<ALLOWANCES> 0
<INVENTORY> 72,697
<CURRENT-ASSETS> 739,000
<PP&E> 454,878
<DEPRECIATION> 11,581
<TOTAL-ASSETS> 1,223,037
<CURRENT-LIABILITIES> 637,461
<BONDS> 0
0
0
<COMMON> 228,594
<OTHER-SE> (35,621)
<TOTAL-LIABILITY-AND-EQUITY> 1,223,037
<SALES> 4,701,921
<TOTAL-REVENUES> 4,719,336
<CGS> 4,758,047
<TOTAL-COSTS> 4,798,999
<OTHER-EXPENSES> 1,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,139
<INCOME-PRETAX> (101,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (101,815)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,545)
<CHANGES> 0
<NET-INCOME> (103,360)
<EPS-BASIC> (3.21)
<EPS-DILUTED> (3.21)
</TABLE>
