-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NMRk3uQQpzOjUzuYnkjxwqV4axCgFUVoxOf+aUNRJruCD93B+FulC4GehQ6AwkAE x+rNKpZ1P416RVxwqGEJHA== 0001157523-05-010144.txt : 20051115 0001157523-05-010144.hdr.sgml : 20051115 20051114215951 ACCESSION NUMBER: 0001157523-05-010144 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20051114 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051115 DATE AS OF CHANGE: 20051114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC ENERGY PARTNERS LP CENTRAL INDEX KEY: 0001168397 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 680490580 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31345 FILM NUMBER: 051204417 MAIL ADDRESS: STREET 1: 5900 CHERRY AVE CITY: LOS ANGELES STATE: CA ZIP: 90805 4405 8-K 1 a5020715.txt PACIFIC ENERGY PARTNERS, L.P. 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) November 14, 2005 PACIFIC ENERGY PARTNERS, L.P. (Exact name of registrant as specified in its charter) Delaware 1-31345 68-0490580 (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) File Number) Identification No.) 5900 Cherry Avenue Long Beach, CA 90805 (Address of principal executive office) (562) 728-2800 (Registrant's telephone number, including area code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION On November 14, 2005, Pacific Energy Partners, L.P. (the "Partnership") issued a press release announcing its third quarter 2005 financial results. The press release is being furnished with this Current Report on Form 8-K as Exhibit 99.1 and is hereby incorporated herein by reference. The information provided in this Item 2.02 (including Exhibit 99.1) shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be incorporated by reference in any filing made by the Registrant pursuant to the Securities Act of 1933, as amended, other than to the extent that such filing incorporates by reference any or all of such information by express reference thereto. ITEM 7.01 REGULATION FD DISCLOSURE EBITDA is used as a supplemental performance measure by management, and the Partnership believes, by external users of its financial statements, such as investors, commercial banks, research analysts and rating agencies, to assess: (i) the financial performance of its assets without regard to financing methods, capital structures or historical cost basis; (ii) the ability of its assets to generate cash sufficient to pay interest cost and support the Partnership's indebtedness; (iii) the Partnership's operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing and capital structure; and (iv) the viability of projects and the overall rates of return on alternative investment opportunities. The Partnership defines EBITDA as net income plus interest expense, income tax expense (recovery) and depreciation and amortization expense. Although the Partnership is not a taxable entity, its Canadian subsidiaries are taxable entities. As a result of the acquisition of the Rangeland system, Canadian income tax expense is added to net income in the calculation of EBITDA beginning with the second quarter of 2004. EBITDA should not be considered an alternative to net income, income before taxes, cash flows from operations, or any other measure of financial performance presented in accordance with GAAP. EBITDA is not intended to represent cash flow. The Partnership's EBITDA may not be comparable to EBITDA or similarly titled measures of other companies. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS 99.1 Pacific Energy Partners, L.P. Press Release dated November 14, 2005. Calculations of distributable cash flow for the three months and nine months ended September 30, 2005 and September 30, 2004, are presented in the press release included as an exhibit to this Form 8-K. Distributable Cash Flow ("DCF") is a significant liquidity and performance measure used by its management to compare cash flows generated by the Partnership to the cash distributions we makes to its partners and we believe that investors benefit from having access to the same financial measures being utilized by management. Using this financial measure, management can quickly compute the coverage ratio of these cash flows to cash distributions. This is an important financial measure for limited partners of the Partnership since it is an indicator of its success in providing a cash return on their investment. Specifically, this financial measure tells investors whether or not the Partnership is generating cash flows at a level that can sustain or support an increase in its quarterly cash distributions paid to partners. Lastly, DCF is the quantitative standard used throughout the investment community with respect to publicly traded partnerships, because the value of a partnership unit is in part measured by its yield (which in turn is based on the amount of cash distributions a partnership pays to its unitholders). However, DCF is a non-GAAP financial measure and should not be considered as an alternative to net income, cash flow from operations, or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States. In addition, the Partnership's DCF may not be comparable to DCF or similarly titled measures of other companies. The GAAP measure most directly comparable to DCF is net cash provided by operating activities. Several adjustments to DCF are required to reconcile to net cash provided by operating activities. These adjustments include: (i) adding back or subtracting net changes in operating assets and liabilities which are not included in DCF but are considered in net cash provided by operating activities; (ii) subtracting the Partnership's share of Frontier Pipeline Company's ("Frontier") net income which historically has been approximately equivalent to its distributions from Frontier and adding the Partnership's share of Frontier's distributions to it; (iii) adding the balance of the employee compensation under the long-term incentive plan since GAAP requires this common unit issuance to be presented ion a gross basis; (iv) deducting transaction costs reimbursed by the Partnership's general partner which are required by GAAP to reduce net cash provided by operating activities; and (v) adding back sustaining capital expenditures which are not deducted in arriving at net cash provided by operating activities. Sustaining capital expenditures are expenditures to replace partially or fully depreciated assets in order to maintain the existing operating capacity or efficiency of our assets and extend their useful lives. Calculations of recurring net income for the nine months ended September 30, 2005, are presented in the press release included as an exhibit to this Form 8-K. Recurring net income is a non-GAAP financial measure. This measure is used to more precisely compare year over year net income by eliminating one-time, non-recurring charges. To calculate recurring net income for the nine months ended September 30, 2005, the amounts relating to the expense associated with the Line 63 oil release, the compensation expense due to the accelerated vesting of the long-term incentive plan, and the transaction costs associated with the sale of our general partner, which were reimbursed by LB Pacific, LP and The Anschutz Corporation, were added back to net income. To calculate recurring net income for the nine months ended September 30, 2004, the amounts relating to the write-off of deferred financing cost and the interest rate swap termination expense were added back to net income. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PACIFIC ENERGY PARTNERS, L.P. By: PACIFIC ENERGY GP, LP, its general partner By: PACIFIC ENERGY MANAGEMENT LLC, by its general partner By: /S/ GERALD A. TYWONIUK ---------------------- Gerald A. Tywoniuk Senior Vice President and Chief Financial Officer Dated: November 14, 2005 EXHIBIT INDEX Exhibit 99.1 -- Pacific Energy Partners, L.P. Press Release dated November 14, 2005 EX-99.1 2 a5020715ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 Pacific Energy Partners, L.P. Reports Earnings for Third Quarter 2005 LONG BEACH, Calif.--(BUSINESS WIRE)--Nov. 14, 2005--Pacific Energy Partners, L.P. (NYSE:PPX) ("Pacific Energy" or the "Partnership") announced that net income for the three months ended September 30, 2005 was $12.2 million, or $0.39 per limited partner unit, compared to net income of $9.9 million, or $0.33 per limited partner unit, for the period ended September 30, 2004. All per unit amounts in the text of this news release are reported on a diluted basis. On October 21, 2005, Pacific Energy announced a cash distribution of $0.5125 per unit for the third quarter of 2005, or $2.05 per unit annualized. This is unchanged from the second quarter 2005 distribution level and is 5.1% higher than the third quarter 2004 distribution level. The distribution was paid on November 14, 2005, to holders of record as of October 31, 2005. Distributable cash flow to the limited partners for the third quarter of 2005 was $16.5 million. On a diluted, weighted average basis, there were 30,762,000 limited partner units outstanding during the third quarter of 2005. The improvement in results for the quarter ended September 30, 2005, reflects increased pipeline volumes in the Rocky Mountains, increased storage capacity and higher tank utilization for Pacific Terminals, and higher location differentials on the Rangeland pipeline system. These increases were partially offset by lower pipeline volumes on the West Coast and higher maintenance expenses. "Our third quarter results continue to show the strength of diversity in our business. High utilization rates in the Pacific Terminals storage and distribution system, coupled with the pipeline volume growth that our Rocky Mountain business unit achieved, more than offset the effect of lower West Coast pipeline volumes in the third quarter," stated Irv Toole, President and CEO of Pacific Energy. "We are pleased to have completed on September 30, 2005, the acquisition of refined products storage and pipeline assets from Valero L.P. Integration is progressing well, and we look forward to further growth at Pacific Energy through internal expansion projects and acquisitions." OPERATING RESULTS BY SEGMENT WEST COAST BUSINESS UNIT Operating income was $9.8 million for the three months ended September 30, 2005, compared to $11.4 million in the corresponding period in 2004. West Coast pipeline volumes for the three months ended September 30, 2005 were approximately 25% lower than in the third quarter of 2004. During the 2005 quarter, volumes were impacted by Los Angeles area refinery maintenance, lower Outer Continental Shelf (OCS) production due to maintenance activities, natural production decline, and diversion of some volumes north to San Francisco. The decline in volumes was partially offset by increased tariffs. Pacific Terminals' storage facilities had a higher rate of utilization during the quarter, as well as increased storage capacity. The resulting revenue increase was partially offset by increased expense associated with the unscheduled repair of two storage tanks. Margins for Pacific Marketing and Transportation ("PMT") were greater in the third quarter of 2005 compared to the third quarter of 2004. In addition, on July 1, 2005, Pacific Energy purchased certain crude oil contracts which were integrated into PMT's business. Pacific Energy continues to advance the Pier 400 deepwater import terminal project in the environmental permitting process, as well as in securing additional customer commitments. The Partnership expects to have the permits necessary to begin construction in the second half of 2006, with completion and start-up expected in the fourth quarter of 2007. ROCKY MOUNTAIN BUSINESS UNIT Operating income was $13.6 million for the three months ended September 30, 2005, compared to $7.5 million in the corresponding period in 2004. Increased market share for pipeline shipments of crude oil to Billings, Montana, and increased crude oil demand by Salt Lake City refiners helped drive higher pipeline volumes and revenues. On July 1, 2005 we increased certain tariffs on our U.S. Rocky Mountain pipelines, based on the FERC index adjustment, by 3.6%. In Canada, higher revenues resulted from increased location differentials and higher volumes transported south to the U.S. The new receiving terminal and pump station in Edmonton, which will provide direct access to supplies of synthetic and other types of crude oil, is expected to begin operations in December 2005. As previously announced on November 9, 2005, Pacific Energy determined there was an error in the procedures used to properly account for inventory and cost of goods sold for the Rangeland system since its acquisition in May 2004, which resulted in an understatement of net revenue and a corresponding understatement of the inventory balance. The impact on net income and inventory balances of this understatement of net revenue was determined to be immaterial for each of the quarters impacted including the current quarter, and therefore a cumulative adjustment was made in the third quarter of 2005. This adjustment increased net income after tax in the third quarter of 2005 by $0.7 million, and did not affect cash flow from operating activities. In addition, Pacific Energy has now implemented the proper procedures to prevent this error in the future. NINE MONTH RESULTS For the nine months ended September 30, 2005, net income was $27.8 million, or $0.96 per limited partner unit, compared to $27.1 million, or $0.94 per limited partner unit, for the period ended September 30, 2004. Recurring net income for the nine months ended September 30, 2005 was $34.7 million, or $1.13 per limited partner unit, compared with $30.0 million, or $1.05 per limited partner unit, for the nine months ended September 30, 2004. Recurring net income for the nine months ended September 30, 2005 excludes a $2.0 million expense for the insurance deductible associated with the remediation of the Pyramid Lake oil release on Line 63, a $3.1 million expense related to the accelerated vesting of restricted units under Pacific Energy's long-term incentive plan as a result of the change in control attributable to the purchase of the Pacific Energy's general partner by LB Pacific, LP, and a $1.8 million expense as a result of the general partner transaction (an item that was required to be recorded as a partnership expense with the general partner's payment of it recorded as a capital contribution). Recurring net income for the nine months ended September 30, 2004 excludes a $2.9 million write off of deferred financing costs. Net income for the first nine months of 2005, excluding the unusual items, reflects the benefit of a full nine months of operations in 2005 for the Rangeland system, which was acquired in May 2004, higher pipeline volumes in the Rocky Mountains, and higher storage and terminaling revenues for Pacific Terminals. Partially offsetting these increases were lower gathering and blending margins from PMT compared to higher than average margins experienced in the same period of 2004, unscheduled repairs and maintenance associated with earth movement and stream erosion problems caused by the heavy rainfall in Southern California, and unscheduled repairs for two Pacific Terminals tanks. In March 2005, Pacific Energy experienced an oil release on Line 63 in northern Los Angeles County, which was caused by a rain-induced landslide. In addition, record rainfall in Southern California caused stream erosion and earth movement, exposing the Partnership's pipelines in multiple locations. The total costs associated with the oil recovery and restoration effort at Pyramid Lake is now estimated at $19.5 million, of which Pacific Energy is paying $2.0 million for its insurance deductible. Additionally, the Partnership estimates that the cost of pipeline repairs and improvements associated with the Pyramid Lake landslide and the costs to address earth movement and stream erosion problems at other locations along Line 63 and Line 2000 will total approximately $6.3 million, a portion of which is capitalized. On August 1, 2005, we initiated a temporary surcharge of $0.10 per barrel on Line 63 long haul tariff rates to recover the repair costs and insurance deductible. LOOKING FORWARD For the full year ending December 31, 2005, Pacific Energy is increasing its guidance for recurring net income to $1.46 to $1.50 per unit. Included in the full year guidance is $3.6 million or $0.11 per unit, of unusual and unanticipated expense associated with the rain related pipeline repairs in Southern California. For the quarter ending December 31, 2005, Pacific Energy is forecasting net income of $0.33 to $0.37 per unit. This guidance includes the benefit of the acquisition of assets from Valero L.P. As result of the Valero asset acquisition, approximately $3.3 million of additional depreciation and amortization expense is estimated for the fourth quarter of 2005. Pacific Energy is currently determining the final purchase price allocation for the assets, which impacts depreciation and amortization expense. Should this non-cash expense be different than what is currently estimated, it could have a material impact, either positive or negative, on the fourth quarter and full year 2005 earnings estimates, but such an impact would not affect distributable cash flow. As previously announced, management intends to recommend a distribution increase of $0.03 per limited partner unit per quarter associated with the acquisition of assets from Valero L.P., and an additional $0.0125 per quarter increase associated with the start-up of the initiating synthetic crude oil facility in Edmonton, for a total increase of $0.0425 per unit per quarter. The resulting quarterly distribution would be $0.555 per unit, or $2.22 per unit annually, an 8.3% increase from the current distribution. These potential increases would be effective for the fourth quarter 2005, with payment occurring in February 2006. For the full year, Pacific Energy is projecting total capital expenditures of $53 million, including $37 million for expansion projects, $11 million for transition capital projects, and $5 million for sustaining capital projects. RECENT DEVELOPMENTS On September 30, 2005, Pacific Energy completed the acquisition of certain terminal and pipeline assets from subsidiaries of Valero L.P. consisting of two California terminals handling refined products, refinery blend stocks, and crude oil, three East Coast refined and specialty products terminals, and a 550-mile refined products pipeline and four terminals in the U.S. Rocky Mountain region. The aggregate purchase price was $455 million, plus the assumption of certain environmental and operating liabilities and closing costs. During September 2005, Pacific Energy completed several offerings to fund the acquisition of the assets from Valero L.P. In September 2005, the Partnership completed a public equity offering of 5,232,500 units, for total net proceeds of $163.4 million, inclusive of the general partner's contribution. In addition, on the 23rd of September, the Partnership completed the sale of $175 million of 6 1/4% senior unsecured notes due September 15, 2015. Lastly, on September 30, 2005, Pacific Energy completed the private placement of 4.3 million units to various institutional investors for total net proceeds of $131.8 million, including the general partner's contribution. Pursuant to the terms of the partnership agreement, on August 12, 2005, 2,616,250 subordinated units owned by LB Pacific, LP converted on a one-for-one basis to common units. The conversion of the subordinated units will not affect future cash distributions. Pacific Energy will host a conference call at 3:00 p.m. ET (noon PT) on Tuesday, November 15, 2005, to discuss the results of the third quarter of 2005. The dial in number for the live call is 800-446-2782 or 847-413-3235, and the passcode is 13252765. The call will be available one hour after the end of the conference call and will be replayed for one week by dialing 888-843-8996 or 630-652-3044 and using 13252765 as the passcode. The call will also be available both live and via replay on the Pacific Energy Partners, L.P. website at www.PacificEnergy.com. About Pacific Energy: Pacific Energy Partners, L.P. is a master limited partnership headquartered in Long Beach, California. Pacific Energy is engaged in the business of gathering, transporting, storing and distributing crude oil, refined products and other related products. The Partnership generates revenues by transporting such commodities on its pipelines, by leasing capacity in its storage facilities, and by providing other terminaling services. The Partnership also buys and sells crude oil, activities that are generally complementary to its crude pipeline operations. Pacific Energy conducts its business through two business units, the West Coast Business Unit, which includes activities in California, and the Philadelphia, PA area, and the Rocky Mountain Business Unit, which includes Alberta, Canada. This news release may include "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included or incorporated herein may constitute forward-looking statements. Although Pacific Energy believes that the forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that may affect Pacific Energy's operations and financial performance. Among the factors that could cause results to differ materially are those risks discussed in Pacific Energy's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2004. The estimates associated with the oil release are based on facts known at the time of estimation and the Partnership's assessment of the ultimate outcome. Among the many uncertainties that impact the estimates are the necessary regulatory approvals for and potential modification of remediation plans, changes in costs associated with environmental remediation services and equipment and the possibility of third party legal claims giving rise to additional expenses. Therefore, no assurance can be made that costs incurred in excess of the estimated costs, if any, would not have a material adverse effect on the Partnership's financial condition, results of operations, or cash flows, although the Partnership believes it is likely that most, if not all, of any such excess cost, to the extent attributable to clean-up and third-party claims, would be recoverable through insurance. As new information becomes available in future periods, the Partnership may change its expense accrual and recovery estimates. For additional information about Pacific Energy, please visit its website at www.PacificEnergy.com. PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except per unit amounts) Three Months Ended Nine Months Ended September 30, September 30, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Operating revenues: Pipeline transportation revenue $27,283 $28,160 $83,067 $79,879 Storage and distribution revenue 9,731 8,391 30,923 27,773 Pipeline buy/sell transportation revenue 11,683 7,972 28,905 11,662 Crude oil sales, net of purchases 5,823 3,568 13,647 14,436 -------- -------- -------- -------- Net revenues 54,520 48,091 156,542 133,750 -------- -------- -------- -------- Expenses: Operating 25,019 22,788 72,065 62,572 Line 63 oil release costs -- -- 2,000 -- General and administrative 4,115 3,762 12,987 11,252 Accelerated long-term incentive plan compensation expense -- -- 3,115 -- Transaction costs(1) -- -- 1,807 -- Depreciation and amortization 6,560 6,821 19,695 17,776 -------- -------- -------- -------- Total expenses 35,694 33,371 111,669 91,600 -------- -------- -------- -------- Share of net income of Frontier 516 406 1,363 1,190 -------- -------- -------- -------- Operating income 19,342 15,126 46,236 43,340 Net interest expense (6,237) (5,234) (17,679) (13,743) Write-off of deferred financing costs and interest rate swap termination expense -- -- -- (2,901) Other income 494 219 1,387 606 -------- -------- -------- -------- Income before foreign income tax expense 13,599 10,111 29,944 27,302 -------- -------- -------- -------- Income tax expense: Current (1,411) (118) (1,898) (150) Deferred (22) (103) (239) (57) -------- -------- -------- -------- (1,433) (221) (2,137) (207) -------- -------- -------- -------- Net income $12,166 $9,890 $27,807 $27,095 ======== ======== ======== ======== Net income (loss) for the general partner interest(2) $243 $198 $(1,215) $542 ======== ======== ======== ======== Net income for the limited partner interests(2) $11,923 $9,692 $29,022 $26,553 ======== ======== ======== ======== Weighted average units outstanding: Basic 30,761 29,574 30,051 28,008 Diluted 30,762 29,682 30,089 28,125 Basic net income per limited partner unit $0.39 $0.33 $0.97 $0.95 ======== ======== ======== ======== Diluted net income per limited partner unit $0.39 $0.33 $0.96 $0.94 ======== ======== ======== ======== (1) Pursuant to an Ancillary Agreement, our general partner reimbursed us $1.8 million for costs incurred in connection with the sale of our general partner. Generally accepted accounting principles require us to record an expense with the reimbursement shown as a partner's capital contribution. (2) See "General Partner and Limited Partners Allocation of Net Income" schedule included herein. PACIFIC ENERGY PARTNERS, L.P. (Unaudited) (In thousands) CONDENSED CONSOLIDATED BALANCE SHEETS September December 30, 31, 2005 2004 ----------- --------- Assets Current assets $186,845 $95,545 Property and equipment, net 1,029,619 718,624 Intangible assets 217,506 38,026 Investment in Frontier Pipeline Company 7,805 7,886 Other assets 15,540 9,824 ----------- --------- Total assets $1,457,315 $869,905 =========== ========= Liabilities and Partners' Capital Current liabilities $156,208 $48,045 Long-term debt 539,789 357,163 Deferred income taxes 36,111 34,556 Other long term liabilities 18,456 7,675 Partners' capital 706,751 422,466 ----------- --------- Total liabilities and partners' capital $1,457,315 $869,905 =========== ========= CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, ------------------- 2005 2004 --------- --------- Cash flows from operating activities: Net income $27,807 $27,095 Depreciation, amortization, non-cash employee compensation under long-term incentive plan, deferred income taxes and Frontier(1) adjustment 24,256 19,476 Non-cash write-off of deferred financing costs -- 2,321 Net changes in operating assets and liabilities 13,592 (6,672) --------- --------- Net cash provided by operating activities 65,655 42,220 Cash flows from investing activities: Acquisitions (461,165) (139,000) Net additions to property and equipment (27,265) (11,522) Other -- (621) --------- --------- Net cash used in investing activities (488,430) (151,143) Cash flows from financing activities: Issuance of common units, net of fees and offering expenses 289,122 125,881 Capital contribution from the general partner 8,569 2,708 Net proceeds from senior notes offering 170,997 241,086 Repayment of term loan -- (225,000) Proceeds from credit facilities 203,291 157,924 Repayment of credit facilities (195,661) (145,453) Deferred financing costs (4,676) (1,388) Distributions to partners (46,224) (41,800) Issuance of common units pursuant to exercise of unit option 707 -- Related parties (1,171) (206) --------- --------- Net cash provided by financing activities 424,954 113,752 Effect of translation adjustment on cash 213 -- --------- --------- Net increase in cash and cash equivalents 2,392 4,829 Cash and cash equivalents, beginning of period 23,383 9,699 --------- --------- Cash and cash equivalents, end of period $25,755 $14,528 ========= ========= (1) Net cash received from (to) Frontier was $1,317 and $(44) for the nine months ended September 30, 2005 and 2004, respectively. PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OPERATING HIGHLIGHTS BY SEGMENT Three Months Ended September 30, 2005 and 2004 (Unaudited) (In thousands) Intersegment Rocky and West Coast Mountain Intrasegment Operations Operations Eliminations(1) Total ---------- ---------- ------------- -------- Three Months Ended September 30, 2005: Segment revenue: Pipeline transportation revenue $13,887 $14,887 $(1,491) $27,283 Storage and distribution revenue 9,731 -- 9,731 Pipeline buy/sell transportation revenue -- 11,683 11,683 Crude oil sales, net of purchases 5,690 163 (30) 5,823 ---------- ---------- -------- Net revenue 29,308 26,733 54,520 ---------- ---------- -------- Segment expenses: Operating expenses 16,004 10,536 (1,521) 25,019 Depreciation and amortization 3,491 3,069 6,560 ---------- ---------- -------- Total expenses 19,495 13,605 31,579 ---------- ---------- -------- Share of net income of Frontier -- 516 516 ---------- ---------- -------- Operating income(2) $9,813 $13,644 $23,457 ========== ========== ======== Operating Data (barrels per day, in thousands) Line 2000 and Line 63 pipeline volume 104.4 Rangeland pipeline system: Sundre - North 19.3 Sundre - South 48.1 Western Corridor system volume 26.8 Salt Lake City Core system volume 125.6 Frontier pipeline volume 49.6 Three Months Ended September 30, 2004: Segment revenue: Pipeline transportation revenue $16,985 $12,500 (1,325) $28,160 Storage and distribution revenue 8,544 -- (153) 8,391 Pipeline buy/sell transportation revenue -- 7,972 7,972 Crude oil sales, net of purchases 3,568 -- 3,568 ---------- ---------- -------- Net revenue 29,097 20,472 48,091 ---------- ---------- -------- Segment expenses: Operating expenses 14,309 9,957 (1,478) 22,788 Depreciation and amortization 3,433 3,388 6,821 ---------- ---------- -------- Total expenses 17,742 13,345 29,609 ---------- ---------- -------- Share of net income of Frontier -- 406 406 ---------- ---------- -------- Operating income(2) $11,355 $7,533 $18,888 ========== ========== ======== Operating Data (barrels per day, in thousands) Line 2000 and Line 63 pipeline volume 139.7 Rangeland pipeline system: Sundre - North 21.8 Sundre - South 46.8 Western Corridor system volume 23.1 Salt Lake City Core system volume 122.6 Frontier pipeline volume 51.4 (1) Eliminations are required to account for revenue on services provided by one subsidiary to another. (2) General and administrative expense and certain other items are not allocated to segments. See "Reconciliation of Operating Income by Segment to Condensed Consolidated Statements of Income" included herein. PACIFIC ENERGY PARTNERS, L.P. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OPERATING HIGHLIGHTS BY SEGMENT Nine Months Ended September 30, 2005 and 2004 (Unaudited) (In thousands) Intersegment Rocky and West Coast Mountain Intrasegment Operations Operations Eliminations(1) Total ---------- ---------- --------------- -------- Nine Months Ended September 30, 2005: Segment revenue: Pipeline transportation revenue $46,525 $41,348 $(4,806) $83,067 Storage and distribution revenue 31,073 -- (150) 30,923 Pipeline buy/sell transportation revenue -- 28,905 28,905 Crude oil sales, net of purchases 13,368 369 (90) 13,647 ---------- ---------- -------- Net revenue 90,966 70,622 156,542 ---------- ---------- -------- Segment expenses: Operating expenses 46,507 30,604 (5,046) 72,065 Line 63 oil release costs(2) 2,000 -- 2,000 Depreciation and amortization 10,497 9,198 19,695 ---------- ---------- -------- Total expenses 59,004 39,802 93,760 ---------- ---------- -------- Share of net income of Frontier -- 1,363 1,363 ---------- ---------- -------- Operating income(3) $31,962 $32,183 $64,145 ========== ========== ======== Operating Data (barrels per day, in thousands) Line 2000 and Line 63 pipeline volume 120.8 Rangeland pipeline system: Sundre - North 21.3 Sundre - South 45.3 Western Corridor system volume 24.0 Salt Lake City Core system volume 119.8 Frontier pipeline volume 46.4 Nine Months Ended September 30, 2004: Segment revenue: Pipeline transportation revenue $49,170 $34,847 $(4,138) $79,879 Storage and distribution revenue 28,126 -- (353) 27,773 Pipeline buy/sell transportation revenue -- 11,662 11,662 Crude oil sales, net of purchases 14,436 -- 14,436 ---------- ---------- -------- Net revenue 91,732 46,509 133,750 ---------- ---------- -------- Segment expenses: Operating expenses 43,197 23,866 (4,491) 62,572 Depreciation and amortization 10,833 6,943 17,776 ---------- ---------- -------- Total expenses 54,030 30,809 80,348 ---------- ---------- -------- Share of net income of Frontier -- 1,190 1,190 ---------- ---------- -------- Operating income(3) $37,702 $16,890 $54,592 ========== ========== ======== Operating Data (barrels per day, in thousands) Line 2000 and Line 63 pipeline volume 137.6 Rangeland pipeline system: Sundre - North 21.6 Sundre - South 47.6 Western Corridor system volume 19.6 Salt Lake City Core system volume 116.1 Frontier pipeline volume 48.5 (1) Eliminations are required to account for revenue on services provided by one subsidiary to another. (2) On March 23, 2005, there was an oil release of approximately 3,400 barrels in northern Los Angeles County. (3) General and administrative expense and certain other items are not allocated to segments. See "Reconciliation of Operating Income by Segment to Condensed Consolidated Statements of Income" included herein. PACIFIC ENERGY PARTNERS, L.P. (Unaudited) (In thousands) RECONCILIATION OF OPERATING INCOME BY SEGMENT TO CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Nine Months Ended September 30, September 30, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Operating income by segment: West Coast $9,813 $11,355 $31,962 $37,702 Rocky Mountain 13,644 7,533 32,183 16,890 -------- -------- -------- -------- 23,457 18,888 64,145 54,592 General expenses and other income/(expense):(1) General and administrative expense (4,115) (3,762) (12,987) (11,252) Accelerated long-term incentive plan compensation expense(2) -- -- (3,115) -- Transaction costs(3) -- -- (1,807) -- Interest expense (6,237) (5,234) (17,679) (13,743) Write-off of deferred financing costs and interest rate swap termination expense -- -- -- (2,901) Other income 494 219 1,387 606 Income tax expense (1,433) (221) (2,137) (207) -------- -------- -------- -------- Net income $12,166 $9,890 $27,807 $27,095 ======== ======== ======== ======== GENERAL PARTNER AND LIMITED PARTNERS ALLOCATION OF NET INCOME Three Months Nine Months Ended September Ended September 30, 30, ---------------- ----------------- 2005 2004 2005 2004 -------- ------- -------- -------- Net income $12,166 $9,890 $27,807 $27,095 -------- ------- -------- -------- Transaction costs reimbursed by general partner: Senior Notes consent solicitation and other costs -- -- 893 -- Severance costs -- -- 914 -- -------- ------- -------- -------- Total transaction costs reimbursed by general partner -- -- 1,807 -- -------- ------- -------- -------- Income before transaction costs reimbursed by general partner 12,166 9,890 29,614 27,095 General partner's share of income 2% 2% 2% 2% -------- ------- -------- -------- General partner allocated share of net income before transaction costs 243 198 592 542 Transaction costs reimbursed by general partner(3) -- -- (1,807) -- -------- ------- -------- -------- Net income (loss) allocated to general partner $243 $198 $(1,215) $542 ======== ======= ======== ======== Income before transaction costs reimbursed by general partner $12,166 $9,890 $29,614 $27,095 Limited partners' share of income 98% 98% 98% 98% -------- ------- -------- -------- Limited partners' share of net income $11,923 $9,692 $29,022 $26,553 ======== ======= ======== ======== Net income (loss) allocated to general partner $243 $198 $(1,215) $542 Net income allocated to limited partners 11,923 9,692 29,022 26,553 -------- ------- -------- -------- Net income $12,166 $9,890 $27,807 $27,095 ======== ======= ======== ======== (1) General and administrative expenses, accelerated long-term incentive plan expense, transaction costs, interest expense, write-off of deferred financing costs and interest rate swap termination expense, other income and income tax expense are not allocated among the West Coast and Rocky Mountain business units. (2) On March 3, 2005, in connection with the change in control of the Partnership's general partner, all restricted units outstanding under the Long-Term Incentive Plan became immediately vested pursuant to the terms of the grants. The Partnership recognized accelerated compensation expense of $3.1 million relating to the vesting. (3) Pursuant to an Ancillary Agreement, our general partner reimbursed us $1.8 million for costs incurred in connection with the sale of our general partner. Generally accepted accounting principles require us to record an expense with the reimbursement shown as a partner's capital contribution. PACIFIC ENERGY PARTNERS, L.P. RECONCILIATION OF NET INCOME TO RECURRING NET INCOME (Unaudited) (Amounts in thousands, except per unit amounts) RECONCILIATION OF NET INCOME TO RECURRING NET INCOME Three Months Nine Months Ended September Ended September 30, 30, ---------------- ----------------- 2005 2004 2005 2004 -------- ------- -------- -------- Net income $12,166 $9,890 $27,807 $27,095 Add: Line 63 oil release costs(1) -- -- 2,000 -- Add: Accelerated long-term incentive plan compensation expense(2) -- -- 3,115 -- Add: Transaction costs(3) -- -- 1,807 -- Add: Write-off of deferred financing costs and interest rate swap termination expense(4) -- -- -- 2,901 -------- ------- -------- -------- Recurring net income $12,166 $9,890 $34,729 $29,996 ======== ======= ======== ======== Recurring net income for the general partner interest $243 $198 $695 $600 ======== ======= ======== ======== Recurring net income for the limited partner interest $11,923 $9,692 $34,034 $29,396 ======== ======= ======== ======== Basic and diluted recurring net income per limited partner unit $0.39 $0.33 $1.13 $1.05 ======== ======= ======== ======== (1) On March 23, 2005, there was an oil release of approximately 3,400 barrels in northern Los Angeles County. Although this event involved an outlay of cash, we believe these costs are unusual and are not indicative of the Partnership's recurring earnings. (2) On March 3, 2005, in connection with the change in control of the Partnership's general partner, all restricted units outstanding under the Long-Term Incentive Plan became immediately vested pursuant to the terms of the grants. The Partnership recognized accelerated compensation expense of $3.1 million relating to the vesting. (3) Pursuant to an Ancillary Agreement, our general partner reimbursed us $1.8 million for costs incurred in connection with the sale of our general partner. Generally accepted accounting principles require us to record an expense with the reimbursement shown as a partner's capital contribution. (4) In June 2004, in connection with the repayment of our term loan, we had a $2.3 million non-cash write-down of deferred financing costs and incurred a $0.6 million cash expense to terminate related interest rate swaps. PACIFIC ENERGY PARTNERS, L.P. RECONCILIATION OF NET INCOME TO DISTRIBUTABLE CASH FLOW(1) (Unaudited) (In thousands) ----------------- ----------------- Three Months Nine Months Ended Ended September 30, September 30, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Net income $12,166 $9,890 $27,807 $27,095 Depreciation and amortization 6,560 6,821 19,695 17,776 Amortization of debt issue costs and accretion of discount on long-term debt 487 430 1,424 1,100 Non-cash employee compensation under long-term incentive plan -- (231) 1,429 1,120 Write-off of deferred financing costs(2) -- -- -- 2,321 Transaction costs(3) -- -- 1,807 -- Deferred income tax expense (benefit) 22 103 239 57 Sustaining capital expenditures (2,243) (729) (3,070) (1,454) -------- -------- -------- -------- Distributable cash flow(4) 16,992 16,284 49,331 48,015 Less net (increase) decrease in operating assets and liabilities 91 (3,597) 13,592 (6,672) Less share of income of Frontier (516) (406) (1,363) (1,190) Add net distributions from Frontier (deduct contributions to Frontier) 667 (712) 1,317 (44) Less non cash employee compensation under long-term incentive plan added (deducted) above -- 231 (1,429) (1,120) Employee compensation under long- term incentive plan -- 426 2,886 1,777 Less transaction costs -- -- (1,807) -- Add other non-cash adjustments (40) -- 58 -- Add sustaining capital expenditures 2,243 729 3,070 1,454 -------- -------- -------- -------- Net cash provided by operating activities $19,437 $12,955 $65,655 $42,220 ======== ======== ======== ======== General partner interest in distributable cash flow $458 $425 $1,659 $1,460 Limited partner interest in distributable cash flow 16,534 15,859 47,672 46,555 -------- -------- -------- -------- Total distributable cash flow $16,992 $16,284 $49,331 $48,015 ======== ======== ======== ======== (1) Distributable Cash Flow provides additional information for evaluating our ability to make the minimum quarterly distribution and is presented solely as a supplemental measure. You should not consider Distributable Cash Flow as an alternative to net income, income before taxes, cash flow from operations, or any other measure of liquidity or financial performance presented in accordance with accounting principles generally accepted in the United States. Our Distributable Cash Flow may not be comparable to similarly titled measures of other entities. Additional information regarding distributable cash flow is included in our annual report on Form 10-K for the year ended December 31, 2004. (2) In June 2004, in connection with the repayment of our term loan, we had a $2.3 million non-cash write-down of deferred financing cots and incurred a $0.6 million cash expense to terminate related interest rate swaps. (3) Pursuant to an Ancillary Agreement, our general partner reimbursed us $1.8 million for costs incurred in connection with the sale of our general partner. Generally accepted accounting principles require us to record an expense with the reimbursement shown as a partner's capital contribution. (4) For the nine months ended September 30, 2005, distributable cash flow has been reduced by $2.0 of oil release costs and $1.9 million of cash costs associated with the accelerated vesting of units. For nine months ended September 30, 2004, distributable cash flow has been reduced by $0.6 million cash expense to terminate interest rate swaps. PACIFIC ENERGY PARTNERS, L.P. NET INCOME GUIDANCE(1) (Unaudited) (In thousands) RECONCILIATION OF NET INCOME GUIDANCE TO RECURRING NET INCOME GUIDANCE Year Ended December 31, 2005 ----------------- Low High ----------------- Net income guidance $41,300 $42,700 Add: Line 63 oil release costs(2) 2,000 2,000 Add: Accelerated long-term incentive plan compensation expense(3) 3,115 3,115 Add: Transaction costs(4) 1,807 1,807 ----------------- Recurring net income guidance $48,222 $49,622 ================= Recurring net income for the general partner interest $964 $992 ================= Recurring net income for the limited partner interest $47,258 $48,630 ================= Basic and diluted recurring net income guidance per limited partner unit $1.46 $1.50 ================= (1) The guidance for the twelve months ending December 31, 2005 is based on assumptions and estimates that we believe are reasonable given our assessment of historical trends, business cycles and other information reasonably available. However, our assumptions and future performance are both subject to a wide range of business risks and uncertainties so no assurance can be provided that actual performance will fall within the guidance ranges. Please see "Forward-Looking Statements" above. These risks and uncertainties, as well as other unforeseeable risks and uncertainties, could cause our actual results to differ materially from those in the table. This financial guidance is given as of the date hereof, based on information known to us as of November 14, 2005. We undertake no obligation to publicly update or revise any forward-looking statements. (2) On March 23, 2005, there was an oil release of approximately 3,400 barrels in northern Los Angeles County. Although this expense involves an outlay of cash, we believe these costs are unusual and are not indicative of the Partnership's recurring earnings. (3) On March 3, 2005, in connection with the change in control of the Partnership's general partner, all restricted units outstanding under the Long-Term Incentive Plan became immediately vested pursuant to the terms of the grants. The Partnership recognized accelerated compensation expense of $3.1 million relating to the vesting. (4) Pursuant to an Ancillary Agreement, our general partner reimbursed us $1.8 million for costs incurred in connection with the sale of our general partner. Generally accepted accounting principles require us to record an expense with the reimbursement shown as a partner's capital contribution. CONTACT: Pacific Energy Partners, L.P. Aubrye Harris, 562-728-2871 Fax: 562-728-2881 Email: AHarris@PacificEnergy.com -----END PRIVACY-ENHANCED MESSAGE-----