Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Plains All American Pipeline, L.P. (NYSE:PAA)

Q4 2013 Earnings Call

February 6, 2014 11:00 AM ET

Executives

Roy Lamoreaux - Director, IR

Greg L. Armstrong - Chairman and CEO

Harry Pefanis - President and COO

Al Swanson - EVP and CFO

Analyst

Brian Phelan - Barclays Capital

Steve Sherowski - Goldman Sachs

Gabe Moreen - Bank of America - Merrill Lynch

Michael Blum - Wells Fargo Securities

John Edwards - Credit Suisse

Ethan Bellamy - Robert W. Baird & Company

Cory Garcia - Raymond James

Ross Payne - Wells Fargo Securities

Elvira Scotto - RBC Capital Markets

Noah Lerner - Hart Capital

James Jampel - HITE Hedge Asset Management

Operator

Ladies and gentlemen, thank you for standing-by. Welcome to the Plains All American Pipeline and Plains GP Holdings’ Fourth Quarter and Full Year 2013 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Director of Investor Relations, Roy Lamoreaux. Please go ahead.

Roy Lamoreaux

Thank you, Moses. Welcome to Plains All American Pipeline’s fourth quarter and full year 2013 results conference call. The slide presentation for today’s call is available under the Events & Presentations tab of the Investor Relations section of our website at plainsallamerican.com.

I would mention that throughout the call we would refer to Plains All American pipeline by its New York Stock Exchange ticker symbol of PAA. In addition to reviewing recent results we will provide forward-looking comments on PAA’s outlook for the future. In order to avail ourselves with the Safe Harbor presets that encourages companies to provide this type of information. We will direct you to risks and warnings set forth in the partnerships’ most recent and future filings with the Securities and Exchange Commission.

Today’s presentation will also include references to certain non-GAAP financial measures such as EBITDA. The non-GAAP reconciliations sections of our websites reconcile certain non-GAAP financial measures to the most directly comparable GAAP financial measures and provide a table of selected items that impact comparability of PAA’s reported financial information. References to adjusted financial metrics exclude the effect of these selected items, also all references to net income are references to net income attributable to PAA.

Today’s presentation will also include selected financial information of Plains GP Holdings which we will refer by its New York Stock Exchange ticker symbol of PAGP. PAGP’s only assets are economic ownership and PAA’s general partners and in distribution rights. As their control into PAA, PAGP consolidates PAA and PAA’s general partner into its financial statements. Accordingly we do not intend to cover PAGP’s GAAP results.

Instead we have included a schedule in the appendix that reconciles PAGP’s distributions from PAA’s general partner with the distributions to PAGP’s shareholders as well to summarize consolidating balance sheet.

Today’s call will be chaired by Greg L. Armstrong, Chairman and CEO. Also participating in this call are Harry Pefanis, President and COO; and Al Swanson, Executive Vice President and Chief Financial Officer. In addition to these gentlemen and myself, we have several other members of our management team present and available for the question-and-answer session.

With that, I’ll turn the call over to Greg.

Greg L. Armstrong

Thanks, Roy and good morning to everyone. PAA finished the year in a strong fashion exceeding the midpoint of our beginning of the year annual adjusted EBITDA guidance by $267 million or 13%, as well as the updated annual guidance provided in early November about $50 million or 2%. Before we compare our fourth quarter performance to guidance in a few minutes, I want to first recap the year’s activities and accomplishments.

Somewhat similar to prior year’s the pace and volume of activity throughout 2013 was very high. However, unlike years past these elevated activity levels were not driven by efforts to negotiate close, finance and integrated multiple and/or large complex acquisitions. Instead we invested significant efforts to execute our 2013 expansion capital program to advance our portfolio of future expansion projects, increased our understanding of our fundamentals analysis and initiate and complete two strategic transactions.

Our overall execution of our business plan during 2013 was at a high level. As reflected on Slide 3, PAA achieved or exceeded each of the goals we set at the beginning of the year. In addition to delivering results above midpoint guidance in each quarter of the year, we completed our 2013 organic capital growth program materially on-time and on budget. We raised distributions in 2013 by 10.6% through November while generating distribution coverage of 143% and set the stage for continued growth in 2014 and beyond by ending the year with a robust capital program and a very solid balance sheet and healthy liquidity position.

During the year we actively pursued and reviewed a large number of attractive acquisitions that would have complimented PAA’s existing assets and business models. However competition for these acquisition opportunities was extremely intense and in virtually every case we concluded that the amount of consideration required to out bid our competitors was meaningfully above our risk adjusted value assessment.

As I noted earlier, we did complete two strategic transactions during the year. In October we completed the initial public offering of approximately 20% economic interest in PAA’s general partner which is now trading on the New York Stock Exchange under the symbol PAGP. The primary objective of this transaction was to provide the owners of our general partner with a targeted level of liquidity.

Additionally, the structure used to affect this offering provides an avenue for future liquidity for our general partners that will substantially minimize any disruption on PAA’s activities or governance structure. Specifically the overall governance structure ensures solid governance of PAGP as a new publicly traded entity while also preserving the well-functioning governance of PAA minimizing duplication of effort and overtime providing for a transition to a one-share one-vote structure at the PAGP level.

Additionally because PAGP has elected to be taxed as a corporation, we now have an acquisition tool that could enable the PAA organization to structure a tax-free transaction with the C-Corp under the right circumstances. I would also like to point out that although PAGP is a taxable entity the step-up in tax basis of the initial transaction and expected step-up in future transactions suggest the PAGP will not incur current income taxes for a number of years.

We also closed the acquisition of all of PNG’s outstanding publicly traded units. Although we believe this strategy to launch PNG in 2010 was sound, in hindsight it is clear that our timing was terrible given the challenging market conditions that followed. Operationally PNG executed its organic growth program largely as planned and also completed a significant complementary acquisition within the first year of the IPO. The combination of these growth activities has more than doubled PNG’s storage capacity since the time of the IPO.

However the IPO was completed just months before the natural gas storage market became very weak with the impact of shale gas development collapsing seasonal spreads and storage rates plummeting as much as 70% over the ensuing three years. This decrease in market rate nullified PNG’s expected distribution growth despite achievement of the volumetric expansion objectives.

Over the intermediate to long-term we remain optimistic about the outlook for natural gas storage markets. However given the challenges we see over the next several years for the market contrasted in the significant growth opportunities for PAA’s crude oil and NGL businesses and the relative cost to capital advantage of PAA maintaining PNG as a separate public entity simply no longer made sense. The transaction was completed on December 31st and we want to take this opportunity to thank PNG’s common unitholders for their support and also welcome in the PAA common unitholders.

I will address our 2014 goals for both, PAA and PAGP as well as our long-term outlook in my closing comments.

Moving on now to our most recent quarter’s operating and financial results, let me briefly recap PAA’s fourth quarter and full year results. Yesterday after market closed, PAA reported fourth quarter adjusted EBITDA of 595 million. These results exceeded the midpoint of our guidance range by $50 million or 9%. In comparison to last year’s fourth quarter, which include a fairly significant above baseline contribution by our Supply & Logistics segment, adjusted EBITDA, adjusted net income and adjusted net income per diluted unit decreased by 2%, 14% and 25% respectively. However with regard to annual financial performance during 2013 we delivered year-over-year increases of 9% and 4% in adjusted EBITDA and adjusted net income respectively and a 7% year-over-year decrease in adjusted net income per diluted unit. Highlights of PAA’s fourth quarter and full year performance for 2013 are reflected on Slide 4.

PAGP also reported results for the fourth quarter of 2013 yesterday afternoon. As mentioned in the introductory remarks and as discussed in our November conference call we do not intend to cover the details of PAGP’s GAAP result during this call as they are substantially redundant with PAA’s results. Instead we are providing in the appendix of our slide presentation, reconciliations of PAGP’s cash distributions with those of PAA as well as our consolidating balance sheet for PAGP.

Yesterday evening we furnished financial and operating guidance for the first quarter and full year of 2014. As reflected on Slide 5, our guidance for 2014 forecasted adjusted EBITDA will decrease 6% relative to 2013 actual performance due primarily to the assumption that market conditions for the Supply & Logistics segment will return to baseline type conditions during 2014.

The midpoint of our 2014 adjusted EBITDA guidance is 2.15 billion which includes a 15% or an approximate $200 million year-over-year increase in adjusted segment profit from our fee-based segments and an approximate $340 million year-over-year reduction in Supply & Logistics adjusted segment profit.

Using these essentially baseline type forecasts we are targeting 10% distribution growth for PAA in 2014 while maintaining a healthy distribution coverage of approximately 110% which will result in approximately $140 million of cash retained in excess of distributions. As a result of PAA’s distribution growth as well as anticipated increases in the peak number of PAA common units outstanding, we estimate PAGP’s distribution growth will be 25% or more in 2014 excluding the impact of meaningful acquisitions.

We also believe market dynamics are such that volatility in market structure and basis differentials could provide above baseline performance opportunities during 2014 for our Supply & Logistics segment which would increase the implied distribution coverage and thus increase the amount of cash flow retrained in excess of projected distributions.

The potential for above baseline performance in our Supply & Logistics segment exist into PAA’s meaningful presence in substantially all the primary North American producing area as well as our ability to participate in substantially all aspects of the midstream crude oil value chain. As a result PAA is positioned to deliver solid baseline performance in typical markets and above baseline performance in markets characterized by volatile market structure and/or basis differentials.

The timing and impact of such as market developments are beyond our control and difficult to predict and thus are not incorporated into our 2014 guidance.

During the remainder of today’s call we will discuss the specifics of PAA’s segment performance relative to guidance, our expansion capital program, our financial position and the major drivers and assumptions supporting PAA’s financial and operating guidance. At the end of the call I will discuss our 2014 goals and our outlook for the future.

With that, I will turn the call over to Harry Pefanis.

Harry Pefanis

Thanks, Greg. During my section of the call I will review our fourth quarter operating results compared to the midpoint of our guidance, the operational assumptions used to generate our 2014 guidance and our 2014 capital program.

As shown on Slide 6, adjusted segment profit for the Transportation segment was $214 million which was approximately 4 million below the midpoint of our guidance, volumes of 3.86 million barrels per day were approximately 36,000 barrels per day below the midpoint of our guidance. Adjusted segment profit per barrel was $0.60 or $0.01 below the midpoint of our guidance, the lower than expected volumes in segment profit were primarily due to the timing of volume growth in the Eagle Ford area and I’ll note that our volumes in this area did grow by almost 50,000 barrels a day over the previous quarter.

Adjusted segment profit for the Facilities segment was $169 million were approximately $20 million above the midpoint of our guidance. Volumes of 120 million barrels of oil equivalent per month were 2 million barrels below the midpoint of our guidance and adjusted segment profit per barrel was $0.47 or $0.06 above the midpoint of our guidance. Volumes were lower due to the timing of the intrastate of a new tank at our St. James facility and slightly lower than forecasted rail unloading volumes.

Although volumes were lower segment profit was higher than forecasted due to a number of factors, including processing efficiencies at our Canadian facilities, higher than forecasted spot lease activity, with some of our West Coast and Canadian facilities, higher throughput at a couple of our facilities particularly our Cushing Terminal and lower than expected operating expenses. The lower operating expenses were primarily attributable to an annual true-up of operating cost of our joint venture processing facility in Canada.

Adjusted segment profit for the Supply & Logistics segment was $209 million or approximately $32 million higher than the midpoint of our guidance. Volumes of approximately 1.13 million barrels per day were in line with guidance. Adjusted segment profit per barrel was $1.99 or $0.29 above the midpoint of our guidance. Over performance is due to stronger volumes in segment profit in our NGL business driven by increased propane demand from crop drying and the cold weather in North America.

Volumes in segment profit were lower than forecasted in our crude oil gathering business due to impacts from adverse weather and proration on some of the third-party pipelines in Yukon, Canada.

Before I discuss our 2014 guidance I’d also like to point out that the combination of increased propane volumes and lower weighted average cost inventory pulls accelerated into fourth quarter of 2013, approximately $25 million to $30 million of earnings that were previously expecting to be utilized in 2014.

Let me now move to Slide 7 and review the operational assumptions used to generate our full year of 2014 guidance. For our Transportation segment we expect volumes to average approximately 4.1 million barrels per day an increase of approximately 360,000 barrels per day or 10% over 2013. We expect adjusted segment profit per barrel of $0.63 per barrel an approximate 13% increase over 2013.

The volume increase is primarily from forecasted increases of 190,000 barrels per day on our Permian Basin area pipelines and 150,000 barrels per day on our Eagle Ford area pipelines. The adjusted segment profit per barrel increase in the segment is primarily the result of increased tariff rates as well as the elimination of non-recurring costs that impacted 2013 and are not forecast to impact 2014.

For our Facilities segment we expect an average capacity of 126 million barrels of oil equivalent per month, which is an increase of approximately 6 million barrels of oil equivalent per month or 5% over 2013. Adjusted segment profit is expected to be $0.44 per barrel or essentially flat to 2013, the volume increase in this segment is primarily due to increased rail capacity associated with projects placed into service in late 2013 and new projects that are expected to be placed into service in 2014.

For our Supply & Logistics segment we expect volumes to average approximately 1.2 million barrels per day an increase of approximately 100,000 barrels per day or 9% over 2013. Adjusted segment profit is expected to be $1.29 per barrel, a 43% decrease from 2013 levels. The volume increase in this segment is primarily due to anticipated increases in lease gathering activities. Margins are lower, as we do not expect to see the same type of crude oil location quality differential that we saw in the first half of 2013 and because of the acceleration of earnings and NGL sales activity into 2013.

Let’s now move on to our capital program. During 2013 we invested approximately $1.62 billion in organic growth projects which is in line with the guidance range provided last quarter. As reflected on Slide 8 our expansion capital expenditures for 2014 are expected to total about $1.7 billion and as is typical with our capital program this is composed primarily of a number of smaller to medium sized projects spread across most of the liquid rich resource plays.

Our 2014 expansion capital number reflects our estimate and the amount of work we can complete throughout the year. Consistent with past practice we will adjust our expected capital investment quarterly based on our progress up on approved projects and the potential approval of additional projects within our multi-billion dollar portfolio.

The expected in-service timing of the larger projects in our capital program is included on Slide 9 and I’ll provide a status update on a few of the larger investments. I will start with the Permian Basin. We’re expected to invest about $430 million in 2014. Approximately 290 million relates to trunk line projects including a new 20 inch pipeline from Midland Colorado City, a line from our driver station in Sprayberry, to McCamey a 12 inch line from Monahan Station to Crane and a new 20 inch line from Jal to Hendricks, replaces existing lines and expands capacity from Jal.

These lines are all expected to be in service in early 2015 and will enhance our ability to move Permian Basin crude to multiple takeaway pipelines. We also expect to invest approximately $90 million expanding our gathering system in the Illinois basin and about $50 million expanding our Sprayberry gathering system.

We expect to start construction of our Cactus pipeline early in the second quarter of 2014 and we expect the line to be in service in the first quarter of 2015. This is a $440 million project and we expect to invest approximately 310 million in 2014. We expect to invest approximately $185 million in 2014 expanding our rail loading and unloading capacity. This includes a new loading facility in Saskatchewan, Canada, a new unloading facility in Bakersfield, California and the expansion of existing facilities in Van Hook, North Dakota and Carr, Colorado.

We are also evaluating a couple of other rail loading opportunities in Alberta, Canada. At our Fort Saskatchewan facility in Canada, we expect to invest approximately $180 million in 2014. Our capital program at Fort Sask includes a development of two high delivery 350,000 barrel propane caverns, conversion of two existing 1 million barrel caverns from propane servers to an alternative servers and the development of 2.5 million barrels of volume pond. We expect a small portion of these projects to be in service in the third quarter of 2014 with the balance of the investments coming into service throughout 2015 and into the second quarter of 2016.

Finally maintenance capital expenditures for the fourth quarter were $52 million, resulting in 2013 total expenditures of $176 million. We expect maintenance capital expenditures for 2014 to be in the $185 million to $205 million range.

With that, I’ll turn the call over to Al.

Al Swanson

Thanks, Harry. During my portion of the call, I will review our financing activities, capitalization, liquidity and distribution coverage as well as our guidance for the first quarter and full year of 2014. In the fourth quarter through our continuous equity offering program PAA issued 1.5 million units, raising $77 million in equity capital. For the full year 2013, we issued 8.6 million units through this program, raising 477 million in equity capital including our general partner’s 2% capital contribution.

As illustrated on Slide 10, PAA ended 2013 with strong capitalization, credit metrics that are favorable to our targets and $1.9 billion of committed liquidity. At December 31st PAA’s long-term debt-to-capitalization ratio was 47%. Our total debt-to-capitalization ratio was 50% and our long-term debt-to-adjusted EBITDA ratio was 3.1 times. I would also note that Slide 11 summarizes relevant information regarding our short-term debt, hedged inventory and line sales as of year-end. As we have discussed previously we target baseline distribution coverage of at least 105% to 110%.

When our business outperforms baseline expectations, we can generate meaningfully higher distribution coverage. Our practice has been to retain this excess DCF to fund our growth. As reflected on Slide 12, PAA has consistently delivered solid distribution growth and coverage and in 2013 our coverage totaled approximately $500,000 or a 143%. Based on the midpoint of our guidance for DCF and distributions, our distribution coverage for 2014 is forecast to be 110%, which results in $140 million of retained DCF.

Given our strong capitalization at year-end, our projection for retained DCF and our intention to opportunistically use to continue equity offering program to pre-fund our equity needs, absent significant acquisition activity we do not expect to execute an overnight or marketed equity offering during 2014.

Moving onto PAA’s guidance for the first quarter and full year of 2014 as summarized on Slide 13, we are forecasting midpoint adjusted EBITDA for the first quarter to be $525 million and 2.15 billion for the full year.

The full year guidance reflects a $25 million or 1% reduction from the preliminary guidance we provided in November as it incorporates unfavorable impacts of $50 million to $60 million, associated with the acceleration of NGL inventory profits in the 2013 that Harry mentioned earlier as well as an unfavorable movement in the Canadian to U.S. dollar FX rate. The FX rate portion is more of a reporting matter than a 2014 economic issue as our investments in Canada are expected to exceed our cash flow, however it does impact reported EBITDA, DCF and distribution coverage.

Our 2014 guidance reflects an approximate 6% decrease in adjusted EBITDA relative to last year. As is our practice we have assumed to return to baseline type market conditions for our S&L segment accordingly the S&L segment profit decreases $338 million or 38% from 2013 results. This assumed decrease is partially offset by forecasted growth of $206 million or 15% in our fee-based Transportation and Facilities segment as compared to 2013, primarily reflecting the benefit of capital investments made over the last several years.

Additionally the 1.7 billion that we expect to invest in 2014 is also focused on our fee-based segment and that the majority of this cash flow benefit from these investments will not be realized until 2015 and beyond. The cumulative effect of these capital investments provide us with good visibility for continued multiyear distribution growth.

We also wanted to share two other observations about our guidance for 2014, the first related to the seasonality that is primarily associated with our NGL business conducted in our Supply & Logistics segment. Our NGL volumes and margins are typically highest in the first and fourth quarters of each year. The forecast for this seasonal impact to our Supply & Logistics adjusted segment profit is illustrated by the yellow portion of the bars on Slide 14. And remember the first quarter of 2014 incorporates the acceleration of NGL profits into 2013 as we mentioned previously. The seasonality will result in stronger distribution coverage in the first and fourth quarters with lower coverage during the second and third quarters.

The second observation relates to the quarter-over-quarter results we expect to generate during 2014. As illustrated on Slide 14, throughout the year we expect our fee-based Transportation and Facilities segment to generate favorable comparisons relative to corresponding quarter of 2013. However, in our Supply & Logistics segment due to the relatively strong results delivered in 2013 in our guidance assumption for near very fine market conditions throughout 2014, we have guided to negative quarter-over-quarter S&L segment comparisons for the first three quarters of 2014 relative to the corresponding quarters of ’13. While not illustrated on the slide, the forecasted negative S&L segment comparisons will also result in negative per unit comparisons for 2014.

With that I’ll turn the call back over to Greg.

Greg L. Armstrong

Thanks Al. As is apparent from Harry’s, Al’s and my comments, we are pleased with the PAA’s overall performance in 2013 and believe we are very well positioned for the future.

Let me now review PAA’s 2014 goals which are highlighted on Slide 15. Specifically during 2014, we intend to deliver operating financial performance in line with or above guidance, successfully execute our 2014 capital program and set the stage for continued growth in 2015 and beyond. Increase our November 2014 annualized distribution level by 10% over our November 2013 distribution level. And then look forward to continuing to selectively pursue strategic and accretive acquisitions.

PAGP’s single goal for 2014 is also listed on Slide 15 which is simply to achieve an increase in PAGP’s November 2014 quarterly distribution rate of approximately 25% relative to the initial quarterly distribution include in PAGP’s IPO prospectus. We are already off to a good start with respect to our distribution goals.

Next week, PAA will pay a distribution of $0.615 per common unit or $2.46 per unit on an annualized basis which represent, the demand 9.3% year-over-year increase over the distribution paid last February and a 2.5% increase in the distribution paid in November. As shown on Slide 16, PAA has increased its distribution each of the last 18 quarters and in 37 out of the last 39 quarters delivering compound annual distribution growth of over 8% over the past 10 years and over 9% over the past 2 years.

PAGP will pay a quarterly distribution next week of $0.125 or slightly over that per Class A share which represents a prorated distribution for the period following closing of the IPO on October 21, 2013 through December 31, 2013. The annualized distribution per share of $0.63 almost $0.64 per unit represents a 7.2% increase over the annualized $0.60 per Class A share included in PAGP’s IPO prospectus.

We look forward to updating you on our progress toward all of our goals throughout the year. From an overall energy industry perspective we expect the next 24 to 36 months will be fairly eventful. On the positive side, crude oil production in many regions of the U.S. and Canada is poised to continue to increase meaningfully. This growth in production should sustain an attractive level of utilization of existing midstream assets as well as drive demand for construction of additional midstream infrastructure.

We expect petroleum demand for the U.S. and Canada will remain relatively unchanged with increase in crude oil production being balanced by reducing the level of waterborne crude oil imports. As a result a very important issue will be how much worldwide crude demand increases.

The current outlook from various recognized resources that suggest the growth of worldwide demand is expected to be around 1.2 million to 1.3 million barrels per day which is roughly equivalent to projected crude oil and NGL production growth in the U.S. and Canada. What I suggest is that if that there is any shortfall in projected demand a material recovery in crude oil production levels in countries like Libya, Iran or Iraq and/or meaningful reluctance from OPEC countries to decrease their production in the event of an overall supply excess it could have an adverse impact on crude oil prices and exacerbate the overall level of price volatility.

Compounding that scenario is an expected supply demand imbalance in the quality of crude oil and condensate available in certain regions of the U.S. As discussed in our 2013 Analyst Meeting and in our various presentations throughout the year they’re building over supply domestic medium and light sweet crudes and condensates could very well impact regional differentials.

With exiting refineries and transportation infrastructure offering at or near capacity and the potential for unexpected operating issues, it is difficult to imagine that these forces will self-correct without also introducing volatility in crude oil basis differentials. On a related point, although our 2014 plan and extended financial forecast incorporate a steady growth outlook for U.S. and Canadian crude oil production we believe conditions are such that meaningful potential exists for disruption in the forecasted production progression.

Potential disruption catalyst include a meaningful decrease in crude oil prices and or access to capital availability and/or an overall increase in the cost of capital. We believe PAA and PAGP are well positioned for almost any development. Specifically we have and continue to make investments to better position PAA to participate in providing solutions for potential volume and/or quality imbalances in various regions. These activities include constructing our Cactus Pipeline, our Eagle Ford condensate stabilization and fractionation facilities and rail facilities in both supply and demand areas.

Additionally we have deliberately reduced our overall financial leverage and maintained a high level of liquidity and distribution coverage. As a result we believe PAA will be able to withstand any reasonable industry headwinds, capitalize on volatile market conditions and be positioned to move decisively on any resulting acquisition opportunities. Certain of these potential developments are incorporated into our baseline guidance for 2014 while others like extreme basis volatility are not included.

As a result PAA’s diversified footprint and our proactive efforts we believe we are well positioned to capitalize on volatile markets by utilizing our expansive asset network and financial flexibility. Prior to opening the call up for questions I do want to mention that Bobby Shackles and Victor Burke were recently appointed as independent directors of PAGP Board of Directors, these gentlemen have a strong understanding of our culture and bring decades of valuable experience to these positions. We look forward to working with them over the coming years.

Additionally I want to mention that as part of our leadership development planning at Plains we are rotating and cross training a number of leaders within our organization. Although many of these moves are not readily apparent from the outside, for many in the investment community that follow PAA and PAGP closely, one of these moves will be quite visible. In that regard Roy Lamoreaux our current Director of Investor Relations will be transitioning to a pipeline business development role within the Company.

The target is to complete the transition around mid-year which will be shortly after our June 5th Analyst Meeting. Roy has done an outstanding job in his role as Director of Investor Relations and while he will be certainly be missed in our Investor Relations activities, we look forward to having him involved in our commercial activities. Ryan Smith will be assuming the position of Director of Investor Relations. Ryan has over 8 years of experience at Plains in various accounting and finance roles and we’ll be working closely with Roy for the next several months to ensure a smooth transition and a successful Analyst Meeting.

Finally if you have not received an invitation to our Analyst Meeting and would like to attend please contact our Investor Relations team at 866-809-1291, that’s 866-809-1291, once again we want to thank you for participating in today’s call and for your investment in PAA and PAGP and we look forward to updating you on our activities in our first quarter earnings conference call in May.

And operator at this time we would open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we do have a question from the line of Brian Phelan with Barclays, please go ahead.

Brian Phelan - Barclays Capital

Good morning.

Greg L. Armstrong

Good morning, Brian.

Brian Phelan - Barclays Capital

Just looking at 2014 guidance your lease gathering volumes are expected to have a substantial growth to almost a million barrels a day. Can you give us a little color as to the geographic mix of those barrels is it more Permian, Eagle Ford pocket than the Mid Continent?

Greg L. Armstrong

Brian, it is spread throughout but the big growth is in Permian where we have the very large footprint.

Brian Phelan - Barclays Capital

Okay. And as you, I guess how are you looking longer-term, assuming -- I guess how do you view the lease gathering growth over the next few years and how does that impact your baseline Supply & Logistics’ EBITDA about 500 million to 550 million?

Greg L. Armstrong

I guess there is two issues there, one’s volume and one’s margin. And I think if you go back and listen to our calls, several years ago, we obviously were enjoying and have continued recently to enjoy some pretty outsized overall aggregate margins. But we’d also forecasted that as some of these bottlenecks get resolved we thought that and competition is going to cause the margins per barrel to decrease and we’re certainly seeing that in what we recall our baseline business. And so to some extent our volumetric growth has been partially offset by the margin erosion as a result of those two factors.

I don’t anything has happened really outside of the band of re-growth that we thought would occur so it’s pretty much in line with what we expected. I think as we go forward we still have this opportunity that we see in the past for volatility to allow us to capture incremental opportunities that will cause that margin on a periodic basis to increase above baseline, so effectively we’re in all the large producing areas, we referred often to the big three of the big six, it depend on whether you’re talking to your big three or the Permian, Bakken and Eagle Ford and they make up a significant amount of the projected volume growth, we would certainly expect to continue to enjoy a percentage of our fair share of that growth as we look forward.

So I think it’ll continue to be competitive, I think if we do see some disruptions that perhaps for instance some of the -- looks price volatility or access to capital market that could cause drilling to slowdown, we think it probably works in our favor in the long-term because a lot of these competitors are really carrying on their assumption that everything moves up into the radar on a continues basis. And really don’t have the cushion in their financial flexibility of the distribution coverage to be able to absorb those interruptions while we do.

Al Swanson

Okay, I’ll just add a little bit what Greg said and Greg already mentioned as we find growth in North America, we certainly expect to see our fair share that growth reflected in our gathering and marketing volumes. And we sort of look at 2014 as kind of the base level type of margin generation in our lease gathering activity. So, beyond 2014, we expect to at least generate similar types of margins that we see in 2014. So, the volume growth would create incremental EBITDA growth when you go beyond 2014.

Brian Phelan - Barclays Capital

So you’re base line on EBITDA for Supply & Logistics you think is very reasonable for the next few years and if you have volume growth above that million barrels a day on the lease gathering side potentially if that range could get raised a little bit?

Al Swanson

Beyond 2014, yes.

Greg L. Armstrong

I think what’s happening is we expected erosion in unit margins on the pure lease gathering has happened pretty much the way we expected.

Brian Phelan - Barclays Capital

Okay. And just last one for me, you’re spending additional dollars in the Permian on crude infrastructure. Over the next few years do you see, I guess what type of the needs do you see for additional infrastructure in the Permian?

Harry Pefanis

I think we have our volume forecast for 2017 going out to about 1.9 million to 2 million barrels a day. I think when you look at the combination of Cactus our line to -- our new line from Midland to Colorado City that will help supply bridge tax and the bridge tax new line. I think you’re getting, you’re pretty balanced in the Permian basin.

Brian Phelan - Barclays Capital

Thanks Harry.

Operator

The next question comes from the line of Steve Sherowski with Goldman Sachs. Please go ahead.

Steve Sherowski - Goldman Sachs

Hi. Good morning. In your closing remarks you mentioned light oil saturation and I’m just wondering are there any geographies in particular that you feel are sensitive to that environment?

And just as a quick follow-up, if you wouldn’t mind just commenting on any changes you’ve seen in your backlog over the past six months or so as light oil saturation has been a growing concern and in the backlog I am referring to not necessarily like your 2014 CapEx but more of that $7 billion potential project portfolio you’ve talked about before?

Greg L. Armstrong

Yes, I am taking them kind of in a reserve order, effectively as we’ve been not -- last year we spent 1.6 billion, this year regarding to a midpoint of 1.7. The overall size of the program is actually kind of stagnant to growing and we are rolling off those projects the replacement with visibility of future projects. And so we would expect that probably stay to continue for the next couple of years. I think there could be periods in time again if there is interruption and well completion right at the drilling count however we chose to look at it that would cause those to very slightly but by and large, I mean it just feels like it’s going to continue to have kind of a directionally up into the right.

We just don’t think it’s going to be a linear progression therefore there maybe periods in time there where takeaway capacity catches up with production capacity or gets ahead of it that slows things down but we do think the resource base and the productive capacity is there to continue to move these volumes up in to the right. And so in direct response to your question is that even though we spent a 1.6 billion last year the size of the, the backlog if you will has really not gone down.

Steve Sherowski - Goldman Sachs

That’s great. And my apologies if I missed this but when you mentioned earlier on about the M&A opportunities you were looking at were all of them at the PAA level?

Greg L. Armstrong

They are, they are such as our preferences in all cases to execute them at the PAA, structurally there is some opportunity to the C-Corp type transactions at PAGP but even there our goal would be to get those assets down into PAA’s as expeditiously as possible if we are ever able to do one of those and then I want to circle back yet another question I didn’t get to it which was the, you asked about the imbalance if you will or the saturation point on the sweet crude and is gelling pretty much everywhere.

I mean there is areas that are more pronounced from time-to-time but we’re seeing a lagging of the overall stream virtually across the board and there is -- in some cases the Gulf Coast for example, to the extent that the stream is lightening up in the general in the base production, in addition you have had a lot of transport of crude down into that area so it’s kind of moved the congestion point from Cushing down to the Gulf Coast.

Steve Sherowski - Goldman Sachs

Okay, great. That’s it for me. I appreciate it, thank you.

Greg L. Armstrong

Thank you.

Operator

Next we go to the line of Gabe Moreen with Bank of America. Please go ahead.

Gabe Moreen - Bank of America - Merrill Lynch

Hey. Good morning everyone. I guess questions on NGL markets and I know Al commented on the accelerated inventory sales in the fourth quarter. I guess I’m just wondering kind of how you are positioned in the propane markets right now, whether you’ll be able to realize I guess upside relative to base line in 1Q given those accelerated inventory sales?

And then I’m wondering kind of going forward given the tightness of the propane market how you’re pricing your services now and also what’s embedded in your guidance as far as locational spreads, where do you think they are headed? Big question, so just wanted to ask about that.

Harry Pefanis

Well I’ll try answering the first part of it, Gabe on the when you look at first quarter performance relative to the guidance that you have out there. Really when you think about most of our propane supply is hedged, and right now we’re sort of filling all of the contractual commitments we have, there is -- when you see propane inventories are all time lows, so there is not a lot of spot volume available in the market. Certainly we have some potential for additional volumes. But we have pretty much forecasted and our guide pretty much reflects what we think we are going to be for the first quarter.

Greg L. Armstrong

There certainly was upside if you will in the winter period and what’s happened to some extent on an inventory costing basis, if you sell barrels like we did in December that were basically purchased but originally scheduled to be sold in January and you are matching up the lower cost inventory with the higher cost sale and just simply call to the ship. The overall winter is very healthy. In fact it is going to be well above base line because of the market conditions you mentioned but I don’t know that I would say it in the NGL part of it there is a lot of room for significant upside, as we sit here tonight we’re at the beginning of February. So whatever was built into January and our February businesses is reflected in our forecast for the first quarter.

Gabe Moreen - Bank of America - Merrill Lynch

And as a follow-up to that Greg, I assume you are kind of going to be cautions in terms of filling up higher price inventory that going into the off season are much higher priced inventory, and that you are probably going to be pretty fully hedged going into the next year, is that fair?

Greg L. Armstrong

Yes, you can write this out, we’re fully hedged every year. We certainly when we acquired the business from BP they took a different view and we said we’ll give up the upside, we were not willing to expose ourselves to the downside. So when we purchase barrels we have it matched with the sale, clearly we make decisions as to when we want to engage in that because in some cases you want to go early to make sure that we are ratably filling up. And in some cases you want to keep some of your capacity because if margins widen out we can match a purchase on a sale with a wider margin. So we have to make those judgments.

And because other than people in the financial community listen to these phone calls, we don’t really give them our game plan as to how we’re going to do that. We do have a significant volume of inventory and we’re a big part of that market and so we certainly have our own game plan as to how we think we’ll do best to optimize 2014.

Directionally I would tell you that there is condition that for 2014 and I have to really believe that into 2015 winter which is really a seasonal period, we start build up in the summer but we take it out in most of it in the winter periods which includes not only this year but early part of next year. There is certainly an opportunity for that overall trend as given the way the market shaped up for us to capture incremental opportunities it’s just too early to say where those would be and what year they will fall in.

Gabe Moreen - Bank of America - Merrill Lynch

Got it, now that’s helpful. And then another question in terms of the, I guess rail safe-car safety to-date that’s sort of taken place right now. I just was curious in terms of the railcar ownership at the PAA level, kind of how many cars you feel qualify or not and just how you think the market dynamic evolve could they come down with these retrofit rules and whether that will have impacts to your business?

Harry Pefanis

All our cars meet the new standards the post 2011 standards, both in crude and NGL. There will probably some changes in the railcar specifications the question is going to be is it phased in over a period of three years or is it phased in over 10 years. And if it’s phased in over a shorter time you get a lot of railcars, this is going to be hard to retrofit railcars in a shorter timeframe just because we have limited capacity at the facilities that can retrofit railcars.

Greg L. Armstrong

I would say that it’s a fair statement because of our existing footprint there and the fact as Harry mentioned all of our current cars qualify that we should be as well if not better positioned than most anybody else in the crude oil side of that equation, because of the scale and scope that we have and the fact we already had cars on pre-order that give us kind of the early preference if you will on priority and any retrofit that would happen.

Gabe Moreen - Bank of America - Merrill Lynch

Got it, okay that’s helpful. And then just last question from me, it’s a little bit of a soap box question Greg, just in terms of the debate on crude oil exports that’s kind of really surfaced here in the last couple of months. Where you think it’s going -- where do you think we’ll see action in terms of more permitting on the crude oil export side and I guess whether you have the strength to position for that?

Greg L. Armstrong

Well in general if you gave me a choice we’re trying to predict what our government is going to do and what the weather is going to do. I would rather try and predict the weather, it’s erratic but it’s more logical. So it’s just really hard to say, we have seen even the imprints of export capability can have an influence on the market I think this announcement that happened yesterday or day before it was simultaneous with about a dollar tapping on the WTI brand.

It doesn’t have to make fundamental centric to have an impact on the market. Ultimately we’re positioned, we think well for either answer if they allow blanket exports we have assets in the right places that can help build that market niche. If they allow it on a delayed blanket basis in the meantime we’re going to have -- continue to see facilities that are constructed to try and help balance the market.

If you look back at our Analyst Day, I think in 2013, we had a slide on there as to how we thought what the menu was if you view it that way of solutions that it was going to take the balance of the quality and balance in the U.S. And our conclusion then was it’s going to take and all of the above combination of splitters, combination of more aggressive blending of heavy crudes with the lighter domestic crudes to be able to meet the refinery slate, refinery modifications on the front-end of the refinery to be able to knock out the really laitance and then leave more of the middy barrel to process.

And of course then you can export the laitance once you’ve actually gone through the processing. And then part of it is going to be an interpretation of what really qualifies for an exportable barrel, and our view today is not really unchanged I don’t think we’ve gotten any guidance from the government as to where they’re going it’s encouraging that they’re taking up the debate earlier in the process than what we probably would have otherwise thought. That does not necessarily is -- some of their other actions have indicated that they’ll do something on an expedited basis to address it.

Harry Pefanis

I guess if I also just add to that if there was export you have the ability to export although we export, and we’ve got couple of locations that we could load ocean going vessels Yorktown is a location where we can rail-in and load out an ocean going vessels we’ve got the ability to do that at St. James and we are developing export capacity at Corpus Christi as well.

Gabe Moreen - Bank of America - Merrill Lynch

Great, thanks very much guys.

Operator

The next question comes from the line of Michael Blum with Wells Fargo. Please go ahead.

Michael Blum - Wells Fargo Securities

Thanks. Just two quick questions from me, one can you just expand a little bit on your comments on the quarter? You talked about in the pipeline segment seeing lower Eagle Ford volumes. Could you talk about from your perspective is something changing in the basis or it’s just a timing issue, a little more color there?

Greg L. Armstrong

It’s mainly timing. It’s, I think actually Michael our outlook for the overall Eagle Ford volumes has increased. I think we moved backup I think our 2017 rate for the Eagle Ford is backup to around 1.6 million barrels a day now. We’ve had it down just a little bit but it appears that most of the issues are just the timing and the ramp-up as opposed to performance levels. There are certainly areas and pockets, I mean Eagle Ford covers a big, big area and we’re seeing areas where the performance is not perhaps as good as maybe in that area we might have thought, and so we’ve adjusted for that.

But we’ve seen then the rig shift to a different location, and they pick up better volumes in other places because of our footprint it is kind of everywhere in the western part of it where we’ve seen position to benefit from that. So, it’s more of a delay than it is an overall performance factor.

Harry Pefanis

And we have pretty meaningful growth on our Eagle Ford systems forecast for 2014 also it’s kind of in the 150,000 barrels neighborhood.

Michael Blum - Wells Fargo Securities

Okay, great and that’s helpful. And then my second question is naturally now that you’ve bought in PNG, we’re seeing some volatility in that market. Could you just talk about conceptually with front line prices spiking but seasonal spread actually it looked like actually getting worse kind of are you benefiting from that in that business today and kind of how you see those spreads if you see that -- and where does volatility kind of translate into wider spreads going forward?

Greg L. Armstrong

Well, sorry it hasn’t shown in the market yet. I think the volatility is certainly helpful that in the overall significant draws to reinforce to people that storage is a necessary component balance in the market. I think there is a -- we've gone to a fairly good period of time where people have been in content that storage was not as important in the overall fiscal balancing as I have proven historically. And I think when we have these long coast wells and some of the storage providers in the business perhaps having difficulty meeting some of their contractual objectives it just helps to reinforce that. So I think it’s going to take us a while to figure out longer term whether it will actually show up in the spreads. I do think we will see better selectivity through the customers and willingness to pay higher rate for those facilities that can make sure that one you need it you have it.

It’s no different than really insurance. You don’t always go by the cheapest insurance if you’re actually going to use it because if you have to go draw on that and they don’t cover the claim it doesn’t help well that’s really what natural gas storage is for this type of market, it’s the shock absorber that helps you balance physically the market. I think at one point in time just to give you a point of reference, we at the peak withdrawal day in the winter so far, we, our three facilities added together were about 5% of the total volume. And yet as a percentage of storage, we’re much smaller than 5%. So our deliverability has been very good.

Harry Pefanis

I think the other thing to consider Michael most of our withdrawal capacity and sort of the peak withdrawal months is really dedicated towards our firm shippers, our firm storage customers. So there you don’t really have the flexibility in these months to capture sort of some of the odd charges that exist from our standpoint. So our opportunities usually come in more of the shorter months.

Greg L. Armstrong

But again I guess back to our customers have that ability and what’s frustrating for them is if they think they have contracted for them, they got to pull on and they can’t capture it that calls us in the next year to say it doesn’t any good to have storage at xyz facility if I can’t exit the market. So it ultimately translates into a better long-term customer base for those that can and we would put PAA’s facilities in that higher rig category.

Michael Blum - Wells Fargo Securities

Great thank you very much.

Operator

And next we will go to the line of John Edwards with Credit Suisse. Please go ahead.

John Edwards - Credit Suisse

Yes good morning everybody. I am just curious, obviously you have been taking about your segment margins and your Supply & Logistics you are taking it down to a more normalized level. So you are guiding to $1.29 for the year. I mean if you were -- and then of course you have the disclaimer lots of volatility. And if you were able to put a say a range on what you think those would be, I mean could you give us a little more detail or thought about that?

Greg L. Armstrong

Probably if you just look at the last couple of years, John I don’t think it’s deteriorated as to what the upside potential is, we would -- we have been guiding people to a base line level again associated with margins that we thought would stabilize out as Harry mentioned to kind of what we currently are forecasting for ’14. And that aggregate roll out was about 500 million to 550 million of what we call base line for Supply & Logistics.

So if you take the midpoint of that at 525, we’re forecasting this year 555 I believe it is. And at last year we were in the 800 plus and the year before that 800 plus. So you are in the 250 million to 350 million incremental opportunity ranges. What’s important to note is, is that none of the opportunities though that have happened in ’12 and ’13 were exactly comparable. It happens in different places. In some cases it’s a volumetric bottleneck, in some cases, because of the takeaway capacity not keeping up with production capacity and in some cases it kept up but it was so tight that when there was operational interruption on let’s say a refinery or a delay in a just in time pipeline capacity coming on-stream. It tells us that to trigger an imbalance and that imbalance then re-prices all the marginal barrels.

We don’t think that -- personally I don’t think that those situations have gone away, we just can’t tell you what quarter they are going to happen in or if it’s even going to happen in the next 12 months, but it’s hard to believe it doesn’t happen in the next 24 months because that would mean that everything had to go perfect, everybody was on time, refineries don’t have any problems, weather doesn’t cause an interference. The more and more volume that goes on rail for example the increased congestion alone forget all the government rules and concerns becomes an issue and then you have weather in the middle of that and it backs things up in the system.

At the end of the day that causes volatility and causes pressure on volumes and regions and that’s where PAA because of its participation in the full part of the value chain and its strong balance sheet and its knowledge can capture on that. So again we definitely think there is an upward bias to our projected results if we see volatility and we do believe we will see volatility, we just can’t tell you when it’s going to happen or exactly where it’s going to occur. It’s just really hard to believe that the conditions are such that they won’t occur.

John Edwards - Credit Suisse

Okay. That’s really helpful. And then, you raised your CapEx outlook for the year to 1.7 from the previous what you were discussing. I am just curious on the projects that you are considering, that are not on the backlog list at this time. Are you continuing to see the backlog or the products under consideration? I mean are they continuing to rise is it staying relatively flat, if you could just give a little detail on that.

Greg L. Armstrong

Yes it’s still very healthy. I think we have got an upward bias on that as well as we had in the prior year. If you recall, last year we ended up at 1.6 billion, I think we started the year at 1.2 and so as we mature projects we add them to current year. These, we’re very comfortable that what we currently have going on without regard to future events, we’re going to be in that 1.6 billion to 1.8 billion range so call it 1.7.

We continue to have a lot of projects that we work on behind the scenes that we’re having discussions with customers on currently about moving those things forward, because we have such a large foot print in the crude oil space and we know who needs the service to move it from the production areas, we know who needs to acquire it on the refinery areas, we really don’t need to go through massive open seasons to determine where the interest is. So we really don’t broadcast that, it then help us to put our game plan out there and show what we’re thinking about building something.

So I would hope that we would see, two things happen over the next 12 months, we would see the 2014 program at least be in the middle of that range with a bias towards probably at the upper-end of the range if not through it and then we would see a better definition for the 2015 program as we get through the year if those projects that you are mentioning that we’re indeed working on basically crystallize into something that’s coming to an announcement.

I am thinking, if you think about it in November, early November we reiterated that our guidance capital guidance for 2014 was in the 1.3 to 1.5 range, so I will call it 1.4. Within that next 30 to 45 days after that conference call several of the projects we were working on crystallized, and I think we announced in the Permian for example $400 million to $500 million of projects some of which were in the original estimate range and some of which were incremental and then we announced some other stuff in the Eagle Ford and so that and here we’re today not less than 90 days later and it went from 1.4 million midpoint to 1.7 million and it’s by dynamic. So I think it’s exactly what you would hope for which is things continue to bubble up to the top crystallize I think and implement it.

John Edwards - Credit Suisse

Alright that’s really helpful, thank you very much.

Operator

And next we’ll go to the line of Ethan Bellamy with Baird. Please go ahead.

Ethan Bellamy - Robert W. Baird & Company

Good morning gentlemen. A couple of modeling questions to start with, is 1.7 billion a good CapEx number in ’15 and ’16 in well or are we off mark modeling that?

Greg L. Armstrong

Yes, we’re not extending our guidance to that level. I think we have said Ethan that we felt comfortable that the minimum amount we would spend would probably be in the 1 billion to 1.5 billion range in over the two years succeeding our current year. And again we hope to ramp that up but I don’t want to guide to a number then have to talk you down from it. Realizing that is a practical matter, I know you guys are trying to do a multi-year models and we applaud that, is what we’re spending in 2014 is going to have very minimal impact on 2014 cash flow, it’s going to have more of an impact on ’15 and ’16. So when you start talking about the ’15, ’16 capital programs they are really are going to have an impact on ’17 and ’18 kind of results.

And so while I think we’re bold enough to forecast in more detail, more granularity than many of our peers up further about how we’re going to get there, we’re not so bold enough to go out four years on the CapEx side because things do change, realizing my earlier comments was that we think somewhere in the next 24 months we think the up until the ride may have to take at least one breather if not two, that would change that outlook and as I would hate to talk you back down from a number. But I think if you were trying to model in the neighborhood in ’15 and ’16 somewhere between a 1 billion and 1.5 billion is probably not an uncomfortable number. You may be wrong in one year and right for an average of the two, depending on what happens there.

Ethan Bellamy - Robert W. Baird & Company

Okay. I appreciate that. What kind of ATM issuance should we assume per quarter?

Greg L. Armstrong

We don’t provide that level of guidance just because we want to be opportunistic, if you do look at kind of our average units outstanding and the 8-K you can kind of back into a number of units growth and kind of use your judgment as to how to model them out. But we’re fairly opportunistic depending on what we see in our price and that type of things.

We’re so far ahead of the capital curve, we’re not trying to pressure the market, we’re just trying to basically take advantage of it and have a level. I think it’s probably a fair statement last year out we raised a total of 475sh okay and we basically sat out one quarter. So I mean there is quite a bit of capability there just again we wouldn’t have been able to tell you at the beginning of the year when we were going to be in the market or when we’re going to be out.

It’s been a function of capital inflows, if somebody is fine to get formed and they go into the market to acquire some of the bigger cap, there is an opportunity to provide supply if you will for their demand without disrupting the market and that’s in everybody’s best interest and so to some extent else what the funds flow is and I will tell you what our answer is.

Ethan Bellamy - Robert W. Baird & Company

Fair enough. With respect to the tax outlook for PAGP, any changes there since the IPO?

Greg L. Armstrong

None.

Ethan Bellamy - Robert W. Baird & Company

Okay. Greg one big picture question, I mean you had to take kind of molybdenum gas storage. What’s the next gas storage that you are either avoiding right now or have suspicions about?

Greg L. Armstrong

You mean in terms of decision?

Ethan Bellamy - Robert W. Baird & Company

Yes just other stuff in midstream that might be over baked or oversold?

Greg L. Armstrong

I think today there is not one necessarily on the plate, I think on the horizon if the longer that we go without either a price correction or visible volume it’s going to be demand growth. It just tells you if we continued to add a million barrels a day of productive capacity in the U.S. and Canada in that neighborhood and we ignore the fact that you have got Iraq, Iran, Sudan, Egypt, Libya, Syria all that capacity out there, it just tells you that ultimately it’s getting more brittle as you go out that far.

Again for PAA’s business model that’s not necessarily bad, because it creates volatility and we have assets in all the right places, most of the right places we believe we do. So in gas storage again I think volumetric we called it right, we don’t know the market clearing price was impacted by a lot of events and this was terrible timing, so we’re just taking them up something. And let me put in perspective, if somebody invested in PNG, for our biggest mistake they made an 8% compound annual return over the three year period. If the worse we can do is that, we’re happy campers.

Ethan Bellamy - Robert W. Baird & Company

Do you have any interest in junk back tankers?

Greg L. Armstrong

At the right price, the big issue with junk back tankers is that they have significant value, if you don’t export capability today, if you had export capability or if they basically waive the Jones act requirement that wouldn’t be a fun factor.

Ethan Bellamy - Robert W. Baird & Company

Helpful as always, great. Thank you very much.

Greg L. Armstrong

Thanks.

Operator

Our next question comes from the line of Cory Garcia with Raymond James. Please go ahead.

Cory Garcia - Raymond James

Good morning guys, I appreciate the helpful color as always. One quick and I guess sort of housekeeping item. We saw that crude by rail volumes were pretty flat this past quarter, recognizing that there is obviously some weather impacts there. Have you guys seen any real weakness in flows down at the Gulf Coast yet given the pricing weakness this past quarter and I again I recognized that you guys have a majority of your volumes committed down there. Just wondering what the customer reaction has been to the disconnects we have seen down in that market?

Greg L. Armstrong

I think volumes have been slightly lower into the Gulf Coast but that’s a combination of weather and probably the weaker differentials into the Gulf Coast, probably higher values at the East and West Coast than the Gulf Coast occasionally, so.

Cory Garcia - Raymond James

Okay, that makes sense, thank you guys.

Greg L. Armstrong

I think one of the things that will be important to us to realize I mean with the development of our Bakersfield facility and the completion of what we have got euro, pound, we have got all the markets and so we may not be running full out in any picture at all three of those facilities but we are probably going to be able to capture the best markets for any market.

Cory Garcia - Raymond James

Yeah, I absolutely agree in this evolving market diversity is definitely going to play in your favor. Thanks.

Operator

And next we will go to the line of Ross Payne with Wells Fargo. Please go ahead.

Ross Payne - Wells Fargo Securities

Greg obviously your acquisitions were pretty richly priced out there this last year but as you look at that marketplace do you think most of the opportunities over the next two to three years are going to be on the C-Corp side? And secondarily there have been some mergers within the MLP space stock mergers, what do you expect there in terms of opportunities here? Thanks.

Greg L. Armstrong

I think those are hard to predict, which is going to occur in what sequence. I think we feel directionally that it’s going to be hard for us to get to the next two or three years without seeing some really good opportunities which is why we are lowering our leverage so that we have the ability to take a bold step without having to won’t rely on access to the capital markets to be able to allow us to execute that transaction or had to strain our balance sheet, maybe one of which we want to do and so we are prepared now with PAGP for really all three.

Asset acquisitions, we think there is still a lot of decent assets to come to market, if the capital markets become stingy with capital that means we will have the ability to have less competition and be able to use our synergies as our distinguishing characteristic as opposed to just everybody having cheap cost of capital in excess. And then certainly there is several MLP entities that we think fit strategically very complementary. We have a lot of synergies but it’s difficult to current valuation. So, tell me when the markets going to have a major correction and I will tell you which one is going to come first.

We just think we are well positioned for all three because we have the financial strength, the operating synergies that can add value and make a transaction fundamentally sound. And we have the skill sets proven in the past, so we are going to continue to be disciplined. We are not going to pull our balance sheet apart trying to make one of those happen. We have, we effectively lowered if you take our 3.5 to 4 debt-to-EBITDA target range and use the midpoint of that is kind of your anchor at 3.75.

We have lowered our leverage roughly by six-tenths to seven-tenths of a time and we put that on 2.2 billion of EBITDA that means we could write a check tomorrow for $1.5 billion cash be it 3.75 and even if we had no EBITDA, if we did that, I would better fire me as CEO but we have that capability. What it says is we can go out there and buy something at a high multiple that has still stayed well within that range and then allow our synergies to catch up whether to lower the multiple.

We can do that even if the capital markets for equity are not available and that’s a very comfortable position to be in and we do think there will be opportunities. We think some of the prior transactions that have happened have been fully priced but that thus say they can achieve good returns if the market stays up until the ride on those volume forecast but if there is an interruption in that we think, we feel those deals could have trouble and whether we look at purchasing the asset from a prior purchaser or purchase in the entity either one of those are attractive to us.

Ross Payne - Wells Fargo Securities

Great, thanks for the clarification.

Greg L. Armstrong

Thanks Ross.

Operator

Next we will go to the line of Elvira Scotto with RBC Capital Markets. Please go ahead.

Elvira Scotto - RBC Capital Markets

Hi, good morning. I just wanted to follow-up on a couple of the comments that were made, if the U.S. were to allow exports, how do you see that potentially impacting your growth project backlog. I mean I know you talked about potential expanding export capabilities at some of your facilities. But how do you think the opportunities that would change longer term kind of if you are looking at all the potential projects that you’re looking at now, would you see an increase in the opportunity set or do you think some of these projects would grow off if we remove some of that congestions out of the Gulf Coast?

Greg L. Armstrong

Elvira I think to be very honest with you, I think what I would do is take away some of the potential for our capital program to grow from what we’ve already put out there, I don’t think it effects in terms at all, in terms of reducing it but it may mean that if we think there is a potential for 1.7 billion to grow to 2 billion, if all these projects come to pass, it may mean that only goes to a 1.85 as a potential or it will go to 1.9 realizing that these projects, splitter project for example from the time say go it is probably a year and a half to get it online and it takes a year to split that investment over whatever you started over at least a two year period but depending on what year you started it in it may effect this year’s very minimally and next year’s potential more significantly.

And part of it is one of the conditions on the export capability that the government puts in place. So, is it a blanket on all crude? Or is it only on certain condensates is it on minimal processing of certain crude where you can splitter qualifies or it doesn’t qualify. It really depends on the details. But from our perspective our future is not hinging on whether it’s imports or committed or not committed, we’ve got a game plan for either one of them and we benefit from either one. It just probably depends on when they do it as to how it impacts the capital per game play.

Wait two years, certain things will get built and you are able to compete at the margin to maintain volumes versus exports if I I’d do it today, and pardon me some of the things don’t ever get built but it allows us to build more infrastructure to our export facilities or refine our plumbing if you will to the points that we have. So, again part of this is to tell our story of PAA, and we don’t think there is another midstream crude oil entity that is as well positioned to benefit from almost no matter what happens, there is certainly some scenarios where we benefit even more but having said that we also know that if it looks too good to be true we’ll get a lot of competition in there even though we have the best position, some people kind of want to win this into the market. So, this uncertainly probably doesn’t hurt us right now.

Elvira Scotto - RBC Capital Markets

Great, thank you, that’s very helpful.

Operator

Our next question comes from the line of Noah Lerner with Hart Capital. Please go ahead.

Noah Lerner - Hart Capital

Thank you. Good morning everybody.

Greg L. Armstrong

Hey, Noah.

Noah Lerner - Hart Capital

A follow-up question to what Gabe Moreen was talking about with the railcars. Just curious with the changes that seem to be have been approved so far with potential rerouting and other things other than the retrofitting of the cars. What impact does it have on the profitability of the various rail facilities that you either put in service or are currently building and does it change your outlook as far as wanting to expand that possibility going forward?

Greg L. Armstrong

I think if we talk about some of the alternatives are being discussed like rerouting slowing down speeds it probably effects turnaround time it doesn’t affect that entire, the locations that we have in general. And in fact that, if you know that Yorktown versus Philadelphia probably makes your count a more attractive alternative than going directly into Philadelphia, so we like our facility. There is not as much congestion at Yorktown versus Philadelphia.

If you think about it in terms of margin equivalence, what it probably does if you got, let’s say your average cost is a $1,000 per car for at least in the call it 700 barrel range plus or minus in that car, you’re $1.50 if you turn that car one-time a month and you’re $0.75 a barrel if you turn it two times a month. So, if they slow it down, wherever you are at in one turn or two turns, it’s going to add that incremental cost to the barrel. If you are like us then you’ve got scale and scope and the ability to wheel to the best markets and you’ve got a little bit of volume weight, what, quite of Wal-Mart but we’re pretty good size player in the market that we probably have less adverse impact on us and we could push that cost back to the well head or to the refinery depending on what, how they set it up.

Harry Pefanis

It really all the rail loading in term loan are talking to be in the same boat. It’s really going to impact sort of would that balances through our pipelines it might make more sense than rail and some areas and most of the loading areas we have pipeline alternatives as well as rail. So, as Greg mentioned earlier, we think what is well positioned regardless of what the outcome is.

Noah Lerner - Hart Capital

Okay. And then I think I guess you have a biggest issue that I saw or outcome of the recent negotiations was basically to tighten up the testing and labeling, what goes in the cars to kind of saying that things weren’t properly done up in the Bakken and too volatile the products what are in cars that couldn’t handle them. Is that going to raise any kind of costs either operating or within the facilities themselves as CapEx to adopt and bring those order, are you guys are pretty already doing all that so it’s really not going to have any material impact to you at all?

Harry Pefanis

Well, first on the labeling, whether it’s a packet of one, two or three it still going to the same railcar so while there were some labeling deficiencies it didn't impact the railcar that that product could have moved in. So we are as careful as anyone at trying to proper the label the product that goes out on railcars we have a testing program in all our facilities. As far as the cost to retrofit and I think that sort of ties back to the question earlier what’s the retrofit really going to be? Is it going to be a shorter timeframe or a reasonable timeframe because of the shops that can retrofit there is no limited amount of shops that can retrofit railcars.

Greg L. Armstrong

But if I understood your question correctly your question was is, is the incremental testing or the minimum testing that they’re going to require are going to add to our cost we already do everything that we need to be doing probably as the step beyond that so the answer to that question is no. The question really is, is railcar issue that Harry mentioned is when are they going, are they going to grandfather it in or how are they going to phase it in realizing that a lot of it if they go for the kind of the double tanker dual hold kind of concept I don’t think the retrofit works with the existing cars that’s already built to the wide scale so you really can’t add another later on to it.

Noah Lerner - Hart Capital

Do you see any risk at all out there in the marketplace that they’ll curtail the utilization of unit trains for rails and it’s too much crude in one rail better to split it up in smaller batches so it’s less hazardous or you think unit trains are pretty solid and here to stay?

Greg L. Armstrong

Noah you are talking to me I see risk everywhere which way…

Noah Lerner - Hart Capital

That’s why I have been asking you Greg.

Greg L. Armstrong

I do think there is but again as long as it’s across the board then it really affects everybody and I’m going to come back to I think the people that had the better scale and the most market flexibility are going to have the best benefit. It impacts it in such a way that it just makes it uneconomic to move it by rail remember we’ve got 18,000 miles of pipeline that we’re more than happy to move and expand on. So, we’re like everybody else we just want to get it right and we want to do it to make sure we come up with the safest way. But I think our peak forecast for moving crude by rail in general to say was it 1.7 million barrels a day total peak, yes, over the next four years.

Noah Lerner - Hart Capital

Close, yes.

Greg L. Armstrong

Yes, so in a 1.5 million range so and that’s just a huge volume if you couldn’t move that by rail and ride that probably in the million barrel it’s just you can imagine what that would do to the system. So it’s going to create I think volatility but yes we do see the risk that sometimes there will be a reaction to do something and mistake motion for action and it may make a logical sense but it maybe the headline whereas politically they may consider the wise thing to do. But I think if just the system still had to work you still have to balance it so whatever happens either as the increased cost it just gets pushed down or decreased volume and it creates price impact on the commodity itself.

Noah Lerner - Hart Capital

Great, thanks a lot for all your information I really appreciate it.

Greg L. Armstrong

Thanks Noah.

Operator

And the next question comes from the line of James Jampel with HITE. Please go ahead.

James Jampel - HITE Hedge Asset Management

Thanks for taking the call and for letting this go on for quite some time. Crude by rail is certainly important part of being able to respond to potential dislocations in the crude market. However, how do you know when enough rail capacity is enough, what signals will you be looking for that suggest that rail facilities could be overbuilt given the peak that you see of what you say 1.4 million barrels?

Greg L. Armstrong

Yes I think James it’s actually probably in certain areas it may well be overbuild right now on the loading side of it the unloading is where we’re short right now. And so the loading I mean there is already areas where you have got less than fully utilize facilities in geographic area and in some cases you may end up with a rail loading facility was built where it was because somebody had a view for what that areas production and the immediate area was going to do and you find out that may not be one of the sweet spots and so another facility not too far down the road but strategic in position close to the sweet spot within one of these major producing areas is much better then.

So I think the answer is you’re going to have that. Keep in mind that the cost to build the rail loading facilities is I won’t say it’s nominal but it’s not huge it’s 30 million to 50 million depending upon where you’re at you can go up from there. So that’s not going to be hugely fatal there the other side of it though it’s that’s the unloading facilities which is where we’re short right now and provides the flexibility to get to different markets there well I don’t think we’re close to being overbuilt at all.

Harry Pefanis

Coast is probably has enough capacity and it’s hard to see you’ll have more additional unloaded capacity in the Gulf Coast but and when we look at P1 or pad 1 and pad 5 we were really trying to stay where we backed out all of the medium and light sweet imports behind and it looks like in particular in pad 1 the capacity is consistent with what the original light imports were okay we’re still behind the curve out in the West Coast which we just have not gotten the capacity built, the unloading capacity build yet. So it actually feels and P1 and P5 like it either right at the right level or a little bit behind the curve in terms of unloaded capacity.

James Jampel - HITE Hedge Asset Management

And view is that no more unloading capacity is necessary on the East Coast, but there might be room for spectrus projects in California?

Greg L. Armstrong

And there is more room in California, or excuse me, West Coast, okay probably right now up further north. It feels about right unless we start displacing some of the heavies on the East Coast.

Harry Pefanis

And so when you start looking at some typical locations on the West Coast then you have look at the other logistics. You have the pipeline capacity to move from the rail facility to the right market that they want the product and can you get permitted in some of the locations to develop rail unloading capacity. So I don’t we’re really trying to address any one specific project. We’re just saying in total we are going to add rail unloading capacity in the West Coast.

Greg L. Armstrong

If you unload head rail unloading capacity at a point destination such as a refinery, that’s a different way to handicap things whereas what we’re trying to build in California is we’re having an unloading facility built at kind of the headwaters of our pipeline system that allows us get into multiple markets, because if you think about it if you’re shipping rail into a point destination just a refinery and they either find a better alternative crude or they have operational issues that doesn’t allow them continue to unload. You have got excess capacity just because of the operational issue where we’re trying to build ours in California is that at the headwaters of our pipeline, so that when we bring it in we can to three different markets and then distribute it within each of those markets to multiple refineries.

James Jampel - HITE Hedge Asset Management

So your rail capital expenditures going forward are focused entirely on California?

Greg L. Armstrong

No, we have an unloading facility at Bakersfield which was evolving. We have a little expansion in Niobrara at Carr. We have a full expansion in North Dakota expanding the facility from 30,000 barrels to 35,000 barrels a day to a full unit train. And then we have one project that we’ve committed to in Canada and another project that we’re evaluating in Alberta, Canada.

Harry Pefanis

And James, I would point out that where we’re building these incremental loading capacity, we have pipeline alternatives in the neighbors, we have the ability to swing volumes between it because as Noah’s question points out there maybe times when either because of differentials or regulations that is not as economic to move it by rail, that means it’s more economic to move it on the pipeline. And so if you just had just the loading and that was the only business that you had and they change the rules on you that’s not going to be very fun, if the answer is you have the pipeline and the rail, you have the ability to continue to move the barrels and collect a fee.

And you have to do your aggregate investment that way and the aggregate return of this lag capacity and we do approach it that way. So I wouldn’t give you any comments about anybody else’s facilities. We don’t know enough about their economics. So if you try to go through the backdoor again depending on that I will just close that door. But on PAA’s we feel very comfortable what we have going forward.

James Jampel - HITE Hedge Asset Management

Alright, thanks. And last one from me. On the NGL side, given the recent volatility there, do you think shippers maybe less likely to commit the pipeline solutions and therefore benefiting your NGL rail solutions in a longer runway?

Greg L. Armstrong

Well our NGL rail is, they are just small demand centers whether it’s not pipeline capacity and you never going to dissolve pipeline capacity into some of the areas, so it’s kind of small rail unload the trucks to small markets in the upper Midwest.

James Jampel - HITE Hedge Asset Management

Do you see any opportunity for rail logistics operating out of say the Marcellus given about recent the recent volatility in the NGL markets of where perhaps this probably is going to go?

Greg L. Armstrong

We have so many pipeline projects in the Marcellus. You’ve got Mariner East, Mariner West. The Kinder Morgan project to go into Sarnia we’ve got pipeline that’s actually moving to Sarnia you’ve got couple of pipelines going from the Marcellus and Utica into the Gulf Coast, hard to see how rail really.

Harry Pefanis

It might be a short-term pressure relief out issue but not a long-term solution.

James Jampel - HITE Hedge Asset Management

Alright. Thank you.

Greg L. Armstrong

Thank you.

Operator

And at this time, we have no further questions in queue, please continue.

Greg L. Armstrong

That was the call we were looking for. If there are no other questions, we’ll go ahead and conclude this call. And we want to thank everybody for participating. And we look to updating you in May.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation for using AT&T Executive Teleconference Service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Plains All American Pipeline's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts