Note 15—Equity-Indexed Compensation Plans

PAA Long-Term Incentive Plan Awards

Plains All American 2013 Long-Term Incentive Plan. In November 2013, our common unitholders approved the Plains All American 2013 Long-Term Incentive Plan (the “PAA 2013 LTIP”), which consolidated our three previous long-term incentive plans (the Plains All American GP LLC 1998 Long-Term Incentive Plan, as amended, the Plains All American 2005 Long-Term Incentive Plan, as amended, and the Plains All American PPX Successor Long-Term Incentive Plan, as amended) into a single plan. The PAA 2013 LTIP authorizes the issuance of an aggregate of approximately 13.1 million PAA common units deliverable upon vesting. Although other types of awards are contemplated under the PAA 2013 LTIP, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units of PAA (or cash equivalent) upon vesting. Some awards also include DERs, which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding PAA common unit.

Plains All American PNG Successor Long-Term Incentive Plan. In conjunction with the PNG Merger on December 31, 2013, our general partner adopted and assumed the PAA Natural Gas Storage, L.P. 2010 Long-Term Incentive Plan (the “PNG 2010 LTIP”) and changed the plan name to the Plains All American PNG Successor Long-Term Incentive Plan (the “PNG Successor LTIP”). Additionally, as a result of the PNG Merger, outstanding awards of PNG phantom units issued under the PNG 2010 LTIP were converted into comparable awards of phantom units representing the right to receive PAA common units by applying the Merger Exchange Ratio to each outstanding phantom unit and rounding down to the nearest PAA phantom unit for any fractions. See Note 10 for further discussion of the PNG Merger. The PNG Successor LTIP authorizes the issuance of an aggregate of 1.3 million PAA common units deliverable upon vesting. Although other types of awards are contemplated under the PNG Successor LTIP, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units of PAA (or cash equivalent) upon vesting. Some awards also include DERs, which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding PAA common unit.

Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan. Our general partner has adopted the Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan (the “2006 Plan”) for non-officer employees. The 2006 Plan authorizes the grant of approximately 4.2 million “tracking units” which, upon vesting, represent the right to receive a cash payment in an amount based upon the market value of a PAA common unit at the time of vesting.

Our general partner is entitled to reimbursement by us for any costs incurred in settling obligations under the PAA 2013 LTIP, the PNG Successor LTIP or the 2006 Plan.

At December 31, 2013, the following LTIP awards, denominated in PAA units, were outstanding (units in millions):

PAA

LTIP Units

Distribution

Estimated Unit Vesting Date

Outstanding (1) (2)

Required (3)

2014

2015

2016

2017

Thereafter

8.4

$1.925 - $2.65

1.9

2.1

2.0

1.3

1.1

(1) Approximately 4.5 million of the 8.4 million outstanding PAA LTIP awards also include DERs, of which 3.0 million had vested as of December 31, 2013.

(2) LTIP units outstanding do not include AAP Management Units.

(3) These LTIP awards have performance conditions requiring the attainment of an annualized PAA distribution of between $1.925 and $2.65 and vest upon the later of a certain date or the attainment of such levels. If the performance conditions are not attained while the grantee remains employed by us, or the grantee does not meet employment requirements, these awards will be forfeited. For purposes of this disclosure, vesting dates are based on an estimate of future distribution levels and assume that all grantees remain employed by us through the vesting date.

Our LTIP awards include both liability-classified and equity-classified awards. In accordance with FASB guidance regarding share-based payments, the fair value of liability-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit at each balance sheet date and adjusted for the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipients. The fair value of equity-classified LTIP awards is calculated based on the closing market price of the PAA unit on the respective grant dates and adjusted for the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipient. This fair value is recognized as compensation expense over the service period.

Our LTIP awards typically contain performance conditions based on the attainment of certain annualized distribution levels and vest upon the later of a certain date or the attainment of such levels. For awards with performance conditions (such as distribution targets), expense is accrued over the service period only if the performance condition is considered to be probable of occurring. When awards with performance conditions that were previously considered improbable become probable, we incur additional expense in the period that the probability assessment changes. This is necessary to bring the accrued obligation associated with these awards up to the level it would be as if we had been accruing for these awards since the grant date. DER awards typically contain performance conditions based on the attainment of certain annualized distribution levels and become earned upon the attainment of such levels. The DERs terminate with the vesting or forfeiture of the underlying LTIP award. For liability-classified awards, we recognize DER payments in the period the payment is earned as compensation expense. For equity-classified awards, we recognize DER payments in the period it is paid as a reduction of partners’ capital.

Our accrued liability at December 31, 2013 related to all outstanding liability-classified LTIP awards and DERs is approximately $98 million, of which approximately $43 million was classified as short-term and approximately $55 million was classified as long-term. These short- and long-term accrued LTIP liabilities are reflected in “Accounts payable and accrued liabilities” and “Other long-term liabilities and deferred credits,” respectively, on our Consolidated Balance Sheet. These liabilities include accruals associated with our assessments that an annualized distribution of $2.75 was probable of occurring. At December 31, 2012, the accrued liability was approximately $90 million.

Equity-indexed compensation activity for LTIP awards is summarized in the following table (units in millions):

	PAA Units (1) (3)				PNG Units (2) (4)
			Weighted Average				Weighted Average
			Grant Date				Grant Date
	Units		Fair Value per Unit		Units		Fair Value per Unit
Outstanding, December 31, 2010	8.8		$	20.85	1.0		$	20.55
Granted	1.0		$	27.53	—		$	—
Vested	(1.4	)	$	20.34	(0.1	)	$	23.62
Cancelled or forfeited	(0.4	)	$	20.99	(0.1	)	$	19.20
Outstanding, December 31, 2011	8.0		$	21.77	0.8		$	20.55
Granted	1.5		$	33.90	0.1		$	15.33
Vested	(3.2	)	$	19.82	—		$	23.64
Cancelled or forfeited	(0.3	)	$	29.36	—		$	—
Outstanding, December 31, 2012	6.0		$	25.55	0.9		$	17.49
Granted	4.1		$	47.60	0.4		$	17.51
Vested	(1.8	)	$	24.79	—		$	18.88
Cancelled or forfeited (5)	(0.3	)	$	36.70	(0.3	)	$	21.62
Conversion of PNG unit-denominated awards into PAA unit-denominated awards (6)	0.4		$	40.54	(1.0	)	$	16.41
Outstanding, December 31, 2013	8.4		$	36.97	—		$	—

(1) Amounts do not include AAP Management Units.

(2) Amounts include PNG Transaction Grants, which are discussed further below.

(3) Approximately 0.5 million, 1.0 million, and 0.5 million PAA common units were issued net of tax withholding of approximately 0.3 million, 0.5 million and 0.2 million units, in 2013, 2012, and 2011 respectively, in connection with the settlement of vested awards. The remaining 1.0 million, 1.7 million and 0.8 million of awards that vested during 2013, 2012 and 2011 respectively, were settled in cash.

(4) Less than 0.1 million PNG units vested during each of the years ended December 31, 2013 and December 31, 2012.

(5) As a result of the PNG Merger on December 31, 2013, approximately 0.3 million outstanding PNG Transaction Grants were cancelled.

(6) As a result of the PNG Merger on December 31, 2013, outstanding awards of PNG phantom units were converted into comparable awards of PAA phantom units representing the right to receive PAA common units by applying the Merger Exchange Ratio to each outstanding PNG phantom unit and rounding down to the nearest PAA phantom unit for any fractions.

PNG Transaction Grants

In connection with the IPO of PNG in 2010, we created a plan based on PNG equity. In September 2010, we entered into agreements with certain of our officers, pursuant to which these officers acquired, in equal proportion, phantom common units, phantom series A subordinated units, and phantom series B subordinated units representing a portion of the limited partner interest of PNG issued to us in connection with PNG’s IPO. The phantom common units vested in equal one-half increments in May 2011 and May 2012. The unvested portion of these grants were surrendered on December 31, 2013 in connection with the closing of the PNG Merger.

AAP Management Units

In August 2007, the owners of our general partner authorized the issuance of AAP Management Units in order to provide additional performance incentives and encourage retention for certain members of our senior management. AAP Management Units become earned in various increments upon the achievement of PAA distribution levels of between $1.75 and $2.85 (or in some cases, within 180 days thereafter). When earned, the AAP Management Units are entitled to participate in distributions paid by our general partner in excess of $11 million (as adjusted for debt service costs and excluding special distributions funded by debt) per quarter. Up to approximately 52.1 million AAP Management Units are authorized for issuance. Assuming all 52.1 million AAP Management Units were granted and earned, the maximum participation would be approximately 8% of our general partner’s distribution in excess of $11 million (as adjusted) each quarter.

As a result of the recapitalization of our general partner in connection with the IPO of PAGP on October 21, 2013, the number of AAP Management Units reserved for future grants, outstanding and earned were adjusted on a proportionate basis. The adjustment did not result in a change in vesting criteria, service period, or total grant date fair value. This adjustment is reflected retrospectively in the following summary of AAP Management Units (in millions):

	Reserved for Future Grants		Outstanding		Outstanding Units Earned	Grant Date Fair Value Of Outstanding AAP Management Units (1)
Balance as of December 31, 2011	4.3		47.8		20.9	$	44
Forfeitures	0.4		(0.4	)	—	—
Earned	N/A		N/A		13.1	N/A
Balance as of December 31, 2012	4.7		47.4		34.0	$	44
Granted	(1.2	)	1.2		—	7
Earned	N/A		N/A		13.0	N/A
Balance as of December 31, 2013	3.5		48.6		47.0	$	51

(1) Of the grant date fair value, approximately $5 million, $6 million and $9 million was recognized as expense during the years ended December 31, 2013, 2012 and 2011, respectively. Of the $51 million grant date fair value, approximately $49 million had been recognized through December 31, 2013.

The entire economic burden of the AAP Management Units, which are equity classified, is borne solely by AAP and does not impact our cash or units outstanding. However, because the intent of the AAP Management Units is to provide a performance incentive and encourage retention for certain members of our senior management, we recognize the grant date fair value of the AAP Management Units as compensation expense over the service period. The expense is also reflected as a capital contribution and thus, results in a corresponding credit to partners’ capital on our Consolidated Financial Statements.

Other Consolidated Equity-Indexed Compensation Information

We refer to all of the LTIPs and AAP Management Units collectively as the “Equity-indexed compensation plans.” The table below summarizes the expense recognized and the value of vesting (settled both in units and cash) related to our equity-indexed compensation plans and includes both liability-classified and equity- classified awards (in millions):

	2013		2012		2011
Equity-indexed compensation expense	$	116	$	101	$	110
LTIP unit-settled vestings (1)	$	48	$	62	$	24
LTIP cash-settled vestings	$	61	$	66	$	19
DER cash payments	$	8	$	7	$	4

(1) For the years ended December 31, 2013, 2012 and 2011, less than $1 million, approximately $1 million and $2 million, respectively, relates to unit vestings which were settled with PNG common units.

Based on the December 31, 2013 fair value measurement and probability assessment regarding future distributions, we expect to recognize approximately $193 million of additional expense over the life of our outstanding awards related to the remaining unrecognized fair value. Actual amounts may differ materially as a result of a change in the market price of our units and/or probability assessments regarding future distributions. We estimate that the remaining fair value will be recognized in expense as shown below (in millions):

Year	Equity-Indexed Compensation Plan Fair Value Amortization (1) (2)
2014	$	80
2015	55
2016	36
2017	16
2018	5
Thereafter	1
Total	$	193

(1) Amounts do not include fair value associated with awards containing performance conditions that are not considered to be probable of occurring at December 31, 2013.

(2) Includes unamortized fair value associated with AAP Management Units.