PAA Plains All American Pipeline

Plains All American Pipeline, L.P. (NYSE: PAA) and Plains GP Holdings (NYSE: PAGP) today reported second-quarter 2016 results.

Plains All American Pipeline, L.P.

Summary Financial Information (1) (unaudited)

    (in millions, except per unit data)   Three Months Ended       Six Months Ended June 30, June 30,     2016       2015   %

Change

  2016     2015 %

Change

Net income attributable to PAA $ 101 $ 124 (19 )% $ 302 $ 407 (26 )% Diluted net income/(loss) per common unit $ (0.20 ) $ (0.06 ) (233 )% $ (0.13 ) $ 0.29 (145 )% Diluted weighted average common units outstanding 398 397 - % 398 393 1 %     Three Months Ended Six Months Ended June 30, June 30,     2016     2015   %

Change

  2016     2015 %

Change

Adjusted net income attributable to PAA $ 136 $ 255 (47 )% $ 491 $ 624 (21 )% Diluted adjusted net income/(loss) per common unit $ (0.12 ) $ 0.27 (144 )% $ 0.33 $ 0.83 (60 )% EBITDA $ 415 $ 372 12 % $ 863 $ 881 (2 )% Adjusted EBITDA $ 461   $ 486   (5 )% $ 1,082   $ 1,108 (2 )% Distribution per common unit declared for the period $ 0.700   $ 0.695   0.7 %   (1) PAA’s reported results include the impact of items that affect comparability between reporting periods. The impact of certain of these items is excluded from adjusted results. See the section of this release entitled "Non-GAAP Financial Measures and Selected Items Impacting Comparability" and the tables attached hereto for information regarding certain selected items that PAA believes impact comparability of financial results between reporting periods, as well as for information regarding non-GAAP financial measures (such as adjusted EBITDA) and their reconciliation to the most directly comparable measures as reported in accordance with GAAP.  

“PAA continues to execute well during a challenging environment,” said Greg Armstrong, Chairman and CEO of Plains All American. “We reported second-quarter adjusted EBITDA of $461 million, which was approximately $21 million or 5% above the midpoint of our second-quarter guidance.”

“Although we remain cautious over the near term and have left our full year 2016 adjusted EBITDA guidance midpoint unchanged at $2.175 billion, we believe PAA is well positioned to manage through near term industry challenges and to prosper over the intermediate to long term. Importantly, based on PAA’s 2016 guidance and accounting for our recently announced simplification transaction and intended distribution reset, PAA’s pro forma distribution coverage for the full year of 2016 is expected to be approximately 1.05 times.”

Armstrong added, “PAA has $2.9 billion of liquidity and our performance is expected to benefit from increases in minimum volume commitments on existing assets as well as numerous capital projects scheduled to come on line over the next 18 months. Additionally, PAA has a large interconnected crude midstream platform that has significant leverage to a sustained increase in U.S. crude oil production with no-to-low incremental capital investment."

The following table summarizes selected PAA financial information by segment for the second quarter and first half of 2016:

Summary of Selected Financial Data by Segment (1) (unaudited)

      (in millions)   Three Months Ended Three Months Ended June 30, 2016 June 30, 2015 Transportation   Facilities   Supply and

Logistics

Transportation Facilities Supply and

Logistics

Reported segment profit/(loss) $ 252 $ 156 $ (18 ) $ 186 $ 144 $ 41 Selected items impacting comparability of segment profit (2)   9     5     57     70   2   43 Adjusted segment profit $ 261   $ 161   $ 39   $ 256 $ 146 $ 84 Percentage change in reported segment profit/(loss) versus 2015 period   35 %   8 %   (144 )% Percentage change in adjusted segment profit versus 2015 period   2 %   10 %   (54 )%   Six Months Ended Six Months Ended June 30, 2016 June 30, 2015 Transportation Facilities Supply and

Logistics

Transportation Facilities Supply and

Logistics

Reported segment profit $ 499 $ 315 $ 19 $ 428 $ 285 $ 171 Selected items impacting comparability of segment profit (2)   31     12     205     74   5   144 Adjusted segment profit $ 530   $ 327   $ 224   $ 502 $ 290 $ 315 Percentage change in reported segment profit versus 2015 period   17 %   11 %   (89 )% Percentage change in adjusted segment profit versus 2015 period   6 %   13 %   (29 )%   (1) PAA’s reported results include the impact of items that affect comparability between reporting periods. The impact of certain of these items is excluded from adjusted results. See the section of this release entitled "Non-GAAP Financial Measures and Selected Items Impacting Comparability" and the tables attached hereto for information regarding certain selected items that PAA believes impact comparability of financial results between reporting periods.   (2) Certain of our non-GAAP financial measures may not be impacted by each of the selected items impacting comparability.  

Plains GP Holdings

PAGP’s sole assets are its ownership interest in PAA’s general partner and incentive distribution rights. As the control entity of PAA, PAGP consolidates PAA’s results into its financial statements, which is reflected in the condensed consolidating balance sheet and income statement tables included at the end of this release. Information regarding PAGP’s distributions is reflected below:

      Q2 2016       Q1 2016       Q2 2015 Distribution per Class A share declared for the period $ 0.231 $ 0.231   $ 0.227   Q2 2016 distribution percentage growth from prior periods   - %   1.8 %  

Conference Call

PAA and PAGP will hold a conference call on August 3, 2016 (see details below). Prior to this conference call, PAA will furnish a current report on Form 8-K, which will include material in this news release as well as PAA’s financial and operational guidance for the third quarter and full year of 2016. A copy of the Form 8-K will be available at www.plainsallamerican.com, where PAA and PAGP routinely post important information.

The PAA and PAGP conference call will be held at 11:00 a.m. ET on Wednesday, August 3, 2016 to discuss the following items:

1. PAA's second-quarter 2016 performance;

2. The status of major expansion projects;

3. Capitalization and liquidity;

4. Financial and operating guidance for the third quarter and full year of 2016; and

5. PAA and PAGP’s outlook for the future.

Conference Call Webcast Instructions

To access the Internet webcast of the conference call, please go to www.plainsallamerican.com, under the “Investor Relations” section of the website (Navigate to: Investor Relations / either “PAA” or “PAGP” / News & Events / Quarterly Earnings). Following the live webcast, an audio replay in MP3 format will be available on the website within two hours after the end of the call and will be accessible for a period of 365 days.

Non-GAAP Financial Measures and Selected Items Impacting Comparability

To supplement our financial information presented in accordance with GAAP, management uses additional measures known as “non-GAAP financial measures” in its evaluation of past performance and prospects for the future. The primary additional measures used by management are adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) and implied distributable cash flow (“DCF”).

Management believes that the presentation of such additional financial measures provides useful information to investors regarding our performance and results of operations because these measures, when used to supplement related GAAP financial measures, (i) provide additional information about our core operating performance and ability to fund distributions to our unitholders through cash generated by our operations and (ii) provide investors with the same financial analytical framework upon which management bases financial, operational, compensation and planning/budgeting decisions. We also present these and additional non-GAAP financial measures, including adjusted net income attributable to PAA, basic and diluted adjusted net income per common unit and adjusted segment profit, as they are measurements that investors, rating agencies and debt holders have indicated are useful in assessing us and our results of operations. These non-GAAP measures may exclude, for example, (i) charges for obligations that are expected to be settled with the issuance of equity instruments, (ii) the mark-to-market of derivative instruments that are related to underlying activities in another period (or the reversal of such adjustments from a prior period), the mark-to-market related to our Preferred Distribution Rate Reset Option, gains and losses on derivatives that are related to investing activities (such as the purchase of linefill) and inventory valuation adjustments, as applicable, (iii) long-term inventory costing adjustments, (iv) items that are not indicative of our core operating results and business outlook and/or (v) other items that we believe should be excluded in understanding our core operating performance. These measures may further be adjusted to include amounts related to deficiencies associated with minimum volume commitments whereby we have billed the counterparties for their deficiency obligation and such amounts are recognized as deferred revenue in “Accounts payable and accrued liabilities” in our Condensed Consolidated Financial Statements. Such amounts are presented net of applicable amounts subsequently recognized into revenue. Furthermore, the calculation of these measures contemplates tax effects as a separate reconciling item, where applicable. We have defined all such items as “Selected Items Impacting Comparability.” Due to the nature of the selected items, certain selected items impacting comparability may impact certain non-GAAP financial measures, referred to as adjusted results, but not impact other non-GAAP financial measures. We consider an understanding of these selected items impacting comparability to be material to the evaluation of our operating results and prospects.

Our definition and calculation of certain non-GAAP financial measures may not be comparable to similarly-titled measures of other companies. Adjusted EBITDA, Implied DCF and other non-GAAP financial measures are reconciled to the most comparable measures as reported in accordance with GAAP for the periods presented in the tables attached to this release, and should be viewed in addition to, and not in lieu of, our Condensed Consolidated Financial Statements and notes thereto. In addition, we encourage you to visit our website at www.plainsallamerican.com (in particular the section under “Financial Information” entitled “Non-GAAP Reconciliations” within the “Investor Relations” tab), which presents a reconciliation of EBITDA as well as certain other commonly used non-GAAP and supplemental financial measures.

Forward Looking Statements

Except for the historical information contained herein, the matters discussed in this release consist of forward-looking statements that involve certain risks and uncertainties that could cause actual results or outcomes to differ materially from results or outcomes anticipated in the forward-looking statements. These risks and uncertainties include, among other things, declines in the volume of crude oil, refined product and NGL shipped, processed, purchased, stored, fractionated and/or gathered at or through the use of our assets, whether due to declines in production from existing oil and gas reserves, failure to develop or slowdown in the development of additional oil and gas reserves, whether from reduced cash flow to fund drilling or the inability to access capital, or other factors; the effects of competition; failure to implement or capitalize, or delays in implementing or capitalizing, on expansion projects; unanticipated changes in crude oil market structure, grade differentials and volatility (or lack thereof); environmental liabilities or events that are not covered by an indemnity, insurance or existing reserves; fluctuations in refinery capacity in areas supplied by our mainlines and other factors affecting demand for various grades of crude oil, refined products and natural gas and resulting changes in pricing conditions or transportation throughput requirements; the occurrence of a natural disaster, catastrophe, terrorist attack or other event, including attacks on our electronic and computer systems; maintenance of our credit rating and ability to receive open credit from our suppliers and trade counterparties; tightened capital markets or other factors that increase our cost of capital or limit our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness; the currency exchange rate of the Canadian dollar; continued creditworthiness of, and performance by, our counterparties, including financial institutions and trading companies with which we do business; inability to recognize current revenue attributable to deficiency payments received from customers who fail to ship or move more than minimum contracted volumes until the related credits expire or are used; non-utilization of our assets and facilities; increased costs, or lack of availability, of insurance; weather interference with business operations or project construction, including the impact of extreme weather events or conditions; the availability of, and our ability to consummate, acquisition or combination opportunities; the successful integration and future performance of acquired assets or businesses and the risks associated with operating in lines of business that are distinct and separate from our historical operations; the effectiveness of our risk management activities; shortages or cost increases of supplies, materials or labor; the impact of current and future laws, rulings, governmental regulations, accounting standards and statements and related interpretations; fluctuations in the debt and equity markets, including the price of our units at the time of vesting under our long-term incentive plans; risks related to the development and operation of our assets, including our ability to satisfy our contractual obligations to our customers; factors affecting demand for natural gas and natural gas storage services and rates; general economic, market or business conditions and the amplification of other risks caused by volatile financial markets, capital constraints and pervasive liquidity concerns; and other factors and uncertainties inherent in the transportation, storage, terminalling and marketing of crude oil and refined products, as well as in the storage of natural gas and the processing, transportation, fractionation, storage and marketing of natural gas liquids as discussed in the Partnerships' filings with the Securities and Exchange Commission.

Plains All American Pipeline, L.P. is a publicly traded master limited partnership that owns and operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids ("NGL"), natural gas and refined products. PAA owns an extensive network of pipeline transportation, terminalling, storage and gathering assets in key crude oil and NGL producing basins and transportation corridors and at major market hubs in the United States and Canada. On average, PAA handles over 4.6 million barrels per day of crude oil and NGL in its Transportation segment. PAA is headquartered in Houston, Texas.

Plains GP Holdings is a publicly traded entity that owns an interest in the general partner and incentive distribution rights of Plains All American Pipeline, L.P., one of the largest energy infrastructure and logistics companies in North America. PAGP is headquartered in Houston, Texas.

        PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                  

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)

(in millions, except per unit data)   Three Months Ended Six Months Ended June 30, June 30,   2016     2015     2016     2015     REVENUES $ 4,950 $ 6,663 $ 9,060 $ 12,605   COSTS AND EXPENSES Purchases and related costs 4,224 5,848 7,571 10,890 Field operating costs 303 417 603 763 General and administrative expenses 73 79 140 157 Depreciation and amortization   204     108     319     212   Total costs and expenses 4,804 6,452 8,633 12,022   OPERATING INCOME 146 211 427 583   OTHER INCOME/(EXPENSE) Equity earnings in unconsolidated entities 40 52 87 89 Interest expense, net (114 ) (107 ) (227 ) (212 ) Other income/(expense), net   25     1     30     (3 )   INCOME BEFORE TAX 97 157 317 457 Current income tax expense (9 ) (19 ) (40 ) (61 ) Deferred income tax benefit/(expense)   14     (14 )   27     12     NET INCOME 102 124 304 408 Net income attributable to noncontrolling interests   (1 )   -     (2 )   (1 ) NET INCOME ATTRIBUTABLE TO PAA $ 101   $ 124   $ 302   $ 407     NET INCOME PER COMMON UNIT: Net income/(loss) allocated to common unitholders — Basic $ (81 ) $ (23 ) $ (53 ) $ 113 Basic weighted average common units outstanding 398 397 398 390 Basic net income/(loss) per common unit $ (0.20 ) $ (0.06 ) $ (0.13 ) $ 0.29     Net income/(loss) allocated to common unitholders — Diluted $ (81 ) $ (23 ) $ (53 ) $ 113 Diluted weighted average common units outstanding 398 397 398 393 Diluted net income/(loss) per common unit $ (0.20 ) $ (0.06 ) $ (0.13 ) $ 0.29    

(1) The 2015 periods have been retroactively adjusted to reflect the reclassification of the amortization of debt issuance costs from "Depreciation and amortization" to "Interest expense, net" as a result of our adoption of revised debt issuance costs guidance issued by the FASB.

                 

ADJUSTED RESULTS

(in millions, except per unit data) Three Months Ended Six Months Ended June 30, June 30,   2016     2015     2016     2015     Adjusted net income attributable to PAA $ 136   $ 255   $ 491   $ 624     Diluted adjusted net income/(loss) per common unit $ (0.12 ) $ 0.27   $ 0.33   $ 0.83     Adjusted EBITDA $ 461   $ 486   $ 1,082   $ 1,108         PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)          

CONDENSED CONSOLIDATED BALANCE SHEET DATA

(in millions) June 30, December 31,   2016     2015   ASSETS Current assets $ 3,603 $ 2,969 Property and equipment, net 13,598 13,474 Goodwill 2,396 2,405 Investments in unconsolidated entities 2,161 2,027 Linefill and base gas 902 898 Long-term inventory 184 129 Other long-term assets, net   319     386   Total assets $ 23,163   $ 22,288     LIABILITIES AND PARTNERS' CAPITAL Current liabilities $ 4,029 $ 3,407 Senior notes, net of unamortized discounts and debt issuance costs 9,128 9,698 Other long-term debt 358 677 Other long-term liabilities and deferred credits   678     567   Total liabilities 14,193 14,349   Partners' capital excluding noncontrolling interests 8,912 7,881 Noncontrolling interests   58     58   Total partners' capital   8,970     7,939   Total liabilities and partners' capital $ 23,163   $ 22,288    

DEBT CAPITALIZATION RATIOS

(in millions) June 30, December 31,   2016     2015   Short-term debt $ 1,302 $ 999 Long-term debt   9,486     10,375   Total debt $ 10,788   $ 11,374     Long-term debt $ 9,486 $ 10,375 Partners' capital   8,970     7,939   Total book capitalization $ 18,456   $ 18,314   Total book capitalization, including short-term debt $ 19,758   $ 19,313     Long-term debt-to-total book capitalization 51 % 57 % Total debt-to-total book capitalization, including short-term debt 55 % 59 %           PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                  

OPERATING DATA (1)

Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015   Transportation segment (average daily volumes in thousands of barrels per day): Volumes from tariff activities Crude oil pipelines (by region): Permian Basin (2) 2,178 1,886 2,112 1,773 South Texas / Eagle Ford (2) 274 308 294 286 Western 211 207 193 237 Rocky Mountain (2) 431 426 434 439 Gulf Coast 613 575 597 508 Central 398 432 388 434 Canada 379 393 386 403 Crude oil pipelines 4,484 4,227 4,404 4,080 NGL pipelines 182 193 180 192 Total volumes from tariff activities 4,666 4,420 4,584 4,272 Trucking 115 109 110 115 Transportation segment total volumes 4,781 4,529 4,694 4,387   Facilities segment (average monthly volumes): Crude oil, refined products and NGL terminalling and storage (average monthly capacity in millions of barrels) 105 99 105 99 Rail load / unload volumes (average volumes in thousands of barrels per day) 127 233 109 220 Natural gas storage (average monthly working capacity in billions of cubic feet) 97 97 97 97 NGL fractionation (average volumes in thousands of barrels per day) 105 103 110 103 Facilities segment total volumes

(average monthly volumes in millions of barrels) (3)

128 126 128 125   Supply and Logistics segment (average daily volumes in thousands of barrels per day): Crude oil lease gathering purchases 885 967 899 974 NGL sales 176 158 242 222 Waterborne cargos 5 - 6 - Supply and Logistics segment total volumes 1,066 1,125 1,147 1,196   (1) Average volumes are calculated as total volumes for the period (attributable to our interest) divided by the number of days or months in the period.   (2) Region includes volumes (attributable to our interest) from pipelines owned by unconsolidated entities.   (3) Facilities segment total is calculated as the sum of: (i) crude oil, refined products and NGL terminalling and storage capacity; (ii) rail load and unload volumes multiplied by the number of days in the period and divided by the number of months in the period; (iii) natural gas storage working capacity divided by 6 to account for the 6:1 mcf of natural gas to crude Btu equivalent ratio and further divided by 1,000 to convert to monthly volumes in millions; and (iv) NGL fractionation volumes multiplied by the number of days in the period and divided by the number of months in the period.         PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                  

COMPUTATION OF BASIC AND DILUTED NET INCOME/(LOSS) PER COMMON UNIT

(in millions, except per unit data) Three Months Ended Six Months Ended June 30, June 30,   2016     2015     2016     2015   Basic Net Income/(Loss) per Common Unit Net income attributable to PAA $ 101 $ 124 $ 302 $ 407 Distributions to Series A preferred units (1) (33 ) - (55 ) - Distributions to general partner (1) (155 ) (152 ) (310 ) (300 ) Distributions to participating securities (1) (1 ) (1 ) (2 ) (3 ) Undistributed loss allocated to general partner (1)   7     6     12     9   Net income/(loss) allocated to common unitholders in accordance with application of the two-class method for MLPs $ (81 ) $ (23 ) $ (53 ) $ 113     Basic weighted average common units outstanding 398 397 398 390   Basic net income/(loss) per common unit $ (0.20 ) $ (0.06 ) $ (0.13 ) $ 0.29     Diluted Net Income/(Loss) per Common Unit Net income attributable to PAA $ 101 $ 124 $ 302 $ 407 Distributions to Series A preferred units (1) (33 ) - (55 ) - Distributions to general partner (1) (155 ) (152 ) (310 ) (300 ) Distributions to participating securities (1) (1 ) (1 ) (2 ) (3 ) Undistributed loss allocated to general partner (1)   7     6     12     9   Net income/(loss) allocated to common unitholders in accordance with application of the two-class method for MLPs $ (81 ) $ (23 ) $ (53 ) $ 113     Basic weighted average common units outstanding 398 397 398 390 Effect of dilutive securities: Weighted average LTIP units (2)   -     -     -     3   Diluted weighted average common units outstanding   398     397     398     393     Diluted net income/(loss) per common unit (3) $ (0.20 ) $ (0.06 ) $ (0.13 ) $ 0.29     (1) Net income/(loss) allocated to common unitholders is calculated based on the distributions pertaining to the current period’s net income. After adjusting for the appropriate period's distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, common unitholders and participating securities in accordance with the contractual terms of our partnership agreement and as further prescribed under the two-class method.   (2) Our Long-term Incentive Plan ("LTIP") awards that contemplate the issuance of common units are considered dilutive unless (i) vesting occurs only upon the satisfaction of a performance condition and (ii) that performance condition has yet to be satisfied. LTIP awards that are deemed to be dilutive are reduced by a hypothetical unit repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in guidance issued by the FASB. Such LTIP awards were excluded from the calculation of diluted net income/(loss) per common unit for the three and six months ended June 30, 2016 and the three months ended June 30, 2015 as the effect was antidilutive.   (3) The possible conversion of our Series A preferred units was excluded from the calculation of diluted net income/(loss) per common unit for the three and six months ended June 30, 2016 as the effect was antidilutive.         PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                  

SELECTED ITEMS IMPACTING COMPARABILITY

(in millions, except per unit data) Three Months Ended Six Months Ended June 30, June 30,   2016     2015     2016     2015   Selected Items Impacting Comparability (1): Losses from derivative activities net of inventory valuation adjustments (2) $ (93 ) $ (60 ) $ (216 ) $ (151 ) Long-term inventory costing adjustments (3) 67 23 44 (15 ) Deficiencies under minimum volume commitments, net (4) (8 ) - (34 ) - Equity-indexed compensation expense (5) (11 ) (11 ) (15 ) (22 ) Net gain/(loss) on foreign currency revaluation (6) (1 ) (1 ) 2 26 Line 901 incident (7)   -     (65 )   -     (65 ) Selected items impacting comparability of EBITDA $ (46 ) $ (114 ) $ (219 ) $ (227 ) Deferred income tax expense (8) - (22 ) - (22 ) Tax effect on selected items impacting comparability   11     5     30     32   Selected items impacting comparability of net income attributable to PAA $ (35 ) $ (131 ) $ (189 ) $ (217 )   Impact to basic net income per common unit $ (0.08 ) $ (0.33 ) $ (0.46 ) $ (0.55 ) Impact to diluted net income per common unit $ (0.08 ) $ (0.33 ) $ (0.46 ) $ (0.54 )  

(1)

Certain of our non-GAAP financial measures may not be impacted by each of the selected items impacting comparability.

 

(2)

We use derivative instruments for risk management purposes and our related processes include specific identification of hedging instruments to an underlying hedged transaction. Although we identify an underlying transaction for each derivative instrument we enter into, there may not be an accounting hedge relationship between the instrument and the underlying transaction. In the course of evaluating our results of operations, we identify the earnings that were recognized during the period related to derivative instruments for which the identified underlying transaction does not occur in the current period and exclude the related gains and losses in determining adjusted results. In addition, we exclude gains and losses on derivatives that are related to investing activities, such as the purchase of linefill. We also exclude the impact of corresponding inventory valuation adjustments, as applicable, as well as the mark-to-market adjustment related to our Preferred Distribution Rate Reset Option.

 

(3)

We carry approximately 5 million barrels of crude oil and NGL inventory that is comprised of minimum working inventory requirements in third-party assets and other working inventory that is needed for our commercial operations. We consider this inventory necessary to conduct our operations and we intend to carry this inventory for the foreseeable future. Therefore, we classify this inventory as long-term on our balance sheet and do not hedge the inventory with derivative instruments (similar to linefill in our own assets). We treat the impact of changes in the average cost of the long-term inventory (that result from fluctuations in market prices) and writedowns of such inventory that result from price declines as a selected item impacting comparability.

 

(4)

We have certain agreements that require counterparties to deliver, transport or throughput a minimum volume over an agreed upon period. Substantially all of such agreements were entered into with counterparties to economically support the return on our capital expenditure necessary to construct the related asset. Some of these agreements include make-up rights if the minimum volume is not met. We record a receivable from the counterparty in the period that services are provided or when the transaction occurs, including amounts for deficiency obligations from counterparties associated with minimum volume commitments. If a counterparty has a make-up right associated with a deficiency, we defer the revenue attributable to the counterparty’s make-up right and subsequently recognize the revenue at the earlier of when the deficiency volume is delivered or shipped, when the make-up right expires or when it is determined that the counterparty’s ability to utilize the make-up right is remote. We include the impact of amounts billed to counterparties for their deficiency obligation, net of applicable amounts subsequently recognized into revenue, as a selected item impacting comparability. We believe the inclusion of the contractually committed revenues associated with that period is meaningful to investors as the related asset has been constructed, is standing ready to provide the committed service and the fixed operating costs are included in the current period results.

 

(5)

Our total equity-indexed compensation expense includes expense associated with awards that will or may be settled in units and awards that will or may be settled in cash. The awards that will or may be settled in units are included in our diluted net income per unit calculation when the applicable performance criteria have been met. We consider the compensation expense associated with these awards as a selected item impacting comparability as the dilutive impact of the outstanding awards is included in our diluted net income per unit calculation and the majority of the awards are expected to be settled in units. The portion of compensation expense associated with awards that are certain to be settled in cash is not considered a selected item impacting comparability.

 

(6)

During the periods presented, there were fluctuations in the value of CAD to USD, resulting in gains and losses that were not related to our core operating results for the period and were thus classified as a selected item impacting comparability.

 

(7)

Includes costs related to the Line 901 incident that occurred in May 2015, net of amounts we believe are probable of recovery from insurance.

 

(8)

Includes the initial cumulative effect of a change in Canadian tax legislation impacting the period.

            PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                                        

SELECTED FINANCIAL DATA BY SEGMENT

(in millions) Three Months Ended Three Months Ended June 30, 2016 June 30, 2015 Supply and Supply and Transportation Facilities Logistics Transportation Facilities Logistics Revenues (1) $ 403 $ 270 $ 4,652 $ 402 $ 269 $ 6,351 Purchases and related costs (1) (24 ) (6 ) (4,566 ) (29 ) (7 ) (6,168 ) Field operating costs (1) (2) (136 ) (88 ) (74 ) (209 ) (97 ) (110 ) Equity-indexed compensation expense - operations (5 ) (2 ) (1 ) (3 ) (1 ) - Segment general and administrative expenses (2) (3) (21 ) (14 ) (24 ) (22 ) (17 ) (27 ) Equity-indexed compensation expense - general and administrative (5 ) (4 ) (5 ) (5 ) (3 ) (5 ) Equity earnings in unconsolidated entities   40     -     -     52     -     -   Reported segment profit/(loss) $ 252   $ 156   $ (18 ) $ 186   $ 144   $ 41     Selected items impacting comparability of segment profit: (Gains)/losses from derivative activities net of inventory valuation adjustments $ - $ (2 ) $ 121 $ - $ - $ 60 Long-term inventory costing adjustments - - (67 ) - - (23 ) Deficiencies under minimum volume commitments, net 4 4 - - - - Equity-indexed compensation expense 5 3 3 5 2 4 Net loss on foreign currency revaluation - - - - - 2 Line 901 incident   -     -     -     65     -     -   Selected items impacting comparability of segment profit (4) $ 9   $ 5   $ 57   $ 70   $ 2   $ 43   Adjusted segment profit $ 261   $ 161   $ 39   $ 256   $ 146   $ 84     Maintenance capital $ 23   $ 9   $ 3   $ 33   $ 17   $ 2     Six Months Ended Six Months Ended June 30, 2016 June 30, 2015 Supply and Supply and Transportation Facilities Logistics Transportation Facilities Logistics Revenues (1) $ 787 $ 535 $ 8,473 $ 803 $ 525 $ 11,984 Purchases and related costs (1) (45 ) (11 ) (8,243 ) (59 ) (11 ) (11,521 ) Field operating costs (1) (2) (274 ) (173 ) (155 ) (346 ) (187 ) (227 ) Equity-indexed compensation expense - operations (5 ) (2 ) (1 ) (6 ) (2 ) (1 ) Segment general and administrative expenses (2) (3) (44 ) (30 ) (48 ) (43 ) (33 ) (54 ) Equity-indexed compensation expense - general and administrative (7 ) (4 ) (7 ) (10 ) (7 ) (10 ) Equity earnings in unconsolidated entities   87     -     -     89     -     -   Reported segment profit $ 499   $ 315   $ 19   $ 428   $ 285   $ 171     Selected items impacting comparability of segment profit: (Gains)/losses from derivative activities net of inventory valuation adjustments $ - $ (1 ) $ 243 $ - $ - $ 151 Long-term inventory costing adjustments - - (44 ) - - 15 Deficiencies under minimum volume commitments, net 24 10 - - - - Equity-indexed compensation expense 7 3 5 9 5 8 Net (gain)/loss on foreign currency revaluation - - 1 - - (30 ) Line 901 incident   -     -     -     65     -     -   Selected items impacting comparability of segment profit (4) $ 31   $ 12   $ 205   $ 74   $ 5   $ 144   Adjusted segment profit $ 530   $ 327   $ 224   $ 502   $ 290   $ 315    

Maintenance capital

$ 57   $ 18   $ 6   $ 66   $ 32   $ 4     (1)   Includes intersegment amounts.   (2) Field operating costs and Segment general and administrative expenses exclude equity-indexed compensation expense, which is presented separately in the table above.   (3) Segment general and administrative expenses reflect direct costs attributable to each segment and an allocation of other expenses to the segments. The proportional allocations by segment require judgment by management and are based on the business activities that exist during each period.   (4) Certain of our non-GAAP financial measures may not be impacted by each of the selected items impacting comparability.         PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                  

FINANCIAL DATA RECONCILIATIONS

(in millions) Three Months Ended Six Months Ended June 30, June 30,   2016     2015     2016     2015  

Net Income to Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), Excluding Selected Items Impacting Comparability ("Adjusted EBITDA") and Implied Distributable Cash Flow ("DCF") Reconciliations

Net Income $ 102 $ 124 $ 304 $ 408 Interest expense, net 114 107 227 212 Income tax (benefit)/expense (5 ) 33 13 49 Depreciation and amortization   204     108     319     212   EBITDA $ 415 $ 372 $ 863 $ 881 Selected items impacting comparability of EBITDA (1)   46     114     219     227   Adjusted EBITDA $ 461 $ 486 $ 1,082 $ 1,108 Interest expense, net (2) (110 ) (104 ) (219 ) (204 ) Maintenance capital (35 ) (52 ) (81 ) (102 ) Current income tax expense (9 ) (19 ) (40 ) (61 ) Equity earnings in unconsolidated entities, net of distributions 8 (3 ) 14 13 Distributions to noncontrolling interests (3)   (1 )   (1 )   (2 )   (2 ) Implied DCF (4) $ 314   $ 307   $ 754   $ 752    

(1)

Certain of our non-GAAP financial measures may not be impacted by each of the selected items impacting comparability.

 

(2)

Excludes certain non-cash items impacting interest expense such as amortization of debt issuance costs and terminated interest rate swaps.

 

(3)

Includes distributions that pertain to the current period's net income, which are paid in the subsequent period.

 

(4)

Including costs recognized during the period related to the Line 901 incident that occurred during May 2015, Implied DCF would have been $242 million and $687 million for the three and six months ended June 30, 2015, respectively.

        PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                  

COMPUTATION OF ADJUSTED BASIC AND DILUTED NET INCOME/(LOSS) PER COMMON UNIT

(in millions, except per unit data) Three Months Ended Six Months Ended June 30, June 30,   2016     2015     2016     2015   Basic Adjusted Net Income/(Loss) per Common Unit Net income attributable to PAA $ 101 $ 124 $ 302 $ 407 Selected items impacting comparability of net income attributable to PAA (1)   35     131     189     217   Adjusted net income attributable to PAA 136 255 491 624 Distributions to Series A preferred units (2) (33 ) - (55 ) - Distributions to general partner (2) (155 ) (152 ) (310 ) (300 ) Distributions to participating securities (2) (1 ) (1 ) (2 ) (3 ) Undistributed loss allocated to general partner (2)   6     4     8     5   Adjusted net income/(loss) allocated to common unitholders in accordance with application of the two-class method for MLPs $ (47 ) $ 106   $ 132   $ 326     Basic weighted average common units outstanding 398 397 398 390   Basic adjusted net income/(loss) per common unit $ (0.12 ) $ 0.27   $ 0.33   $ 0.84     Diluted Adjusted Net Income/(Loss) per Common Unit Net income attributable to PAA $ 101 $ 124 $ 302 $ 407 Selected items impacting comparability of net income attributable to PAA (1)   35     131     189     217   Adjusted net income attributable to PAA 136 255 491 624 Distributions to Series A preferred units (2) (33 ) - (55 ) - Distributions to general partner (2) (155 ) (152 ) (310 ) (300 ) Distributions to participating securities (2) (1 ) (1 ) (2 ) (3 ) Undistributed loss allocated to general partner (2)   6     4     8     5   Adjusted net income/(loss) allocated to common unitholders in accordance with application of the two-class method for MLPs $ (47 ) $ 106   $ 132   $ 326     Basic weighted average common units outstanding 398 397 398 390 Effect of dilutive securities: Weighted average LTIP units (3)   -     3     1     3   Diluted weighted average common units outstanding   398     400     399     393     Diluted adjusted net income/(loss) per common unit (4) $ (0.12 ) $ 0.27   $ 0.33   $ 0.83     (1) Certain of our non-GAAP financial measures may not be impacted by each of the selected items impacting comparability.   (2) Adjusted net income allocated to common unitholders is calculated based on the distributions pertaining to the current period’s net income. After adjusting for the appropriate period's distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, common unitholders and participating securities in accordance with the contractual terms of our partnership agreement and as further prescribed under the two-class method.   (3) Our Long-term Incentive Plan ("LTIP") awards that contemplate the issuance of common units are considered dilutive unless (i) vesting occurs only upon the satisfaction of a performance condition and (ii) that performance condition has yet to be satisfied. LTIP awards that are deemed to be dilutive are reduced by a hypothetical unit repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in guidance issued by the FASB. Such LTIP awards were excluded from the calculation of diluted net income/(loss) per common unit for the three months ended June 30, 2016 as the effect was antidilutive.   (4) The possible conversion of our Series A preferred units was excluded from the calculation of diluted adjusted net income/(loss) per common unit for the three and six months ended June 30, 2016 as the effect was antidilutive.             PLAINS GP HOLDINGS AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                                

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (1)

(in millions, except per share data)   Three Months Ended Three Months Ended June 30, 2016 June 30, 2015 PAA Consolidating

Adjustments (2)

PAGP PAA

Consolidating

Adjustments (2)

PAGP   REVENUES $ 4,950 $ - $ 4,950 $ 6,663 $ - $ 6,663   COSTS AND EXPENSES Purchases and related costs 4,224 - 4,224 5,848 - 5,848 Field operating costs 303 - 303 417 - 417 General and administrative expenses 73 - 73 79 1 80 Depreciation and amortization   204     1     205     108     -     108   Total costs and expenses 4,804 1 4,805 6,452 1 6,453   OPERATING INCOME 146 (1 ) 145 211 (1 ) 210   OTHER INCOME/(EXPENSE) Equity earnings in unconsolidated entities 40 - 40 52 - 52 Interest expense, net (114 ) (4 ) (118 ) (107 ) (2 ) (109 ) Other income/(expense), net   25     -     25     1     -     1     INCOME BEFORE TAX 97 (5 ) 92 157 (3 ) 154 Current income tax expense (9 ) - (9 ) (19 ) - (19 ) Deferred income tax benefit/(expense)   14     (15 )   (1 )   (14 )   (18 )   (32 )   NET INCOME 102 (20 ) 82 124 (21 ) 103 Net income attributable to noncontrolling interests   (1 )   (39 )   (40 )   -     (73 )   (73 ) NET INCOME ATTRIBUTABLE TO PAGP $ 101   $ (59 ) $ 42   $ 124   $ (94 ) $ 30       BASIC NET INCOME PER CLASS A SHARE $ 0.16   $ 0.14     DILUTED NET INCOME PER CLASS A SHARE $ 0.15   $ 0.14     BASIC WEIGHTED AVERAGE CLASS A SHARES OUTSTANDING   267     224     DILUTED WEIGHTED AVERAGE CLASS A SHARES OUTSTANDING   624     224     (1)   The 2015 period has been retroactively adjusted to reflect the reclassification of the amortization of debt issuance costs from "Depreciation and amortization" to "Interest expense, net" as a result of our adoption of revised debt issuance costs guidance issued by the FASB.   (2) Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for PAGP.               PLAINS GP HOLDINGS AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                                

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (1)

(in millions, except per share data)   Six Months Ended Six Months Ended June 30, 2016 June 30, 2015 PAA Consolidating

Adjustments (2)

PAGP PAA Consolidating

Adjustments (2)

PAGP   REVENUES $ 9,060 $ - $ 9,060 $ 12,605 $ - $ 12,605   COSTS AND EXPENSES Purchases and related costs 7,571 - 7,571 10,890 - 10,890 Field operating costs 603 - 603 763 - 763 General and administrative expenses 140 1 141 157 2 159 Depreciation and amortization   319     1     320     212     1     213   Total costs and expenses 8,633 2 8,635 12,022 3 12,025   OPERATING INCOME 427 (2 ) 425 583 (3 ) 580   OTHER INCOME/(EXPENSE) Equity earnings in unconsolidated entities 87 - 87 89 - 89 Interest expense, net (227 ) (6 ) (233 ) (212 ) (4 ) (216 ) Other income/(expense), net   30     -     30     (3 )   -     (3 )   INCOME BEFORE TAX 317 (8 ) 309 457 (7 ) 450 Current income tax expense (40 ) - (40 ) (61 ) - (61 ) Deferred income tax benefit/(expense)   27     (37 )   (10 )   12     (36 )   (24 )   NET INCOME 304 (45 ) 259 408 (43 ) 365 Net income attributable to noncontrolling interests   (2 )   (179 )   (181 )   (1 )   (303 )   (304 ) NET INCOME ATTRIBUTABLE TO PAGP $ 302   $ (224 ) $ 78   $ 407   $ (346 ) $ 61       BASIC NET INCOME PER CLASS A SHARE $ 0.30   $ 0.28     DILUTED NET INCOME PER CLASS A SHARE $ 0.29   $ 0.27     BASIC WEIGHTED AVERAGE CLASS A SHARES OUTSTANDING   260     218     DILUTED WEIGHTED AVERAGE CLASS A SHARES OUTSTANDING   652     606     (1)   The 2015 period has been retroactively adjusted to reflect the reclassification of the amortization of debt issuance costs from "Depreciation and amortization" to "Interest expense, net" as a result of our adoption of revised debt issuance costs guidance issued by the FASB.   (2) Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for PAGP.                   PLAINS GP HOLDINGS AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)  

CONDENSED CONSOLIDATING BALANCE SHEET DATA

(in millions) June 30, 2016 December 31, 2015 PAA Consolidating

Adjustments (1)

PAGP PAA

Consolidating

Adjustments (1)

PAGP ASSETS Current assets $ 3,603 $ 2 $ 3,605 $ 2,969 $ 3 $ 2,972 Property and equipment, net 13,598 19 13,617 13,474 19 13,493 Goodwill 2,396 - 2,396 2,405 - 2,405 Investments in unconsolidated entities 2,161 - 2,161 2,027 - 2,027 Deferred tax asset - 1,893 1,893 - 1,835 1,835 Linefill and base gas 902 - 902 898 - 898 Long-term inventory 184 - 184 129 - 129 Other long-term assets, net   319   (2 )   317   386   (3 )   383 Total assets $ 23,163 $ 1,912   $ 25,075 $ 22,288 $ 1,854   $ 24,142   LIABILITIES AND PARTNERS' CAPITAL Current liabilities $ 4,029 $ 2 $ 4,031 $ 3,407 $ 2 $ 3,409 Senior notes, net of unamortized discounts and debt issuance costs 9,128 - 9,128 9,698 - 9,698 Other long-term debt, net of unamortized debt issuance costs 358 591 949 677 557 1,234 Other long-term liabilities and deferred credits   678   -     678   567   -     567 Total liabilities 14,193 593 14,786 14,349 559 14,908   Partners' capital excluding noncontrolling interests 8,912 (7,110 ) 1,802 7,881 (6,119 ) 1,762 Noncontrolling interests   58   8,429     8,487   58   7,414     7,472 Total partners' capital   8,970   1,319     10,289   7,939   1,295     9,234 Total liabilities and partners' capital $ 23,163 $ 1,912   $ 25,075 $ 22,288 $ 1,854   $ 24,142   (1) Represents the aggregate consolidating adjustments necessary to produce consolidated financial statements for PAGP.     PLAINS GP HOLDINGS AND SUBSIDIARIES DISTRIBUTION SUMMARY (unaudited)      

Q2 2016 PAGP DISTRIBUTION SUMMARY

(in millions, except per unit and per share data)   Q2 2016 (1) PAA Distribution/Common Unit $ 0.7000 GP Distribution/Common Unit $ 0.3885   Total Distribution/Common Unit $ 1.0885     PAA Common Units Outstanding at 7/29/16 398   Gross GP Distribution $ 160 Less: IDR Reduction   (5 ) Net Distribution from PAA to AAP (2) $ 155 Less: Debt Service (3 ) Less: G&A Expense   (1 ) Cash Available for Distribution by AAP $ 151     Distributions to AAP Partners Direct AAP Owners & AAP Management (59% economic interest) $ 89 PAGP (41% economic interest)   62   Total distributions to AAP Partners $ 151     Distribution to PAGP Investors $ 62   PAGP Class A Shares Outstanding at 7/29/16   267   PAGP Distribution/Class A Share $ 0.231     (1) Amounts may not recalculate due to rounding.

(2) Plains AAP, L.P. ("AAP") is the general partner of PAA.

            PLAINS GP HOLDINGS AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)                    

COMPUTATION OF BASIC AND DILUTED NET INCOME PER CLASS A SHARE

(in millions, except per share data) Three Months Ended Six Months Ended June 30, June 30,   2016   2015   2016   2015 Basic Net Income per Class A Share Net income attributable to PAGP $ 42 $ 30 $ 78 $ 61 Basic weighted average Class A shares outstanding 267 224 260 218   Basic net income per Class A share $ 0.16 $ 0.14 $ 0.30 $ 0.28   Diluted Net Income per Class A Share Net income attributable to PAGP $ 42 $ 30 $ 78 $ 61

Incremental net income allocated to PAGP resulting from assumed exchange of AAP units and AAP Management Units

  52   -   111   105

Net income allocated to PAGP including incremental net income from assumed exchange of AAP units and AAP Management Units

 

$ 94 $ 30 $ 189 $ 166   Basic weighted average Class A shares outstanding 267 224 260 218 Dilutive shares resulting from assumed exchange of AAP units and AAP Management Units   357   -   392   388 Diluted weighted average Class A shares outstanding   624   224   652   606   Diluted net income per Class A share $ 0.15 $ 0.14 $ 0.29 $ 0.27

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Plains All American Pipeline, L.P. and Plains GP HoldingsRyan Smith, 866-809-1291Director, Investor RelationsorAl Swanson, 800-564-3036Executive Vice President, CFO