Pacific Energy Partners, L.P.

NYSE: PPX

 

Pacific Energy Partners was formed in February 2002 and completed an initial public offering of common limited partner units on July 26, 2002.  The partnership is engaged in the business of gathering, transporting, storing, and distributing crude oil and other dark products in California and the Rocky Mountain region.  It generates revenue primarily by charging tariff rates for transporting crude oil on its pipelines.  Pacific Energy Partners also buys, blends and sells crude oil.

 

The Partnership holds a 100% ownership interest in Pacific Energy Group LLC, which in turn is the 100% owner of  (1) Pacific Pipeline System LLC ("PPS"), owner of Line 2000 and the Line 63 system; (2) Pacific Terminals LLC ("PT"), owner of the Pacific Terminals storage and distribution system; (3) Pacific Marketing and Transportation LLC, owner of the PMT gathering and blending system; (4) Rocky Mountain Pipeline System LLC, owner of the Western Corridor system, the Salt Lake City Core system, and AREPI pipeline; and (5) Ranch Pipeline LLC, the owner of a 22.22% partnership interest in Frontier Pipeline Company ("Frontier"). Pacific Energy Partners’ general partner is a wholly owned indirect subsidiary of The Anschutz Corporation.

           

The partnership’s business operations are organized into two regional operating units: West Coast operations and Rocky Mountain operations.

 

West Coast Operations

 

The West Coast operations are located in California and consist of pipelines that transport crude oil produced from California's San Joaquin Valley and the California Outer Continental Shelf to refineries and terminal facilities in the Los Angeles Basin and in Bakersfield.  The pipelines are the only common carrier pipelines delivering crude oil produced in the San Joaquin Valley and in the two primary California Outer Continental Shelf producing fields, Point Arguello and the Santa Ynez Unit, to the Los Angeles Basin and Bakersfield.  In addition, on July 31, 2003, PT completed the acquisition of the storage and pipeline distribution system assets of Edison Pipeline and Terminal Company, which was a division of Southern California Edison Company. These assets comprise the partnership’s Pacific Terminals storage and distribution system.  Pacific Energy Partners’ West Coast operations are headquartered in Long Beach, California, with a field office in Bakersfield. 

 

Assets in the West Coast operations, all of which are 100% owned and operated by Pacific Energy Partners, include:

 

Ø      Line 2000, an intrastate common carrier pipeline with 130 miles of fully insulated trunk pipeline that transports crude oil produced in the San Joaquin Valley and California Outer Continental Shelf to refineries and terminal facilities in the Los Angeles Basin. Line 2000 has a design throughput capacity of approximately 145,000 bpd and a permitted annual throughput capacity of 130,000 bpd.  Approximately 81,7000 bpd were transported in 2003.

 

Ø      The Line 63 system, an intrastate common carrier crude oil pipeline system that transports crude oil produced in the San Joaquin Valley and California Outer Continental Shelf to refineries and terminal facilities in the Los Angeles Basin and in Bakersfield.  It consists of a 107-mile trunk pipeline, 60 miles of distribution pipelines in the Los Angeles Basin and the Bakersfield area, 156 miles of gathering pipelines in the San Joaquin Valley, and 22 storage tanks with a total of approximately 1.2 million barrels of storage capacity.  Line 63 has a with a throughput capacity of approximately 105,000 bpd. In 2003, approximately 69,300 bpd were transported to the Los Angeles Basin on Line 63.

 

Ø      The PMT gathering and blending facilities, a proprietary crude oil pipeline system located in the San Joaquin Valley. The primary functions of the PMT operations are buying, gathering and blending various grades of crude oil and natural gasoline, then transporting the blended product on Line 63 for sale to Los Angeles Basin refiners. The system consists of 103miles of crude oil gathering pipelines as well as truck off-loading and blending facilities at six locations along the gathering system.  The PMT facilities have approximately 254,000 barrels of storage capacity and up to 65,000 bpd of blending capacity.  In 2003, the system gathered and blended approximately 24,600 bpd of crude oil, which was transported on Line 63 and sold in the Los Angeles Basin. An additional 4,800 bpd of trucked crude oil was gathered and delivered without blending to customers in the Los Angeles Basin or in the San Joaquin Valley.

 

Ø      The Pacific Terminals Storage and Distribution System includes 34 storage tanks with a total of approximately 9.0 million barrels of storage capacity. Of this total capacity approximately 6.7 million barrels are in active commercial service, 0.4 million barrels are used for "throughput" from marine vessels to other tanks and do not generate revenue independently, approximately 1.7 million barrels are idle but could be reconditioned and brought into service, approximately 0.2 million barrels are in displacement oil service.  There are also 17 storage tanks with a total of approximately 0.4 million barrels of storage capacity that are out of service; the partnership has no current plans to bring these tanks into service. The system is used to service the storage and distribution needs of the refining, pipeline and marine terminal industries in the Los Angeles Basin. The system’s pipeline distribution assets consist of 70 miles of distribution pipelines that are in active service and 49 miles of pipelines that are out of service. The active pipelines connect the storage assets with major refineries, the Line 2000 pipeline, and third-party pipelines and marine terminals in the Los Angeles Basin. Under an agreement for the use of a third-party dock in the Port of Long Beach, which expires in October 2005, enables PT to both receive imported foreign crude oils from and export refinery feedstocks to marine tankers. PT is capable of loading and off-loading marine shipments at a rate of 20,000 barrels per hour and transporting the product directly to or from certain refineries, other pipelines or its storage facilities. In addition, PT can deliver crude oil and feedstocks from its storage facilities to the refineries it serves at rates of up to 6,000 barrels per hour.

 

 

Pacific Energy Partners has completed a feasibility study of the “Pier 400 Project,” which would involve development of a new deepwater petroleum import terminal and related storage and pipeline distribution facilities to handle marine receipts of crude oil and feedstocks in the Port of Los Angeles, and will proceed with the next phase of development.  The Pier 400 Project will be subject to environmental permitting requirements and will require approvals from a variety of governmental agencies. In addition, the partnership has entered into a project development agreement with two subsidiaries of Valero Energy Corporation that provides for a long-term volume commitment to support the project.  Completion of construction and start up of the project is targeted for late-2006.

 

Rocky Mountain Operations

 

The Rocky Mountain operations consist of pipelines that transport crude oil produced in Canada and the Rocky Mountain region to refineries in Montana, Wyoming, Colorado and Utah.  The pipelines deliver crude oil to refineries by direct connection or indirectly through connections with third party pipelines.  The operations are headquartered in Denver, Colorado, with five field offices in Wyoming:  Casper, Evanston, Rawlins, Thermopolis and Wamsutter.  Operations are comprised of the following assets, which form an integrated pipeline network:

 

Ø      Western Corridor System.    The Western Corridor system, an interstate and intrastate common carrier crude oil pipeline system, extends 1,012 miles from its origination at the Canadian border near Cutbank, Montana, receives deliveries from Rangeland pipeline and Cenex pipeline, to its termination point at Guernsey, Wyoming, with connections in Wyoming to Frontier pipeline and ConocoPhillips pipeline and to the Salt Lake City Core system.  This system consists of three contiguous trunk pipelines, the:  Glacier Pipeline (1,130 miles of pipeline with a 25,000 bpd throughput capacity, 11,700 bpd transported in 2003. 20.8% owned by Pacific), Beartooth Pipeline (76 miles of pipeline with a 25,000 bpd throughput capacity, 8,500 bpd transported in 2003, 50% owned, operated by Pacific) and Big Horn Pipeline (171 miles of pipeline with a 39,000 bpd throughput capacity, 8,500 bpd of Canadian crude oil and 5,000 bpd of Rocky Mountain crude transported in 2003,  57.6% owned, operated by Pacific.)

 

Ø      Salt Lake City Core System.    The Salt Lake City Core system, an interstate and intrastate common carrier crude oil pipeline system, consists of 913 miles of trunk pipelines with a combined throughput capacity of approximately 60,000 bpd to Salt Lake City, 209 miles of gathering pipelines and 29 storage tanks with a total of approximately 1.4 million barrels of storage capacity.  This system originates in Ft. Laramie, Wyoming, receives deliveries from the Western Corridor system at Guernsey, Wyoming, and terminates in Salt Lake City and in Rangely, Colorado. The Rangely terminus delivers to a ChevronTexaco pipeline that serves refineries in Salt Lake City. The Salt Lake City Core system also receives deliveries from Frontier pipeline at Divide Junction, Wyoming.  In 2003, the system’s northern segment delivered approximately 37,500 bpd and the southern segment delivered approximately 18,000 bpd to Salt Lake City. In addition, 9,900 bpd were transported from Reno to Casper, Wyoming and 300 bpd from Reno to Guernsey, Wyoming Pacific Energy owns 100% of and operates the Salt Lake City Core system.    The partnership also operates a trucking fleet that transports additional volumes for delivery into the Salt Lake City Core system. The trucks transport crude oil owned by others from outlying producing fields throughout Wyoming, which for economic reasons, do not have a physical connection to one of our pipelines.

 

Ø      Frontier Pipeline.    Frontier pipeline, an interstate common carrier crude oil pipeline, consists of a 289-mile trunk pipeline with a throughput capacity of approximately 62,200 bpd and three storage tanks with a total of approximately 274,000 barrels of storage capacity.  It originates in Casper, Wyoming and receives deliveries from the Western Corridor system and terminates south of Evanston, Wyoming at Ranch Station, Utah.  The Frontier pipeline delivers crude oil to the Salt Lake City Core system and to AREPI pipeline for ultimate delivery to Salt Lake City.  In 2003, approximately 42,700 bpd were transported on Frontier pipeline. Pacific Energy Partners owns a 22.22% partnership interest in Frontier Pipeline Company and serves as its operator.

 

Ø      AREPI Pipeline.    Pacific Energy Partners owns 100% of AREPI pipeline, an interstate common carrier crude oil pipeline.   AREPI consists of a 42-mile trunk pipeline with a throughput capacity of approximately 52,500 bpd and three storage tanks with a total of approximately 100,000 barrels of storage capacity.  AREPI pipeline originates at Ranch Station in northeast Utah, receives deliveries from Frontier pipeline, and terminates in Kimball Junction, Utah, where it delivers to a ChevronTexaco pipeline that serves refineries in Salt Lake City.  At present, AREPI pipeline is the principal source of supply for this ChevronTexaco pipeline between Kimball Junction and Salt Lake City.  In 2003, approximately 42,700 bpd were transported on AREPI pipeline

 

In addition, on February 23, 2004, Pacific Energy Partners entered into a definitive share purchase and sale agreement to acquire the Rangeland Pipeline System from BP Canada Energy Company. The Rangeland Pipeline System, which is located in the province of Alberta, Canada, consists of Rangeland Pipeline Company, Rangeland Marketing Company and Aurora Pipeline Company Ltd. The acquisition price for the Rangeland Pipeline System is $130 million (Canadian) plus an estimated $26 million (Canadian) for linefill, working capital, transaction costs and transition capital expenditures. Closing of the transaction is expected in the second quarter of 2004.

 

Business Strategy

 

Pacific Energy Partner’s principal business objective is to achieve sustainable long-term growth of cash distributions to unitholders by being a leading provider of pipeline transportation and other midstream services to the North American energy industry, while operating safely, protecting the environment and the communities in which it operates, and maintaining the operational integrity of its pipelines.  The partnership’s strategies for achieving these objectives include:

 

Ø      Using its strategic position in its core market areas to maximize throughput on its pipelines and utilization of its storage facilities.    Pacific Energy Partners is well positioned to capitalize on the changing and growing needs of the refineries that serve California, the largest gasoline market in the United States, and continually seeks opportunities to increase the crude oil throughput on its pipelines.  The partnership’s Rocky Mountain operations are strategically situated to take advantage of increasing crude oil production in Canada and growing demand for refined projects in Salt Lake City and throughout the Rocky Mountain region.

 

Ø      Controlling operating and capital costs while maintaining the safety and operational integrity of the partnership’s assets.

 

Ø      Pursuing strategic and accretive acquisitions and new projects that enhance and expand our the partnership’s business.  This means acquisitions of additional midstream assets, including pipelines and storage and terminal facilities that are accretive to cash flow and complement the partnership’s existing business, with an emphasis on opportunities where supply and demand imbalances exist or where demand is not being met.  The partnership’s principal objectives in pursuing acquisitions are to provide for long—germ growth, strengthen and enhance its two regional operating units, and expand outside the two regional operating units into new growth areas.

 

Pacific Resource Partners is traded on the New York Stock Exchange under the symbol NRP.  For further information, contact, Aubrye Harris, Director of Investor Relations, at 562-728-2871, or visit their website at http://www.pacpipe.com/.

 

Financial Information from 2003 10-K

(In thousands, except per unit amounts)

 

 

2003

2002

Market Value*

$221,702

$167,700

Current Assets

$68,796

$66,071

Net Property, Plant & Equipment

$567,954

$404,842

Total Assets

$650,203

$487,038

Current Liabilities

$49,991

$41,643

Long-Term Debt

$298,000

$225,000

Partners’ Capital

$295,067

$215,267

Revenues

$135,815

$124,511

Operating Income

$42,037

$44,290

Net Income

$25,029

$33,574

Net Income/Unit (undiluted)

$1.10

$.55

Distribution/Unit

$1.90

$.46

High Unit Price

$29.45

$20.28

Low Unit Price

$18.70

$18.20

*As of June 30, 2003 and the issue date, July 26, 2002, respectively

 

 

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