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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2013
Commitments and Contingencies |
Commitments and Contingencies | Note 12—Commitments and Contingencies Litigation General. In the ordinary course of business, we are involved in various legal proceedings. To the extent we are able to assess the likelihood of a negative outcome for these proceedings, our assessments of such likelihood range from remote to probable. If we determine that a negative outcome is probable and the amount of loss is reasonably estimable, we accrue the estimated amount. We do not believe that the outcome of these legal proceedings, individually or in the aggregate and including the general and environmental legal proceedings described below, will have a material adverse effect on our financial condition, results of operations or cash flows. Pemex Exploración y Producción v. Big Star Gathering Ltd L.L.P. et al. In two cases filed in the Texas Southern District Court in May 2011 and April 2012, Pemex Exploración y Producción (“PEP”) alleges that certain parties stole condensate from pipelines and gathering stations and conspired with U.S. companies (primarily in Texas) to import and market the stolen condensate. PEP does not allege that Plains was part of any conspiracy, but that it dealt in the condensate only after it had been obtained by others and resold to Plains Marketing, L.P. PEP seeks actual damages, attorney’s fees, and statutory penalties from Plains Marketing, L.P. At a hearing held on October 20, 2011, the Court ruled that Texas law (not Mexican law) governs the actions. In February 2013, the Court granted Plains Marketing, L.P.’s motion to be dismissed from the April 2012 lawsuit and Plains Marketing, L.P. filed a motion for summary judgment in the May 2011 lawsuit. In October 2013, the Court issued an order in the May 2011 lawsuit granting summary judgment in favor of Plains Marketing, L.P. with respect to all of PEP’s remaining claims against Plains Marketing, L.P.; shortly thereafter, PEP notified Plains Marketing, L.P. of its intent to appeal such ruling. Proposed Merger with PNG On September 13, 2013, Robert and Teresa Vicars, purported common unitholders of PNG, filed a class action petition on behalf of PNG’s common unitholders and a derivative suit on behalf of PNG against PAA, PNG’s general partner and the directors of PNG’s general partner in the 152nd Judicial District of Harris County, Texas (“Vicars”). A similar class action complaint was filed against the same defendants, together with PAA GP LLC, Plains All American GP LLC and Plains AAP, L.P., on September 17, 2013, in the Court of Chancery of the State of Delaware by purported PNG common unitholder Stephen Ellman (“Ellman”). A third class action complaint for breach of fiduciary duties was filed against the same defendants as in the Ellman Suit on October 2, 2013, in the United States District Court for the Southern District of Texas — Houston Division by purported unitholder The Duckpond CRT UTD 2/14/03, on behalf of itself and all others similarly situated (“Duckpond”). The Vicars and Ellman complaints allege, among other things, that the consideration offered by us is unfair and inadequate and that, by pursuing a transaction that is the result of an allegedly conflicted and unfair process, the defendants have breached their duties under PNG’s partnership agreement as well as the implied covenant of good faith and fair dealing, and are engaging in self-dealing. These two lawsuits generally allege that: (i) the defendants are engaging in self-dealing, are not acting in good faith toward PNG, and have breached and are breaching their duties owed to PNG; (ii) the defendants are failing to properly value PNG and its various assets and operations and are ignoring or are not protecting against the numerous conflicts of interest arising out of the proposed transaction; and (iii) we, PNG’s general partner, PNG and other of our affiliates have aided and abetted the defendant directors the purpose of advancing their own interests and/or assisting such directors in connection with their breaches of their respective duties. In addition, Ellman further includes (i) purported derivative claims on behalf of PNG based on the alleged breaches of duties by the defendants and (ii) a claim that the defendants breached the implied covenant of good faith and fair dealing by engaging in a flawed merger process. In Duckpond, the complaint alleges, among other things, that the implied price per unit materially undervalues PNG and is unfair to its unitholders. The Duckpond plaintiff further alleges that the defendants who are directors and officers of the general partner of PNG have breached their fiduciary duties of loyalty and care and the other defendants have aided and abetted in these alleged breaches. Based on these allegations, the plaintiffs generally seek to enjoin the defendants from proceeding with or consummating the merger. To the extent that the merger is implemented before relief is granted, plaintiffs seek to have the merger rescinded. The plaintiffs also seek money damages and attorneys’ fees. In Duckpond, that plaintiff also seeks a constructive trust in favor of the purported class of PNG unitholders upon any benefits improperly received by the defendants. We cannot predict the outcome of these or any other lawsuits that might be filed, nor can we predict the amount of time and expense that will be required to resolve these lawsuits. We intend to defend vigorously against these and any other actions. See Note 1 for a description of our proposal to acquire all of the outstanding common units of PNG that are held by unitholders other than us or our subsidiaries and to structure the proposed transaction as a merger with PNG. Environmental General. Although we believe that our efforts to enhance our leak prevention and detection capabilities have produced positive results, we have experienced (and likely will experience future) releases of hydrocarbon products into the environment from our pipeline and storage operations. These releases can result from unpredictable man-made or natural forces and may reach “navigable waters” or other sensitive environments. Whether current or past, damages and liabilities associated with any such releases from our assets may substantially affect our business. At September 30, 2013, our estimated undiscounted reserve for environmental liabilities totaled approximately $99 million, of which approximately $13 million was classified as short-term and approximately $86 million was classified as long-term. At December 31, 2012, our reserve for environmental liabilities totaled approximately $96 million, of which approximately $13 million was classified as short-term and approximately $83 million was classified as long-term. The short- and long-term environmental liabilities referenced above are reflected in “Accounts payable and accrued liabilities” and “Other long-term liabilities and deferred credits,” respectively, on our condensed consolidated balance sheets. At September 30, 2013 and December 31, 2012, we had recorded receivables totaling approximately $10 million and $42 million, respectively, for amounts probable of recovery under insurance and from third parties under indemnification agreements, which are predominantly reflected in “Trade accounts receivable and other receivables, net” on our condensed consolidated balance sheets. In some cases, the actual cash expenditures may not occur for three to five years. Our estimates used in these reserves are based on information currently available to us and our assessment of the ultimate outcome. Among the many uncertainties that impact our estimates are the necessary regulatory approvals for, and potential modification of, our remediation plans, the limited amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment and the possibility of existing legal claims giving rise to additional liabilities. Therefore, although we believe that the reserve is adequate, costs incurred may be in excess of the reserve and may potentially have a material adverse effect on our financial condition, results of operations or cash flows. Rainbow Pipeline Release. During April 2011, we experienced a crude oil release of approximately 28,000 barrels of crude oil on a remote section of our Rainbow Pipeline located in Alberta, Canada. Since the release and through September 30, 2013, we spent approximately $70 million, before insurance recoveries, in connection with site clean-up, reclamation and remediation activities, and as of September 30, 2013, we did not have any material outstanding liabilities or insurance receivables relating to this release. On February 26, 2013, the Alberta Energy Regulator (formerly known as the Energy Resources Conservation Board of Alberta) (“AER”) issued a report detailing four enforcement actions against Plains Midstream Canada ULC (“PMC”) for failure to comply with certain regulatory requirements in connection with the release, including requirements related to operations and maintenance procedures, leak detection and response, backfill and compaction procedures and emergency response plan testing. PMC is in the process of taking appropriate actions necessary to respond to and comply with the enforcement actions set forth in the report, including the implementation of additional risk assessment procedures and the taking of other actions designed to minimize the risk that similar incidents occur in the future and enhance the effectiveness of PMC’s response to any such future incidents. In addition, on April 23, 2013, the Alberta Crown Prosecutor filed civil charges under the Environmental Protection and Enhancement Act against PMC relating to the release. To date, PMC has not been assessed any fines or penalties related to this release; however, such fines or penalties may be assessed in the future and are not expected to be material. Rangeland Pipeline Release. During June 2012, we experienced a crude oil release on a section of our Rangeland Pipeline located near Sundre, Alberta, Canada. Approximately 3,000 barrels were released into the Red Deer River and were contained downstream in the Gleniffer Reservoir. Remediation activities in the reservoir area were completed by June 30, 2012, remediation of the remaining impacted areas was completed by September 30, 2012 and interim closure was received from the applicable regulatory agencies. Monitoring will continue into 2013, and a long-term monitoring plan has been developed and implemented in accordance with regulatory requirements. Through September 30, 2013, we spent approximately $46 million, before insurance recoveries, in connection with site clean-up, reclamation and remediation activities, and as of September 30, 2013, we did not have any material outstanding liabilities or insurance receivables relating to this release. This release is currently under investigation by the AER, which also intends to perform an audit of PMC’s operations. Although the AER’s final investigation is not complete, on July 4, 2013, the AER issued a report detailing four enforcement actions against PMC citing failure to inspect water crossings, failure to complete an engineering assessment to determine suitability of continued operation of the Rangeland Pipeline, failure to maintain updated emergency response plans, and failure to conduct regular public awareness programs. The AER also issued an order under Section 22 of the Oil and Gas Conservation Act imposing additional regulatory requirements on PMC with respect to obtaining operating approvals under such Act and ordering audit of PMC’s operations. To date, no fines or penalties have been assessed against PMC with respect to this release; however, it is possible that fines or penalties may be assessed against PMC in the future and are not expected to be material. Bay Springs Pipeline Release. During February 2013, we experienced a crude oil release of approximately 120 barrels on a portion of one of our pipelines near Bay Springs, Mississippi. Most of the released oil was contained within our pipeline right of way, but some of the released oil entered a nearby waterway where it was contained with booms. The EPA has issued an administrative order requiring us to take various actions in response to the release, including remediation, reporting and other actions, and we may be subjected to a civil penalty. The aggregate cost to clean up and remediate the site was approximately $6 million, which has been recognized in “Field operating costs” on our condensed consolidated statement of operations. Kemp River Pipeline Release. During May and June 2013, two separate releases were discovered on our Kemp River pipeline in Northern Alberta, Canada that, in the aggregate, resulted in the release of approximately 700 barrels of condensate and light crude oil. Clean-up and remediation activities are being conducted in cooperation with the applicable regulatory agencies. We estimate that the aggregate clean-up and remediation costs associated with these releases will be approximately $15 million which we have accrued to “Field operating costs” on our condensed consolidated statement of operations.

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