XML 86 R14.htm IDEA: XBRL DOCUMENT

Partners' Capital and Distributions

12 Months Ended

Dec. 31, 2011

Partners' Capital and Distributions

Partners' Capital and Distributions

Note 5—Partners’ Capital and Distributions

Units Outstanding

Partners’ capital at December 31, 2011 consists of 155,376,937 common units outstanding, representing a 98% effective aggregate ownership interest in the Partnership and its subsidiaries after giving effect to the 2% general partner interest.

Distributions

We distribute 100% of our available cash within 45 days after the end of each quarter to unitholders of record and to our general partner. Available cash is generally defined as all of our cash and cash equivalents on hand at the end of each quarter, less reserves established by our general partner for future requirements.

General Partner Incentive Distributions

Our general partner is entitled to receive incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in our partnership agreement. Under the quarterly incentive distribution provisions, the general partner is typically entitled, without duplication, to 15% of amounts we distribute in excess of $0.450 per unit, referred to as our MQD, 25% of the amounts we distribute in excess of $0.495 per unit and 50% of amounts we distribute in excess of $0.675 per unit (referred to as “incentive distributions”).

Per unit cash distributions on our outstanding units and the portion of the distributions representing an excess over the MQD were as follows:

		Year
		2011						2010						2009
					Excess						Excess						Excess
		Distribution (1)			over MQD			Distribution			over MQD			Distribution			over MQD
First Quarter		$	0.9575		$	0.5075		$	0.9275		$	0.4775		$	0.8925		$	0.4425
Second Quarter		$	0.9700		$	0.5200		$	0.9350		$	0.4850		$	0.9050		$	0.4550
Third Quarter		$	0.9825		$	0.5325		$	0.9425		$	0.4925		$	0.9050		$	0.4550
Fourth Quarter		$	0.9950		$	0.5450		$	0.9500		$	0.5000		$	0.9200		$	0.4700

(1) Distributions represent those declared and paid in the applicable period.

In order to enhance our distribution coverage ratio and liquidity following a significant acquisition, our general partner may agree to reduce the amounts due to it as incentive distributions. Upon closing of the Pacific acquisition in November 2006, the Rainbow acquisition in May 2008 and the PNGS Acquisition in September 2009, our general partner agreed to reduce the amounts due to it as incentive distributions by a total of $83 million as displayed on an annual basis in the following table (in millions):

Acquisition		2007			2008			2009			2010			2011			Total
Pacific		$	20		$	15		$	15		$	10		$	5		$	65
Rainbow		—			3			6			1			—			10
PNGS		—			—			1			5			2			8
Total		$	20		$	18		$	22		$	16		$	7		$	83

The final $1 million of incentive distribution reductions related to these acquisitions was applied to the November 2011 distribution.

Beginning with the first distribution paid after closing the BP NGL acquisition, which is anticipated to occur in the second quarter of 2012, our general partner has agreed to reduce the amount of its incentive distributions by $15 million per year for two years and $10 million per year thereafter. See Note 3 to our Consolidated Financial Statements for further discussion of the BP NGL acquisition.

Total cash distributions made were as follows (in millions, except per unit amounts):

		Distributions Paid													Distributions
		Common			General Partner										per limited
Year		Units			Incentive			2%				Total			partner unit
2011		$	575		$	204		$	12			$	791		$	3.91
2010		$	512		$	160		$	10			$	682		$	3.76
2009		$	468		$	127		$	10			$	605		$	3.62

On January 10, 2012, we declared a cash distribution of $1.025 per unit on our outstanding common units. The distribution was paid on February 14, 2012 to unitholders of record on February 3, 2012, for the period October 1, 2011 through December 31, 2011. The total distribution paid was approximately $225 million, with approximately $159 million paid to our common unitholders and $3 million and $63 million paid to our general partner for its general partner and incentive distribution interests, respectively.

Noncontrolling Interests in a Subsidiary

As of December 31, 2011, noncontrolling interests in a subsidiary consisted of the following: (i) the approximate 36% interest in PNG and (ii) the 25% interest in SLC Pipeline.

PNG Initial Public Offering

On May 5, 2010, PNG completed its IPO of 13,478,000 common units representing limited partner interests at $21.50 per common unit. The number of units issued at closing included 1,758,000 common units issued pursuant to the full exercise of the underwriters’ over-allotment option. Net proceeds received by PNG from the sale of the 13,478,000 common units were approximately $268 million and were used to repay amounts outstanding under our credit facilities and for general partnership purposes. The common units offered represented approximately 23% of the outstanding equity of PNG.

Prior to the PNG IPO, we owned 100% of PNGS’ natural gas storage business, the predecessor of PNG, and related operating entities. Immediately prior to the closing of the IPO, we contributed 100% of the equity interests in PNGS and its subsidiaries to PNG in exchange for approximately 18.1 million common units, approximately 13.9 million Series A subordinated units, 11.5 million Series B subordinated units and a 2% general partner interest and incentive distribution rights. In conjunction with the PNG IPO, we recorded noncontrolling interest of $167 million associated with the book value of PNG sold to the public. We also recorded an increase to our partners’ capital of approximately $101 million associated with the net increase from our share of the proceeds received in the offering partially offset by the dilution of our interest in PNG resulting from the IPO.

Series A and Series B Subordinated Units. The Series A subordinated units are not entitled to receive any distributions until the common units have received the MQD ($1.35 on an annualized basis) plus any arrearages in the payment of the MQD from prior quarters. The Series A subordinated units will convert to common units once certain earnings and distribution targets are met for three consecutive, non-overlapping four-quarter periods. The Series B subordinated units are not entitled to participate in quarterly distributions. Instead, the Series B subordinated units convert to Series A subordinated units in distinct tranches upon the achievement of defined benchmarks tied to the amount of capacity in service at Pine Prairie and increases in PNG’s quarterly distributions. The Series B subordinated units will convert into Series A subordinated units on a one-for-one basis for each tranche when the respective benchmarks are reached for (i) the aggregate amount of working gas storage capacity at Pine Prairie that has been placed into service, (ii) the distributable cash flow generated by PNG for two consecutive quarters sufficient to pay a quarterly distribution of at least the annualized distribution benchmark on the weighted average number of outstanding common units and Series A subordinated units and all of such Series B subordinated units and (iii) the quarterly distribution of available cash of at least the annualized distribution benchmark for two consecutive quarters on all outstanding common units and Series A subordinated units and the corresponding distributions on PNG’s general partner’s 2% interest and the related distributions on the incentive distribution rights.

Modifications of Holdings in and Conversion of PNG Subordinated Units

On August 16, 2010, the Amended and Restated Agreement of Limited Partnership of PNG was amended and restated (the “Second Amended and Restated Agreement”) to reduce the number of Series A subordinated units by 2.0 million and increase the number of Series B subordinated units by an equivalent amount. The Second Amended and Restated Agreement also increased the number of potential conversion tranches on Series B subordinated units from three to five. In addition, the terms of the Series B subordinated units were modified to extend the conversion period by raising the operating and financial performance benchmarks of approximately one-third of the Series B subordinated units outstanding prior to this modification. This amendment was intended to increase the distribution coverage and organic growth profile of PNG’s common and Series A subordinated units and improve PNG’s posture with respect to potential acquisitions. We accounted for this transaction as an exchange between entities under common control and accordingly, we reclassified the book value of the 2.0 million Series A subordinated units at the time of the modification to Series B subordinated units.

The following table sets forth the changes made to our holdings in the limited partner units of PNG as a result of the August 2010 modification (units in millions):

		Prior to Modification		Modification		Post Modification
PNG Units Owned by PAA:
Common Units		18.1		—		18.1
Series A Subordinated Units		13.9		(2.0	)	11.9
Common & Series A Subordinated Unit Subtotal		32.0		(2.0	)	30.0
Series B Subordinated Units (Performance Thresholds):
Tranche 1 ($1.44 / 29.6 Bcf)		4.6		(2.0	)	2.6
Tranche 2 ($1.53 / 35.6 Bcf)		3.8		(1.0	)	2.8
Tranche 3 ($1.63 / 41.6 Bcf)		3.1		(1.0	)	2.1
Tranche 4 ($1.71 / 48.0 Bcf)		—		3.0		3.0
Tranche 5 ($1.80 / 48.0 Bcf)		—		3.0		3.0
Series B Subordinated Unit Subtotal		11.5		2.0		13.5
Total PNG Units Owned by PAA (1)		43.5		—		43.5

(1) See “PNG Transaction Grants” in Note 10.

In February 2012, PNG modified the terms of the first three tranches of the PNG Series B subordinated units held by PAA. The modification increases the quarterly distribution benchmark for the first three of the five tranches to an annualized level of $1.71 per unit.

The following table presents the operational and financial benchmarks, as modified in February 2012 for conversion of the Series B subordinated units into Series A subordinated units for each tranche (units in millions):

		Series B Subordinated Units to Convert into Series A Subordinated Units		Working Gas Storage Capacity (Bcf)		Annualized Distribution Level
Tranche 1		2.6		29.6		$	1.71
Tranche 2		2.8		35.6		$	1.71
Tranche 3		2.1		41.6		$	1.71
Tranche 4		3.0		48.0		$	1.71
Tranche 5		3.0		48.0		$	1.80

PNG’s general partner will determine whether the in-service operational tests set forth above have been satisfied. To the extent that the operational tests described above are satisfied prior to or during the two-quarter period applicable to the financial tests described above, the holder of the Series B subordinated units subject to conversion will be entitled to receive the quarterly distribution payable with respect to the second quarter of such two-quarter period. In all other circumstances, where the operational tests are satisfied following the two-quarter period applicable to the financial tests, the holder of the Series B subordinated units subject to conversion will be entitled to receive any distribution payable following the satisfaction of such operational tests.

Any Series B subordinated units that remain outstanding as of December 31, 2018 will automatically be cancelled.

Following conversion of any Series B subordinated units into Series A subordinated units, such converted Series B subordinated units will further convert into common units (together with any other outstanding Series A subordinated units) to the extent that the tests for conversion of the Series A subordinated units are satisfied. In determining whether such conversion tests have been satisfied, the Series B subordinated units that have converted into Series A subordinated units will be treated as Series A subordinated units from and after the date of their conversion into Series A subordinated units.

If at the time the above operational and financial tests are satisfied, the subordination period has already ended and all outstanding Series A subordinated units have converted into common units, the Series B subordinated units will instead convert directly into common units on a one-for-one basis and participate in the quarterly distribution payable to common units.

PNG Common Unit Issuance

During February 2011, in connection with the Southern Pines Acquisition, PNG completed a private placement of approximately 17.4 million PNG common units to third-party purchasers for net proceeds of approximately $370 million. In addition, we purchased approximately 10.2 million PNG common units for approximately $230 million, including our proportionate general partner contribution of $12 million (collectively, “the PNG offering”). Also, during May 2011, a portion of the PNG Transaction Grants vested and was settled with 58,672 PNG units, which were owned by us. See Note 10 for further detail. As a result of these transactions, our aggregate ownership interest in PNG decreased from approximately 77% to approximately 64%. The following table sets forth our ownership changes in the limited partner units of PNG from December 31, 2010 to December 31, 2011 (units in millions):

		December 31, 2010		February 2011 PNG Issuance		Transaction Grants		December 31, 2011
PNG Units Owned by PAA:
Common Units		18.1		10.2		(0.1	)	28.2
Series A Subordinated Units		11.9		—		—		11.9
Series B Subordinated Units		13.5		—		—		13.5
Total PNG Units Owned by PAA		43.5		10.2		(0.1	)	53.6

In addition to our limited partner interest, we also own the general partner’s 2% interest and the incentive distribution rights in PNG.

In conjunction with the PNG offering, we recorded an increase in noncontrolling interest of $306 million and an increase to our partners’ capital of approximately $64 million. The increases result from the portion of the proceeds attributable to the respective ownership interests in PNG, adjusted for the impact of the dilution of our ownership interest resulting from the transaction.

Formation of SLC Pipeline LLC

During the fourth quarter of 2008, we completed construction on a 94-mile expansion of the Salt Lake City Area system from Wahsatch, Utah to Salt Lake City. During the first quarter of 2009, this pipeline became fully operational. Pursuant to a master formation agreement, we contributed the pipeline with a book value of approximately $254 million to a newly formed joint venture, SLC Pipeline. Holly Energy Partners-Operating, L.P. (“HEP”) contributed approximately $26 million in cash for a 25% ownership in SLC Pipeline. We own the remaining 75% interest in SLC Pipeline and control the joint venture, and therefore, have consolidated the financial results. We recognized a loss in partners’ capital of approximately $38 million related to the formation of the SLC Pipeline joint venture during 2009. This loss represented the difference between HEP’s contribution of cash and the book value of its 25% interest in the net assets of SLC Pipeline.

Noncontrolling Interests Rollforward

The following table reflects the changes in the noncontrolling interests in partners’ capital (in millions):

		For the Year Ended December 31,
		2011			2010			2009
Beginning balance		$	231		$	63		$	—
Sale of noncontrolling interests in subsidiaries		306			167			64
Net income attributable to noncontrolling interests		28			9			1
Distributions to noncontrolling interests		(40		)	(10		)	(2		)
Equity compensation expense		3			3			—
Net deferred loss on cash flow hedges		(4		)	—			—
Other		—			(1		)	—
Ending Balance		$	524		$	231		$	63

The following table sets forth the impact upon net income attributable to Plains given effect to the changes in our ownership interest in PNG and SLC Pipeline, which is recognized in partners’ capital (in millions):

		Year Ended December 31,
		2011			2010			2009
Net income attributable to Plains		$	966		$	505		$	579
Transfers to the noncontrolling interests:
Increase in capital from sale of PNG units		64			101			—
Decrease in capital from sale of interest in SLC Pipeline		—			—			(38		)
Change from net income attributable to Plains and net transfers to the noncontrolling interest		$	1,030		$	606		$	541

LTIP Vesting

In connection with the settlement of vested LTIP awards, we issued 242,762 common units during 2011 with a fair value of approximately $15 million.

Equity Offerings

During the three years ended December 31, 2011, we completed the following equity offerings of our common units as shown in the table below (in millions, except unit and per unit data). See “PNGS Acquisition” below for discussion of additional common units issued in 2009 in connection with such acquisition.

										General
				Gross			Proceeds			Partner						Net
Period		Units Issued		Unit Price			from Sale			Contribution			Costs			Proceeds
November 2011 (1)		6,000,000		$	65.03		$	390		$	9		$	(13	)	$	386
March 2011 (1)		7,935,000		$	64.00		508			10			(15		)	503
2011 Total		13,935,000					$	898		$	19		$	(28	)	$	889

November 2010 (1)		4,780,000		$	62.60		$	299		$	6		$	(9	)	$	296
2010 Total		4,780,000					$	299		$	6		$	(9	)	$	296

September 2009 (1)		5,290,000		$	46.70		$	247		$	5		$	(6	)	$	246
March 2009 (1)		5,750,000		$	36.90		212			4			(6		)	210
2009 Total		11,040,000					$	459		$	9		$	(12	)	$	456

(1) These offerings of common units were underwritten transactions that required us to pay a gross spread. The net proceeds from these offerings were used to reduce outstanding borrowings under our credit facilities and for general partnership purposes.

PNGS Acquisition

In September 2009, we issued 1,907,305 common units valued at approximately $91 million in order to satisfy a portion of the PNGS Acquisition purchase price. In conjunction with the issuance, we received a contribution from our general partner of approximately $2 million. See Note 3 for further discussion.

Class B Units of Plains AAP, L.P.

In August 2007, the owners of Plains AAP, L.P. authorized the board of directors of Plains All American GP LLC to issue Class B units of Plains AAP, L.P. (“AAP LP Class B units”). At December 31, 2011, approximately 183,500 AAP LP Class B units were outstanding, of which 80,063 had been earned. A total of 16,500 AAP LP Class B units are reserved for future issuances. See Note 10 for further discussion of the AAP LP Class B units.

The entire disclosure for the formation, structure, control and ownership of the partnership. Disclosures related to accounts comprising partners' capital. Includes balances of general partners' capital account, limited partners' capital account, preferred partners' capital account and total partners' capital account and units outstanding; accumulated other comprehensive income; amount and nature of changes to amount of partner's capital and units outstanding by class, rights and privileges for each class of units; distribution policies and distributions paid by unit class; impact of and correction of an error in previously issued financial statements; limitations of partners' liability; redemption, conversion and distribution policies; and deferred compensation related to the issuance of units.

+ References+ Details