Henry Fund Report - PAA - Tippie College of...

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Important disclosures appear on the last page of this report.

The Henry Fund

Henry B. Tippie School of Management Amit Shah [amitashok-‐[email protected]] Plains All American Pipeline LP (PAA) April 21, 2015

Energy – Oil Transportation Provider Stock Rating Sell

Investment Thesis Target Price $38-‐43 Plains All American Pipeline (PAA) is going through a turbulent industry dynamic. A sharp decline in global crude oil (WTI) prices from $105/barrel to $55/barrel over last 8 months has created a significantly uncertain environment for energy sector including mid-‐stream industries like oil pipeline transportation. Oil production is the key driver for the pipeline transportation industry. With persistent lower oil prices at current levels, oil production in US oilfields is likely to see drop with a lag effect of 6-‐8 months. This, in turn, is likely to impact the demand for pipeline transportation from exploration sites to refinery sites. We recommend a Sell rating on the stock as we believe that oil prices are likely to remain at current low level if not decline further, at least in near term thereby impacting the revenue of PAA. Drivers of Thesis • At current crude oil price (WTI) of $55/barrel, oil production in most of

the oil fields in USA becomes uneconomical. Hence, explorers will be forced to shut down production with a time lag.

• Since, 40% of PAA’s operating profits are dependent on pipeline transportation segment, a reduction in oil production will impact the PAA financials adversely. We expect 11% yoy drop in net income in 2015.

• PAA is a high dividend paying company with dividend yield in excess of 5%. With expectation of increased interest rates, the stock price of PAA will be adversely impacted. We expect 40bps rise in interest rate in 2015.

Risks to Thesis • A sharp increase in oil price in short time will turn our thesis on its head

as high oil prices will benefit PAA. • Sustainable low interest rates will positively impact PAA financials and

stock price. • Decline in demand for crude oil due to various factors like economic

conditions, growth in alterative energy, technological advances.

DCF $48.70 DDM $33.80 Relative Multiple $45.50 Price Data Current Price $51.00 52wk Range $43.61 – 61.09 Key Statistics Market Cap (B) $20.42 Shares Outstanding (M) $397.20 Institutional Ownership 45% Five Year Beta 0.73 Dividend Yield 5.5% Est. 5yr Growth 8.1% Price/Earnings (TTM) 22.56 Price/Earnings (FY1) 22.98 Price/Sales (TTM) 0.47 Price/Book 2.37 Profitability Operating Margin 4.1% Profit Margin 3.2% Return on Assets (TTM) 6.2% Return on Equity (TTM) 16.9%

Source: Yahoo finance; www.spdrs.com

Earnings Estimates Year 2012 2013 2014 2015E 2016E 2017E EPS $2.43 $2.83 $2.41 $2.21 $1.79 $1.77

growth 3.3% 16.6% -‐15.1% -‐8.0% -‐19.2% -‐0.9%

12 Month Performance Company Description

Source: Yahoo finance

PAA provide 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. PAA’s business activities are conducted through three operating segments: Transportation, Facilities and Supply and Logistics. PAA has Master Limited Partnership structure and is exempt from corporate tax rate in USA.

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PAA Industry Sector

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EXECUTIVE SUMMARY

PAA is involved in transportation and storage of crude oil, Natural Gas Liquid (NGL) and natural gas. We believe that there is significant uncertainty over the expected growth outlook of PAA given the sharp decline in oil prices over last 6 months. The current Western Texas Intermediate (WTI) price at $55/barrel makes oil production unviable in most oil fields of USA. Though the current oil production in USA is at multi-‐decade high, persistent low oil prices will result in stagnating the oil production at current level or decline in it. Over last 6 months, there has been significant fall in active rigs. Since, the growth in oil production in the USA is a key growth driver for PAA’s earnings, a sustained low oil prices will impact the financials of the company in coming months. Further, increase in interest rates will have adverse impact due to high capital-‐intensive nature of PAA’s business and high dividend yield on PAA stock. We recommend a Sell.

COMPANY DESCRIPTION

PAA was formed as Master Limited Partnership (MLP) in 1998 as is based out of Houston, Texas. PAA owns and operates midstream energy infrastructure and provide logistics services for crude oil, 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. PAA’s business activities are conducted through three operating segments: Transportation, Facilities and Supply and Logistics.

PAA asset base

Source: PAA SEC Filings 2014 10-‐K

PAA segment revenue contribution


Transportation segment

The Transportation segment of PAA is the largest profit contributor (40% in 2014) to the company. It transports crude oil and NGL through pipelines, gathering systems, trucks, and barges. Transportation segment operations generally consist of fee-‐based activities. It generates revenue through a combination of tariffs, third-‐party pipeline capacity agreements and other transportation fees.

As of December 31, 2014, this segment owned and leased 17,800 miles of active crude oil, and NGL and gathering systems; 29 million barrels of active and above-‐ground tank capacity; 800 trailers; 149 transport and storage barges; and 72 transport tugs through stake in Settoon Towing. Crude oil pipeline system has 16700 miles while the NGL pipeline system has ~1000 miles. About half of total pipeline miles are located in Permain Basin and Rocky Mountain area. (Refer to appendix for details of pipeline)

The transportation segment also includes equity earnings from investments in Settoon Towing and the White Cliffs, Eagle Ford, BridgeTex, Butte and Frontier pipeline systems, in which PAA owns interests ranging from 22% to 50%. We expect the revenue from this segment to grow at 9% over next 6 years through 2020 due to steady increase in volumes at 6.2% CAGR and 2.8% CAGR increase in tariff. However we do not expect significant increase in tariff rates as the rates are highly regulated by the Federal Energy Regulatory Commission (FERC).

Facilities segment

Facilities segment provides storage, terminalling, and throughput services for crude oil, refined products, and

1.8% 1.3%

96.9%

Transportajon Facilijes Supply and Logisjcs


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NGL and natural gas; and NGL fractionation and isomerization, and natural gas and condensate processing services. Facilities segment operations generally consist of fee-‐based activities.

The segment derives its revenue and profit from fee based storage services offered to third parties. Storage fees are typically recognized over the term of the lease and not the amount of storage capacity used. Terminal fees, which include throughput services, are recognized as the product enters or exists the terminal. This is a stable revenue stream for PAA.

This segment owned and operated approximately 73 million barrels of crude oil and refined products storage capacity; 23 million barrels of NGL storage capacity; 97 billion cubic feet of natural gas storage working capacity; 29 billion cubic feet of base gas; 11 natural gas processing plants; 1 condensate processing facility; 7 fractionation plants; 26 crude oil and NGL rail terminals; 6 marine facilities; and 1,100 miles of active pipelines.

Crude oil and refined product storage capacity details


We expect the revenue from Facilities segment to grow at 2.3% CAGR over next 6 years through 2020. The segment reported yoy decline in profits from this segment in 4QCY14 due to headwinds in natural gas storage segment as discussed below. The net revenues from gas storage segment decreased by $43mn for the year 2014 compared to the year 2013.

Natural gas storage facing headwinds

Overall market conditions for natural gas storage have been challenging during the last several years, driven by a variety of factors, including (a) increased natural gas supplies due to production from shale resources, (b) a shift from Gulf of Mexico production to Northeast production causing less concern over disruptions from tropical weather, (c) increased availability of storage capacity, (d) a reduction in overall market depth due to various companies exiting the physical gas marketing

business and (e) lower basis differentials in certain regions due to expansion and improved connectivity of natural gas transportation infrastructure over the last five years.

Projected seasonal spreads for the next few years reflect a directionally similar picture to the challenging market conditions we have experienced during most of the past few years. Continuation of these unfavorable market conditions will adversely impact PAA’s hub services activities as well as the rates our customers are willing to pay for firm storage services with respect to new capacity under construction and existing capacity upon expirations of existing storage agreements.

Supply and Logistics segment

The Supply and Logistics segment purchases crude oil at the wellhead, pipeline, and terminal and rail facilities; purchases cargos at their load port and various locations in transit; purchases NGL; stores inventory during contago market condition; seasonal storage of NGL and natural gas; resells or exchanges crude oil and NGL; transports crude oil and NGL on trucks, barges, railcars, pipelines, and ocean-‐going vessels; and purchases and sells natural gas.

The substantial portion of baseline segment profit generated by the Supply and Logistics segment can be characterized as fee equivalent. This portion of the segment profit is generated by the purchase and resale of crude oil on an index-‐related basis, which results in us generating a gross margin for such activities. This gross margin is reduced by the transportation, facilities and other logistical costs associated with delivering the crude oil to market and carrying costs for hedged inventory. We believe that, PAA will continue to increase proportion of fee-‐based profits in coming years to insulate itself from volatile oil prices. The remaining portion of the profit is derived from realized margins per barrel on trading crude oil, NGL and refined products. This segment is influenced by overall market structure and degree of market volatility. We expect that PAA is likely to see decline in the profits from margin based activities owning to low oil prices, reduced spread and increased hedging cost due to volatile market conditions.

Crude oil lease gathering makes up over half of the adjusted segment profit for supply and logistics segment. For past several years, PAA has been shifting this line of business to more of a fee-‐equivalent business. Having

CushingLA BasinMartinez and RichmondMobile and Ten MilePatokaPhiladelphia AreaSt. JamesYorktownOtherTotal

Total Capacity MMBbls20

85264

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fixed contracts will provide PAA with more stable revenues in the long term.

This segment owned 990 trucks and 1,100 trailers; and 8,100 crude oil and NGL railcars. In connection with its operations, the supply and logistics segment secures transportation and facilities services from our other two segments as well as third-‐party service providers under month-‐to-‐month and multi-‐year arrangements.

The company purchases crude oil and NGL from multiple producers under contracts. The crude oil contracts generally range in term from thirty-‐day evergreen to five years, with the majority ranging from thirty days to one year and a limited number of contracts extending up to seven years. PAA utilizes its own truck fleet and pipelines as well as leased railcars, third-‐party pipelines, trucks and barges to transport the crude oil to market. In addition, it purchases foreign crude oil as well.

Also, during periods when supply exceeds the demand for crude oil, NGL or natural gas in the near term, the market for such product is often in contango, meaning that the price for future deliveries is higher than current prices. In a contango market, entities that have access to storage at major trading locations can purchase crude oil, NGL or natural gas at current prices for storage and simultaneously sell forward such products for future delivery at higher prices

To manage the pricing risk of crude oil associated with the merchant buying and selling activities, PAA adopts various risk management activities including hedging derivatives contract.

We expect the revenue from this segment to report no growth over next 6 years through 2020. The key reason for the same is a significant drop in revenue from ~$44bn in 2014 to $26.4bn in 2015 owning to reduced oil prices.

Company Analysis

The key business strategy of the company is to provide competitive and efficient midstream transportation, terminalling, storage, processing, fractionation and supply and logistics services to producers, refiners and other customers. To fulfill this strategy and to create value, the company strives to address regional supply and demand imbalances for crude oil and NGL in the United States and Canada by combining the strategic location and capabilities of the transportation, terminalling, storage, processing and fractionation assets with extensive supply, logistics and distribution expertise.

Fee based income dominates revenue mix

The company generates large part of its revenue from fee-‐based income, which is generally stable irrespective of oil prices in short term. Its 2 major business segments, Transportation and Facilities earn 100% of its revenue from fees on specific services these segment provides. The third business segment, Supply and Logistics gets its revenue and profits from merchant related activities, which are prone to market structure and market volatility.

The company may face significant reduction in profits in the scenario of extended periods of lower crude oil or NGL prices that are below production replacement costs or higher crude oil or NGL prices that have a significant adverse impact on consumption of oil and subsequently demand for PAA’s services. PAA expects 77% of its cash flows in 2015 will be fee based (up from 70% in 2014) while remaining 23% cash flow will be margin based.

2015 cash flow distribution

Source: PAA March 2015 Investor Presentation

Key competitive strengths of the company

• The majority of company’s transportation segment assets are in crude oil service and are located in well-‐established crude oil producing regions and other transportation corridors and are connected, directly or indirectly, with PAA’s facilities segment assets. The majority of its facilities segment assets are located at major trading locations and premium markets that serve as gateways to major North American refinery and distribution markets where PAA has strong business relationships.

• The company has requisite skill sets and the financial flexibility to continue to pursue acquisition and expansion opportunities. Since 1998, PAA has completed and integrated over 80 acquisitions with an aggregate purchase price of approximately $11.6 billion. Further it has implemented expansion capital

77.0%

23.0%

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projects totaling over $7.8 billion. In addition, the company has financial resources and strength necessary to finance future strategic expansion and acquisition opportunities. As of December 31, 2014, it had approximately $2.6 billion of liquidity available, including cash and cash equivalents and availability under our committed credit facilities.

• PAA has an experienced management team. The executive management team has an average of 30 years industry experience, and an average of 18 years with PAA and affiliates.

Acquisitions – A key growth driver for the business

Acquisition has been the key growth driver for PAA’s business. PAA has largely grown through inorganic growth options. It has spent close to $11.8bn on acquisitions versus $7.8bn in organic capex. The assets and businesses acquired by PAA in the past include crude oil, refined products and NGL logistics assets, natural gas storage assets and other energy assets. These assets have characteristics and provide opportunities similar to the existing business lines.

We believe that acquisitions of assets will remain core to the company’s growth plans in the future. The company will continuously pursue the acquisition of assets and business, which will complement its existing assets. Following table summarizes the key acquisitions done by the company over last 5 years.

Source: PAA 2014 SEC Filings 10-‐K

In the past, the company has generated good ROIC on the acquired asset as per our analysis. Despite heavy investment in acquiring assets, the company has

maintained its RoIC over past 5 years due to strong demand for midstream infrastructure. However, in the current environment, we believe that the company should be cautious on its acquisitions

High customer concentration risk persists

PAA derived 43% of its revenue from 3 customers in 2014. Marathon Petroleum Corporation and its subsidiaries accounted for approximately 17% of revenues, ExxonMobil Corporation and its subsidiaries accounted for approximately 15% of the revenues while Phillips 66 and its subsidiaries accounted for approximately 11% of revenues for year 2014. The majority of revenues from these customers pertain to our supply and logistics operations. The sales to these customers occur at multiple locations.

Heavy capital expenditure plan for 2015 despite bleak industry outlook

PAA is investing heavily in organic growth initiatives. The company plans to spend $1.8bn in capex in 2015. It had already spent ~$5bn on capex in last 3 years. We remain skeptical about PAA’s aggressive investment plans in such a volatile industry environment. According to our view, the aggressive capex done over last few years and capex plans for 2015 are likely to depress the ROIC of the company over next few years in absence of commensurate returns generated by these heavy investments. The following table summarizes the capex plan for 2015: (refer to appendix for details of Capex). We are building in capex of $5.6b over next 3 years.

Source: PAA 2014 SEC Filings 10-‐K

Acquisition Date Description Purchase Price50% Interest in Nov-2014 BridgeTex owns a crude oil 1,088$ BridgeTex Pipeline pipeline that extends from

Colorado City, Texas to EastHouston

US Development Group Dec-2012 Four operating crude oil rail 503$ Crude Oil Rail Terminals terminals and one terminal

under developmentBP Canada Energy Apr-2012 NGL assets located in Canada 1,683$ Company and the upper-Midwest United

StatesWestern Dec-2011 Multi-product storage facility 220$ Refining, Inc. in Virginia and Crude oil

pipeline in southeastern NewMexico

Velocity South Texas Nov-2011 Crude oil and condensate 349$ Gathering, LLC gathering and transportation

assets in South Texas("Gardendale GatheringSystem")

SG Resources Feb-2011 Southern Pines Energy Center 765$ Mississippi, LLC ("Southern Pines") natural gas

storage facilityNexen Holdings Dec-2010 Crude oil gathering business 229$ U.S.A. Inc. and transportation assets in

North Dakota and Montana

2015 PlanBasin/Region Project ($ in millions)

Permian Permian Basin Area Projects 365Cactus Pipeline 85

Eagle Ford Eagle Ford JV Project 85Eagle Ford Area Projects 35

Central / Mid-Continent Diamond Pipeline 165Red River Pipeline 80Cushing Terminal Expansions 25

Rocky Mountain Cowboy Pipeline 50

West Coast Line 63 Reactivation 30

Canada Fort Saskatchewan facility 290

Other Rail Terminal Projects 240Other Projects 400

Total Capex 1,850


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Ownership structure

PAA Pipeline LP is limited partnership company listed on NYSE. PAA’s limited partners own 98% of PAA’s outstanding units while the general partners own remaining 2% units. General Partners hold its 2% stake and IDR rights in PAA through Plains AAP LP (AAP). The Initial investors and management of PAA owns 68.2% economic interest in AAP while the remaining 31.8% economic interest is owned by Plains GP Holdings LP (PAGP), which is also listed on NYSE. PAGP’s limited partners own 100% economic interest in PAGP.

Under MLP ownership structure, PAA is exempt from paying any corporate taxes in USA while it has to pay taxes in Canada operations. Unit holders of the partnership are liable to pay the taxes based on their percentage share of income in Partnership Company.

Summarized partnership structure of PAA

Source: PAA 10-‐K

RECENT DEVELOPMENTS

4QCY14 result in line with consensus

PAA delivered robust results in 4Q14. For the quarter, the transportation segment's adjusted profit increased 26% yoy to $270mn led by increased crude oil pipeline volumes and the acquisition of 50% interest in the

BridgeTex Pipeline. The facilities segment's profit decreased 11% yoy to $151mn impacted by lower natural gas storage rates. The supply & logistics segment's profit declined 17% yoy to $173mn because of less favorable NGL and crude oil market conditions, which was partially offset by higher oil gathering volumes.

However, it decreased its FY15 distribution growth outlook from 10% to 7%. With lower growth at PAA, expected distribution growth at PAGP was reduced from 26% to 21%. PAA lowered its 2015 EBITDA guidance 6.5% to $2.35 bn. PAA's new guidance is based on avgerafe $50 WTI for 2015 and a substantial reduction in producer drilling activity. Guidance was also impacted by lower expected supply & logistics margins due to tighter oil differentials. PAA management expects to witness increased consolidation in the industry over next 2 years.

PAA and EPD announces JV for pipeline expansion and new terminal

On November 04, 2014, PAA and Enterprise Products Partners LP (EPD) announced that they are jointly constructing a new condensate gathering system into their Three Rivers Terminal and doubling the mainline capacity on the Eagle Ford Joint venture Pipeline from Three Rivers to Corpus Christi. Eagle Ford JV Pipeline system is a 50:50 JV between PAA and EPD that delivers crude oil and condensate via pipeline from Gardendale in La Salle County, Texas to the Three Rivers and Corpus Christi refineries. Also, the pipeline supplies the Houston-‐area market through a connection to the Enterprise Crude Pipeline terminal at Lyssy in Wilson County, Texas.

As part of the expansion, PAA and EPD will construct a new gathering system with approximately 55 miles of gathering and trunk line pipeline that will connect Karnes County and Live Oak County production areas to the Three Rivers terminal. Further, PAA and EPD will also construct an additional 70-‐mile pipeline from Three Rivers to Corpus Christi as well as expand storage and pumping capacity at Three Rivers. Finally, PAA and EPD will also build a new terminal on the Corpus Christi ship channel to support the increased volumes to be shipped via pipeline to the region.

PAA acquires 50% stake in BridgeTex

On November 06, 2014, PAA announced to have entered into a definitive purchase and sale agreement with Occidental Petroleum Corporation (OXY) for the purchase of Occidental Petroleum’s 50% interest in the BridgeTex


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Pipeline Company LLC by PAA for a total consideration of $1.075bn. BridgeTex pipeline is a new 300,000 barrel-‐per-‐day crude oil pipeline system that extends from Colorado City in West Texas to Texas City and is complementary to PAA's existing West Texas assets. At Colorado City, the BridgeTex pipeline is connected to PAA's Basin Pipeline System as well as PAA's Sunrise Pipeline. Approximately 80% of the pipeline's capacity is committed to long -‐term contracts with a volume weighted average tenor of 9.5 years (13.5 years taking into account shipper extension options). The remaining 50% interest in BridgeTex is owned by Magellan Midstream Partners, L.P. (MMP); MMP is also the operator of the BridgeTex pipeline.

Sharp decline in global oil prices

Sharp decline in energy prices globally over last 6 months has created atmosphere of uncertainty for the entire North American energy industry. The decline reflects continued growth in U.S. tight oil production, strong global supply, and weakening outlooks for the global economy and oil demand growth.

Crude oil price movement over last 1 year

Source: EIA

Brent crude oil prices are expected to average $59 per barrel in 2015 and $75 per barrel in 2016, with annual average West Texas Intermediate prices expected to be $5 per barrel to $7 per barrel below Brent, according to EIA forecast. We expect the WTI at $52 in 2015, $62 in 2016, $72 in 2017 and $82 in 2018.

We estimate that due to fall in crude oil prices, the production in various USA oil fields is likely to fall by 5-‐10% over next 1 year which in turn will impact the demand for crude oil pipeline transportation. We are not estimating significant slowdown in the growth of volume of crude oil transported by PAA in 2016 and 2017 to 1.7% and 4.5% despite acquisition of various assets by the

company. However, the fall in crude oil prices will impact Supply and Logistics business revenue by 40%.

Oil Price forecast

Source: EIA Short term energy outlook April 7, 2015

Oil companies have been impacted by falling prices. All the major E&P companies like Exxon Mobile, Chevron, ConocoPhillips have reported significant drop in the last quarter profits. North Dakota’s Department of Mineral Resources says the state’s producers need a wellhead price of around $55-‐$65 to sustain current output of 1.2m barrels per day.

Keystone XL pipeline vetoed by President

Last month President Obama vetoed $8bn Keystone XL pipeline project announced by TransCanada Corporation in 2008. The project proposes 1,179 miles oil pipeline to transport crude oil from Canada to the Gulf of Mexico. The project holds significant importance for this industry, as final approval of this project would create additional capacity and revenue for the industry. Further, apart from TransCanada Corporation, the project will benefit other pipeline companies, as it would provide basis for creating new pipeline on the same route. However, we believe that given the low oil price environment, even if TransCanada gets final approval from USA, it may not start the construction in hurry.

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The President disapproved the project primarily due to environmental safety surround the construction of pipeline. Environmentalists believe that the pollution from tar sands oil will be far higher than that of conventional crude oil. Other concerns like water waste and pollution, forest destruction and pipeline spills also eclipsed the development of the pipeline.

Keystone Pipeline Route

Source: Washington Post

INDUSTRY TRENDS

US oil production at record high levels but…

While the oil prices are at multi-‐year low, the USA oil production is at record high levels. Total U.S. crude oil production reached 9.4 million barrels per day during the week ending April 10, an increase over last year’s total of 8.1 million, according to the U.S. Energy Information Administration (EIA). EIA forecasts total crude production will average 9.23 million barrels per day in 2015 and go to 9.31 million in 2016, which would be the second-‐highest annual average level of production in U.S. history. The USA has built up its largest stockpile of crude in 84 years.

US oil production and rigs count forecast

Source: EIA

We understand that the production forecast out by EIA is based on their estimated average oil price of $58 per barrel in 2015 and $75 in 2016. However we remain skeptical about the oil price forecast of EIA. In case, the prices of oil do not recover from current levels in medium term, it will have adverse impact on the production level in USA in the medium term.

We note that in year 2008-‐09, when the WTI dropped sharply from over $120 to $40, the production in the field of North Dakota dropped by 13% with 4-‐5 months lag. However, this time, we believe that the time lag has lengthened due to expectation of producers that the crude oil prices will rebound in near terms. However, as the hope starts fading away, the decline in production will follow. In fact the increase in crude inventory for latest week was just 1.3m barrels, much lower than analyst expectations of 5m barrels.

Production activities in North Dakota in 2008-‐09

Source: EIA

We believe that the prices of oil are unlikely to recover in a hurry as Saudi Arabia, the largest oil producing countries are unlikely to cut production to spruce up oil prices. Saudi Arabia has suffered in 1980’s trying to cut its oil production in order to support prices.

E&P companies announcing significant capex cuts

Many large oil production and exploration companies have announced the capex cuts for 2015 to the tune of 20-‐25% of their earlier budgets. It is expected that if the prices remains at current level for next 2 quarters, these companies will announce further capex cuts as at current oil price, the production becomes economically unviable in most parts of the USA.

Though, many key upstream companies have cut back on capital expenditure for 2015, it will have limited impact on oil production in 2015 due to lag time involved in


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between. According to EIA, this backlog of wells acts as a cushion for production rates, offsetting the more immediate decreases in drilling and permitting activity. At most major plays in the US, the backlog currently ranges 3-‐7 months. When drilling activity remains at reduced levels long enough to outlast the cushioning effect of the well-‐completion backlog, the number of new wells brought online will begin to decrease, which can eventually reduce production rates

Rapid closure of active drilling rigs

Rigs across the US are being deactivated at a rate of nearly 100 a week. In the final week of January, 94 drilling rigs were pulled offline, the most since 1987, according to oil services company Baker Hughes. The number of active rigs fell by from 1,609 in October to 1,223 in January and experts predict fewer than 1,000 rigs by the end of the year.

Continental Resources, one of the largest drillers in North Dakota’s Bakken shale, said late last year that it would cut its active rigs by 40% this year, with three-‐quarters of cuts coming by April.

Active oil drilling rigs count in US

Source: Baker Hughes report week ending 10th April 2015

MARKETS AND COMPETITION

The industry is in growth phase of lifecycle and enjoys higher concentration and competition. It is regulated by government and has high entry barriers.

Oil pipeline industry is fairly concentrated as top five players control 70% market share of the industry. These five companies are North American companies. Enbridge Energy Partners is hold highest market share at 25% while Enterprise Product partners holds market share of 6.6%.

Market Share Data of Key Players

Source: www.IBISWORLD.com

Like energy industry, Oil pipeline industry is cyclical over a long term. Ultimately, the industry is clearly dependent on commodity cycles. However, the industry is less volatile and less sensitive to the short-‐term changes in oil prices.

Typically, when the oil prices starts falling, it does not immediately impact the production of crude oil. Though the drilling activity slows down, the production from existing oils still continues. Since the marginal cost of pulling oil out of existing oil wells is far lower, producers continue to pull oil out of ground, despite lower prices, to recover the sunk cost and service the debt. Hence, oil production falls with a lag to fall in crude oil prices.

Source: www.IBISWORLD.com

Like most of the commodities industries, the bargaining power of the industry keeps shifting from consumers to suppliers at the time of high oil production and vice-‐versa. While at the time of very high crude oil prices, various production companies battled for pipeline capacity, we believe that at the time of low oil prices, the pipeline companies will have to compete with each other to garner the higher volume of oil transported.

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Enbridge Energy Partners

Enbridge Energy Partners LP (EEP) is based out of Houston. It owns and operates crude oil and liquid petroleum transportation and storage assets; and natural gas gathering, treating, processing, transportation, and marketing assets in the United States. It operates through three segments: Liquids, Natural Gas, and Marketing.

The company currently operates 6,500 crude oil gathering and transportation lines and 35.0 million barrels of storage and terminal capacity.

Pipeline infrastructure of EEP

Source: Company Website

TransCanada Corporation

TransCanada Pipeline is the USA subsidiary of Canadian Energy giant TransCanada Corporation (TRP). TransCanada Corporation is headquartered in Calgary, Canada. TransCanada Corporation operates as an energy infrastructure company in North America. The company operates in three segments: Natural Gas Pipelines, Oil Pipelines, and Energy.

Pipeline infrastructure of TRP


Sunoco Logistics Partners

Sunoco Logistics Partners (SXL) is headquartered at Philadelphia, USA. It stores crude oil, refined products, and natural gas liquids (NGL). It operates in four segments: Crude Oil Pipelines, Crude Oil Acquisition and Marketing, Terminal Facilities, and Refined Products Pipelines.

Pipeline infrastructure of SXL


Enterprise Products Partners

Enterprise Products Partners (EPD), which is headquartered in Houston, is a midstream energy transportation and storage firm. It provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products in the US and internationally.

Pipeline infrastructure of EPD



Page 11

Peer Comparisons

Source: Bloomberg, Yahoo Finance

Source: Bloomberg, Yahoo Finance

Source: 10-‐k of various companies compared above, Yahoo Finance

We compared PAA with the key players in the industry based on certain financial and valuation parameters in the tables above. We note that the financial and valuation parameters are not strictly comparable due to complex portfolio of business each of these players have and different weightage of each business in their portfolio.

The companies like TransCanada are present into upstream industries as well, which makes the ROE lower than pure play mid-‐stream players like PAA. Further, all these companies have higher PE multiple owning to its high dividend yield which is at ~5%.

In the current environment, we believe that the companies, which have significant pipelines carrying refined products and natural gas will be less impacted. EPD and Sunoco Logistics are well positioned to leverage the opportunity created by higher import of oil in future. Further, Magellan Midstream Partners has strong infrastructure of refined products pipeline.

If the low price of oil persists, it is possible that volumes may be affected over time. In such a scenario, companies transporting from areas with higher breakeven prices will

be more impacted than others. Companies like PAA and Enbridge Energy Partners, which have large pipeline infrastructure carrying crude oil from various production regions like Alberta, North Dakota, Permain Basin in Texas, will get impacted due to lower production in US and Canada.

However, companies like TRP, which has large operation in Electricity generation and marketing space will be less impacted by the current low oil price scenario. Further, TRP has large pipeline infrastructure carrying natural gas. So increase in consumption of natural gas is likely to benefit TRP in long term.

One-‐year price performance of the players

Source: Bloomberg

Enbridge Energy Partners have given better returns in the industry over last one year owning to the 33% hike in dividends and transfer of ownership of its Canadian pipeline to its affiliates.

ECONOMIC OUTLOOK

We believe that the key economic indicators for oil pipeline industry are the global demand and supply of oil and the global prices of oil. If the prices of oils drop globally, it results into reduced domestic production.

World oil production and consumption balance

Source: EIA Energy short-‐term outlook April 7, 2015

Peer ComparisonTicker P/E EV/S P/B EV/EBITDA Div Yield (%)EEP 40.5 3.1 3.7 15.8 5.9PAA 22.6 0.7 2.4 13.8 5.5TRP 23.3 7.0 2.4 14.3 3.4EPD 23.5 1.9 3.5 18.2 4.2SXL 32.1 0.8 1.4 15.7 3.5

(All the figures are in $BN unless otherwise stated)Ticker Mkt Cap Sales PAT RoE (%)EEP 12.8 8.0 0.2 9.0PAA 20.4 43.5 0.9 16.9TRP 32.6 8.1 1.4 9.8EPD 65.4 48.0 2.8 16.1SXL 9.7 18.1 0.1 4.6

Operational MatrixCompany Total Pipeline (Miles) Revenue US$Mn Revenue per day/MilePAA 17765 774 119EEP 7813 939 329TRP 2600 1547 1630EPD 5355 400 205SXL 5800 555 262 80#

90#

100#

110#

120#

130#

140#

150#

21/04/14#

21/05/14#

21/06/14#

21/07/14#

21/08/14#

21/09/14#

21/10/14#

21/11/14#

21/12/14#

21/01/15#

21/02/15#

21/03/15#

PAA# EEP# TRP# SXL# EPD#


Page 12

Give the low growth in fuel consumption growth over next 2 years and continuous production growth in Latin America and OPEC countries will keep the world oil prices at below the cost of production of majority USA oilfields ($60-‐65) making things difficult for oil pipeline companies.

The forecast of decline in stock of crude oil inventory over next 2 years suggests that the production levels will at best maintained at current level if not curtailed.

Also the world oil demand and supply are expected to go hand in hand and unlikely to cause scarcity of oil. This indicates that oil prices are unlikely to go up in hurry. The oil prices below $55-‐60 range does not augur well for the growth of US oil production industry. We expect US oil production to decline by 10-‐15% over next 1 year.

US Crude oil Inventory

Source: EIA Energy short-‐term outlook April 7, 2015

Further, if the global GDP growth rate is higher, it augurs well for the demand of oil. However, World Bank report projects only incremental growth in world GDP and it is unlikely to result in significant demand for oil in medium term.

GDP Growth forecast for world

Source: World Bank, January 2015 Global economic prospects

Further interest rates are the key economic driver for this industry, as due to its high capital intensity, the higher interest rates will increase the cost of capital for the companies in this industry.

World Bank expects the policy rates in the developed world to start going up from 2015 onwards. The interest rates in USA are expected to show steep rise in year 2016 compared to other developed countries. We expect 40bps increase in 10-‐year US treasury yield by the end of 2015. High capital-‐intensive industries including Oil Production and Exploration will probably find it difficult to undertake new projects limiting the production growth.

Government policy rates forecast

Source: World Bank, Bloomberg

CATALYSTS FOR GROWTH

The key value drivers for this industry are price of crude oil, production of oil, demand of oil and interest rates movements in the economy. Essentially, a lower demand of oil will result into lower oil prices, which in turn reduce the production of oil. Reduction in production of oil results into lower demand for supporting infrastructure like transportation of oil. The prices of oil globally are not only decided by demand and supply economics, but other factors like political stability in major oil producing regions as well as international politics are other key important drivers of oil prices.

We believe that the industry is likely to slow down if the current low oil prices persist for longer period. The key catalyst for this industry to report reasonable growth would be continuous increase in production of oil by USA. This is only possibly if the global oil prices bounce back to about $80 per barrel over next 2 quarters. The increase in


Page 13

oil prices is possible over next few months if OPEC decides to cut its production to spruce up the prices.

Drivers of investment thesis

1) Reduction in oil production imminent With significant decline in oil prices over last six months to $45-‐55, the production in most of the oil fields in the USA becomes economically unviable. We believe that the current low oil prices are likely to sustain in medium term (Refer Table 1) thereby impacting the production of oil in USA. There has been significant decline in active rigs count over last 4 months (Refer Chart 2). The active rigs have fallen from over 2000 last year to less than 1200 currently.

2) Decline in oil production to impact PAA PAA is dependent on oil transportation and supply & logistics segments for a large part of its operating profits. These segments are dependent on level of oil production and transportation in USA. With oil production expected to come down, we believe that the demand for oil transportation will reduce going forward thereby impacting the financials of PAA. (Refer Chart 3)

3) Rise in interest rate will impact the profitability PAA is into high capital expenditure business, as laying pipeline requires high initial investments. With expected rise in interest rates in near to medium term (refer Chart 4), the borrowing cost for PAA will go up thereby impacting the profitability of the company. Further, increase in interest rate also reduces the attractiveness of high dividend yield stocks like PAA.

Risks to investment thesis

1) A sharp rebound in oil prices A sharp rise in oil prices to levels above $80-‐90/barrel in short term will benefit the company and improve its financials. A rebound in oil prices will sustain the US oil production at current levels thereby requiring the transportation services provided by PAA.

2) A continued low interest rates Interest rates are major drivers of PAA’s performance. If interest rates remain at current

low levels, PAA will have easy access to cheap borrowings thereby boosting its net income. Further, in low interest rate environment, 5%+ dividend yield offered by PAA offers good value.

VALUATION

Our investment thesis is the outcome of careful analysis of oil pipeline transportation industry, macro economic outlook and preparation of detailed financial modeling. In this part of the report we will explain you briefly about the key assumptions behind the financial model and investment thesis.

Key assumptions in financial model

We expect the revenue of PAA to decline by 39% in CY15 primarily due to low oil prices. We expect average oil prices (WTI) to remain at $52/barrel for CY15. The low oil prices will impact the supply and logistics segment in near term as this segment’s revenues are directly linked to oil prices. So we expect the revenue from this segment to drop by 40% in CY15 despite marginal increase in segment volumes. We expect revenue from transportation segment to grow in CY15 largely driven by volumes due to record US oil production in recent months. The growth in this segment will be front-‐ended in this year. The revenue from facilities segment is likely to remain stagnant in CY15 due to stagnation in oil production.

Due to 40% decline in revenue from supply and logistics segment, PAA will record significant margins expansion to the tune of 210bps in CY15. Essential Supply and logistics business segment is a very low margin business and a decrease in the contribution of that business will result in sharp jump in margins as higher margin business segment of transportation and facilities will have increase weight in revenue. However, we expect operating margins to taper off from CY16 as supply and logistics segments starts reporting healthy growth in revenues. We expect operating margins to go down from 6.2% in CY15 to 4.2% in CY17.

Due to sharp decline in revenues from supply and logistics segment, the overall balance sheet size will decline primarily driven by sharp reduction in absolute amount of working capital. Despite the same volume, the amount of inventory and receivables will be in line with oil prices. However, working capital days are likely to go up due to lower demand and extended credit that might have to be offered to explorers.


Page 14

The company is expected to spend $1.9BN in capex every year for next 3 years. Around 27% of the capex will be funded by borrowing debt while ~50% will be funded by equity dilution. We expect equity dilution of ~13% over next 3 years. We expect number of shares outstanding to go up from 367m in 2014 to 417.5m in 2017E.

We expect that total assets turnover ratios and fixed asset turnover ratio will fall in coming years due to lower revenue from supply and logistics segment owning to reduced oil prices. We forecast fixed asset turnover ratio to fall from 3.8x in CY14 to 2.3x in CY20. Further as discussed in earlier part of the report, we expect ROIC to fall from 14% in CY14 to 9% in CY20. We also expect interest coverage ratio to drop from 5.4x in CY14 to 2.8x in CY20 due to continuous borrowing without commensurate return on capital employed in future.

Relative valuation

We have compared PAA with other oil pipeline transportation MLP’s like Enbridge Energy Partners, Enterprise Product Partners, Sunoco Logistics Partners and TransCanada Corp. All these companies are major players in North America oil pipeline industry. We understand that these companies are not strictly comparable with each other given their relative difference in size and business model. We have compared the valuation of these companies based on PE method, as we believe that PE is a proper valuation major across companies given the mature nature of the business and high dividend yields on these stocks.

Target price of $48 through average of DDM and relative valuation method

With 5.8% of WACC and estimate of 2% as continuing growth, we arrive at target price of $49/share for PAA using DCF/EP method. We calculate value of operating assets at $30BN. After adjusting for non-‐operating assets, non-‐operating liabilities and debt on the books, we arrive at equity value of $20.4BN.

Based on Dividend Discount Model, we arrive at target price of $34/share for PAA. Since, PAA is a very high dividend paying company, we believe that the DDM model is a better indicator of the intrinsic value of stock than using DCF/EP model.

Based on relative valuation method, we arrive at target price of $45. We calculated the PE ratio of Key competitors of PAA and took average of the CY15 and

CY16 PE ratios of competitors to arrive at target PE ratio for PAA. The target PE ratio for PAA works out to be 23.6x CY15E EPS and 21.7x CY16E EPS. We have excluded the PE of Enbridge Energy Partners, as we believe that it is an outlier because the recent movement in its stock price has cased by corporate restructuring.

To arrive at Target Price for PAA, we have taken average of stock price by DCF_EP and DDM method and the target price works out to be $41.2.

Scenario Analysis

In order to give prospective and existing investors a better idea of the outcome of stock price under different economic and industry scenarios, we have done scenario analysis. We have assumed base case for the financials projected in this report and for target price. However, we note that, under the Bear Case scenario, fair value of the company’s stock price work out at $30/share. Under Bull Case scenario, we forecast the fair value of PAA’s stock at $54/share. The price is based on DDM. Our Bull, Base and Bear Case scenarios assume different values for key value drivers of the stock. Some of the value drivers are oil price over next five years, terminal growth rate, risk free rate, capex etc. Please refer to scenarios analysis worksheet attached in this report for further information on assumptions in each scenario.

KEYS TO MONITOR

There is couple of key things to monitor for investors in this industry.

Global oil prices:

Oil price is the significant determinant of the performance of this industry in the medium term basis. Currently, the oil prices are multi year low. The movement of oil prices over next 2 quarters will be a key thing to monitor

Domestic production level of oil:

The performance of oil pipeline companies is directly related to the domestic oil production levels. Though the current oil production is multi decade high, a reduction in oil production will have adverse impact in medium term


Page 15

REFERENCES

1) “Short-‐term Energy Outlook”, U.S. Energy Information Administration, April 7, 2015 http://www.eia.gov/forecasts/steo/

2) “Effect of declining crude oil prices on U.S. production” http://www.eia.gov/todayinenergy/detail.cfm?id=19171

3) “Economic benefits of pipeline” by CEPA http://www.cepa.com/about-‐pipelines/economic-‐benefits-‐of-‐pipelines/why-‐pipeline-‐expansion-‐is-‐needed

4) WWW.IBISWORLD.COM 5) Master Limited Partnerships: Investors May Not

See the Risks http://www.bloomberg.com/bw/articles/2014-‐03-‐20/master-‐limited-‐partnerships-‐investors-‐may-‐not-‐see-‐the-‐risks

6) “Transporting Oil and Natural Gas” by American Petroleum Institute http://www.api.org/oil-‐and-‐natural-‐gas-‐overview/transporting-‐oil-‐and-‐natural-‐gas/pipeline

7) www.aopl.org 8) “Where are pipelines located” by pipeline 101

http://www.pipeline101.com/where-‐are-‐pipelines-‐located

9) Bloomberg 10) Factset 11) PAA company filings from 2008-‐2014. Company

fillings include 10-‐K, 10-‐Q and various 8-‐Ks. 12) PAA March 2015 investor presentation 13) EPD, SLX, EEP, TRP company fillings. 14) Baker Hughes rigs count data for week ending

April10, 2015 15) www.yahoofinance.com 16) PAA 4QCY14 conference call transcript.

IMPORTANT DISCLAIMER

Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.


Page 16

Appendix: Detailed 2015 Capex plan

Source: PAA 2014 10-‐K

Transportation segment pipeline miles by region

Source: PAA 2014 10-‐K

2014 Average NetBarrels

Region / Pipeline and Gathering Systems System Miles per Day (in thousands)

United States Crude Oil Pipelines

Permian BasinBasin / Mesa / Sunrise 682 733BridgeTex (3) 408 14Permian Basin Area Systems 2,838 765Permian Basin Subtotal 3,928 1,512

South Texas/Eagle FordEagle Ford Area Systems 470 227

WesternAll American 138 37Line 63 / Line 2000 342 122Other 122 101Western Subtotal 602 260

Rocky MountainBakken Area Systems 1,025 149Salt Lake City Area Systems 969 136White Cliffs (3) 1,054 30Other 1,304 111Rocky Mountain Subtotal 4,352 426

Gulf CoastCapline (3) 631 152Other 915 340Gulf Coast Subtotal 1,546 492

CentralMid-Continent Area Systems 2,345 348Other 280 102Central Subtotal 2,625 450

United States Total 13,523 3,367

CanadaCrude Oil Pipelines:Manito 561 47Rainbow 842 112Rangeland 1,233 65South Saskatchewan 346 62Other 198 113Crude Oil Pipelines Subtotal 3,180 399NGL Pipelines:Co-Ed 632 58Other 430 128NGL Pipelines Subtotal 1,062 186

Canada Total 4,242 585

Grand Total 17,765 3,952


Page 17

Plains'All'AmericaRevenue&Decomposition

Fiscal'Years'Ending'Dec.'31

Revenue ModelSupply & Logistics % of Total Sales External Sales % change

Facilities % of Total Sales Natural Gas External Sales % change Ex-Natural Gas External Sales % change Total External Sales % change Inter-segmental Adjustments

Transportation % of Total Sales Tariff activities External Sales % change Trucking % change Total External Sales % change Inter-segmental Adjustments

Total External Revenues % change

2012 2013

36,438.0 40,692.096.4% 96.3%

36,438.0 40,692.010.2% 11.7%

736.0 856.01.9% 2.0%

154.2 187.70.7% 21.8%

581.8 668.320.0% 14.9%736.0 856.0

15.4% 16.3%362.0 521.0

623.0 701.01.6% 1.7%

542.0 605.19.8% 11.6%81.0 95.9

3.1% 18.5%623.0 701.08.9% 12.5%

793.0 797.0

37,797.0 42,249.010.3% 11.8%

2014 2015E 2016E 2017E 2018E 2019E 2020E

42,114.0 25,268.4 30,827.4 36,376.4 39,286.5 41,250.8 42,075.896.9% 94.6% 95.3% 95.8% 95.8% 95.9% 95.9%

42,114.0 25,268.4 30,827.4 36,376.4 39,286.5 41,250.8 42,075.83.5% -40.0% 22.0% 18.0% 8.0% 5.0% 2.0%

576.0 576.0 587.5 616.9 635.4 648.1 661.11.3% 2.2% 1.8% 1.6% 1.5% 1.5% 1.5%

0.0 0.0 0.0 0.0 0.0 0.0 0.0-100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

576.0 576.0 587.5 616.9 635.4 648.1 661.1-13.8% 0.0% 2.0% 5.0% 3.0% 2.0% 2.0%

576.0 576.0 587.5 616.9 635.4 648.1 661.1-32.7% 0.0% 2.0% 5.0% 3.0% 2.0% 2.0%

551.0 598.9 634.8 670.8 690.9 711.6 725.9

774.0 874.6 916.2 986.4 1,080.5 1,133.4 1,156.01.8% 3.3% 2.8% 2.6% 2.6% 2.6% 2.6%

676.7 771.5 810.0 874.8 962.3 1,010.4 1,030.711.8% 14.0% 5.0% 8.0% 10.0% 5.0% 2.0%

97.3 103.1 106.2 111.5 118.2 122.9 125.41.4% 6.0% 3.0% 5.0% 6.0% 4.0% 2.0%

774.0 874.6 916.2 986.4 1,080.5 1,133.4 1,156.010.4% 13.0% 4.8% 7.7% 9.5% 4.9% 2.0%881.0 995.5 1,042.9 1,122.7 1,229.9 1,290.1 1,315.9

43,464.0 26,719.0 32,331.2 37,979.6 41,002.4 43,032.3 43,893.02.9% -38.5% 21.0% 17.5% 8.0% 5.0% 2.0%


Page 18

Plains'All'AmericaIncome'Statement


Revenue - Supply and logistics segment revenue - Transportations segment revenue - Facilities segment revenueTotal Revenue - Purchase and related costs - Field Opeartion costs - Depreciation and AmortizationGross Profit - Operating ExpensesOperating Income - Interest Expense - Foreign Exchange Losses (Gains) - Net Non-Operating Losses (Gains)Pretax Income - Income Tax Expense - Deffered Income Tax ExpenseIncome Before XO Items - Extraordinary Loss Net of Tax - Minority InterestsNet Income - Total Cash Preferred Dividends - Net income available to general partnersNet Inc Avail to Common Shareholders

2012 2013

36,438.0 40,692.0623.0 701.0736.0 856.0

37,797.0 42,249.034,368.0 38,465.0

1,180.0 1,322.0482.0 375.0

1,767.0 2,087.0342.0 359.0

1,425.0 1,728.0288.0 303.0

0.0 0.0-44.0 -65.0

1,181.0 1,490.053.0 100.0

1.0 -1.01,127.0 1,391.0

0.0 0.033.0 30.0

1,094.0 1,361.00.0 0.0

305.0 394.0789.0 967.0

0.03 0.166

2014 2015E 2016E 2017E 2018E 2019E 2020E

42114.0 25268.4 30827.4 36376.4 39286.5 41250.8 42075.8

774.0 874.6 916.2 986.4 1080.5 1133.4 1156.0

576.0 576.0 587.5 616.9 635.4 648.1 661.1

43,464.0 26,719.0 32,331.2 37,979.6 41,002.4 43,032.3 43,893.039,500.0 23,245.5 28,774.8 34,067.7 36,902.2 38,772.1 39,503.7

1,456.0 1,015.3 1,196.3 1,329.3 1,353.1 1,334.0 1,316.8392.0 453.7 512.9 573.7 634.5 692.1 743.3

2,116.0 2,004.4 1,847.3 2,008.9 2,112.7 2,234.1 2,329.2325.0 347.3 371.8 417.8 410.0 430.3 395.0

1,791.0 1,657.1 1,475.5 1,591.1 1,702.6 1,803.8 1,934.2340.0 462.3 505.0 599.4 644.5 692.9 720.4

0.0 0.0 0.0 0.0 0.0 0.0 0.0-106.0 -140.0 -150.0 -160.0 -170.0 -170.0 -170.0

1,557.0 1,334.8 1,120.5 1,151.7 1,228.1 1,280.8 1,383.771.0 80.1 67.2 69.1 73.7 76.8 83.0

100.0 26.7 22.4 23.0 24.6 25.6 27.71,386.0 1,228.1 1,030.9 1,059.6 1,129.9 1,178.4 1,273.0

0.0 0.0 0.0 0.0 0.0 0.0 0.02.0 3.0 3.0 3.0 3.0 3.0 3.0

1,384.0 1,225.1 1,027.9 1,056.6 1,126.9 1,175.4 1,270.00.0 0.0 0.0 0.0 0.0 0.0 0.0

500.0 367.5 308.4 317.0 338.1 352.6 381.0884.0 857.5 719.5 739.6 788.8 822.8 889.0

-0.151 -0.080 -0.192 -0.009Basic EPS 2.43 2.83 2.41 2.21 1.79 1.77 1.85 1.89 2.01No'of'Shares'outstandingDividend'Per'ShareDividend'Payment---To-limited-partners

---To-General-partners

Purchase-cost/Revenue

Field-Operation-cost/Revenue

Depreciation/Opening-PPE-balance

Operating-Expenses/Revenue

Operating'Profit'marginInterest-expense/opening-debt-balance

Net-operating-losses-(gains)/Inv-in-Affiliates

Income-Tax/Pretax-Income

Deffered-Tax/Pretax-Income

325.0 3411.89 2.38O969 O1160

O614 O812

O355 O348

3.3% 16.6%

90.9% 91.0%

3.1% 3.1%

5.3% 3.4%

0.9% 0.8%

3.8% 4.1%5.5% 4.1%

O23.0% O19.0%

4.5% 6.7%

0.1% O0.1%

367 387.5 402.5 417.5 427.5 435.5 442.52.30 1.80 1.70 1.75 1.80 1.85 2.00

O1195 O987 O984 O1041 O1099 O1156 O1245

O845 O697 O684 O731 O769 O806 O885

O350 290 300 310 330 350 360

O15.1% O8.0% O19.2% O0.9%

90.9% 87.0% 89.0% 89.7% 90.0% 90.1% 90.0%

3.3% 3.8% 3.7% 3.5% 3.3% 3.1% 3.0%

3.1% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%

0.7% 1.3% 1.2% 1.1% 1.0% 1.0% 0.9%

4.1% 6.2% 4.6% 4.2% 4.2% 4.2% 4.4%4.3% 4.6% 5.0% 5.5% 5.5% 5.5% 5.5%

O21.9% O20.0% O20.0% O20.0% O20.0% O20.0% O20.0%

4.6% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

6.4% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%


Page 19

Plains'All'AmericaBalance'Sheet


Assets Cash & Near Cash Items Short-Term Investments Accounts & Notes Receivable Inventories Other Current AssetsTotal Current Assets LT Investments & LT Receivables Net Fixed Assets Gross Fixed Assets (-) Accumulated Depreciation Other Long-Term Assets - Goodwill - Linefill and base gas - Long term inventory - Investment in unconsolidted entities - Others, netTotal Long-Term AssetsTotal Assets

Liabilities & Shareholders' Equity Accounts Payable Short-Term Borrowings Other Short-Term LiabilitiesTotal Current Liabilities Long-Term Borrowings Other Long-Term LiabilitiesTotal Long-Term LiabilitiesTotal Liabilities Total Preferred Equity Minority Interest Share Capital & APIC General partner EquityTotal EquityTotal Liabilities & Equity

ASSETSAccounts(receivable/RevenueInventory/RevenueOther(current(assets/RevenueCapex

Linefill(and(base(gas/RevenueLong(term(inventory/RevenueOthers/Revenue

LIABILITIESAccounts(payable/RevenueOther(current(liabilities/RevenueOther(long(term(liabilities/Revenue

2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

24.0 41.0 403.0 378.3 414.1 375.0 344.8 375.1 427.40.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

3,563.0 3,638.0 2,615.0 2,137.5 2,651.2 3,190.3 3,526.2 3,700.8 3,774.81,209.0 1,065.0 891.0 748.1 937.6 1,139.4 1,312.1 1,377.0 1,404.6

351.0 220.0 270.0 267.2 323.3 379.8 410.0 430.3 438.95,147.0 4,964.0 4,179.0 3,531.1 4,326.2 5,084.5 5,593.1 5,883.3 6,045.7

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.09,643.0 10,819.0 12,272.0 13,668.3 15,055.4 16,381.7 17,547.2 18,455.1 19,111.8

11,142.0 12,473.0 14,178.0 16,028.0 17,928.0 19,828.0 21,628.0 23,228.0 24,628.01,499.0 1,654.0 1,906.0 2,359.7 2,872.6 3,446.3 4,080.8 4,772.9 5,516.24,445.0 4,577.0 5,805.0 5,347.3 5,494.0 5,679.0 5,796.7 5,875.7 5,909.22,535.0 2,503.0 2,465.0 2,465.0 2,465.0 2,465.0 2,465.0 2,465.0 2,465.0

707.0 798.0 930.0 587.8 679.0 759.6 820.0 860.6 877.9274.0 251.0 186.0 185.5 192.1 225.6 243.6 255.7 260.8343.0 485.0 1,735.0 1,735.0 1,735.0 1,735.0 1,735.0 1,735.0 1,735.0586.0 540.0 489.0 374.1 422.9 493.7 533.0 559.4 570.6

14,088.0 15,396.0 18,077.0 19,015.6 20,549.4 22,060.7 23,343.9 24,330.8 25,021.119,235.0 20,360.0 22,256.0 22,546.7 24,875.6 27,145.2 28,937.0 30,214.1 31,066.7

3,822.0 3,983.0 2,986.0 2,404.7 3,039.1 3,608.1 3,895.2 4,174.1 4,345.41,086.0 1,113.0 1,287.0 1,287.0 1,337.0 1,337.0 1,337.0 1,337.0 1,337.0

275.0 315.0 482.0 267.2 273.4 283.2 305.7 320.8 327.35,183.0 5,411.0 4,755.0 3,958.9 4,649.5 5,228.2 5,537.9 5,832.0 6,009.76,320.0 6,715.0 8,762.0 8,812.0 9,562.0 10,382.0 11,262.0 11,762.0 12,012.0

586.0 531.0 548.0 307.3 371.8 436.8 471.5 494.9 504.86,906.0 7,246.0 9,310.0 9,119.3 9,933.8 10,818.8 11,733.5 12,256.9 12,516.8

12,089.0 12,657.0 14,065.0 13,078.2 14,583.3 16,047.0 17,271.5 18,088.8 18,526.40.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

509.0 59.0 58.0 58.0 58.0 58.0 58.0 58.0 58.06,388.0 7,349.0 7,793.0 9,030.6 9,824.2 10,590.2 11,117.6 11,537.3 11,912.3

249.0 295.0 340.0 380.0 410.0 450.0 490.0 530.0 570.07,146.0 7,703.0 8,191.0 9,468.6 10,292.2 11,098.2 11,665.6 12,125.3 12,540.3

19,235.0 20,360.0 22,256.0 22,546.7 24,875.6 27,145.2 28,937.0 30,214.1 31,066.7

9.4% 8.6% 6.0% 8.0% 8.2% 8.4% 8.6% 8.6% 8.6%3.2% 2.5% 2.0% 2.8% 2.9% 3.0% 3.2% 3.2% 3.2%1.0% 0.6% 0.7% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

$2,113.00 $1,331.00 $1,705.00 $1,850.00 $1,900.00 $1,900.00 $1,800.00 $1,600.00 $1,400.00

1.9% 1.9% 2.1% 2.2% 2.1% 2.0% 2.0% 2.0% 2.0%0.7% 0.6% 0.4% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6%1.6% 1.3% 1.1% 1.4% 1.3% 1.3% 1.3% 1.3% 1.3%

10.1% 9.4% 6.9% 9.0% 9.4% 9.5% 9.5% 9.7% 9.9%0.7% 0.7% 1.1% 1.0% 0.8% 0.7% 0.7% 0.7% 0.7%1.6% 1.3% 1.3% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%


Page 20

Plains'All'AmericaCash%Flow%Statement

Fiscal%Years%Ending%Dec.%31

Cash From Operating Activities + Net Income + Depreciation & Amortization + Other Non-Cash Adjustments + Changes in Non-Cash Capital

2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

1,094.0 1,361.0 1,384.0 1,225.1 1,027.9 1,056.6 1,126.9 1,175.4 1,270.0482.0 375.0 392.0 453.7 512.9 573.7 634.5 692.1 743.3130.0 144.0

-466.0 74.0 317.0 -172.9 -118.6 -218.7 -229.1 34.2 67.5Cash From Operations

Cash From Investing Activities + Disposal of Fixed Assets + Capital Expenditures + Increase in Inv unconsolidated entities + Increase in Goodwill + Other Investing ActivitiesCash From Investing Activities

Cash from Financing Activities + Dividends Paid + Change in Short-Term Borrowings + Increase in Long-Term Borrowings + Change in Minority Interest + Increase in Capital Stocks +Other changes in retained earnings + Other Financing ActivitiesCash from Financing ActivitiesNet Changes in Cash

Beginning'Cash'BalanceEnding'Cash'Balance

1,240.0 1,954.0 2,093.0 1,505.8 1,422.2 1,411.6 1,532.2 1,901.7 2,080.8

22.0 200.0 -140.0-1,204.0 -1,613.0 -1,705.0 -1,850.0 -1,900.0 -1,900.0 -1,800.0 -1,600.0 -1,400.0

0.0 0.0 -1,250.0 0.0 0.0 0.0 0.0 0.0 0.00.0 0.0 38.0 0.0 0.0 0.0 0.0 0.0 0.0

-2,210.0 -240.0 -16.0 457.7 -146.6 -185.0 -117.7 -79.0 -33.5-3,392.0 -1,653.0 -3,073.0 -1,392.3 -2,046.6 -2,085.0 -1,917.7 -1,679.0 -1,433.5

-969.0 -1,160.0 -1,195.2 -987.5 -984.2 -1,040.6 -1,099.5 -1,155.7 -1,245.02,055.0 607.0 174.0 0.0 50.0 0.0 0.0 0.0 0.0

652.0 1,110.0 2,047.0 50.0 750.0 820.0 880.0 500.0 250.0-500.0 -1,292.0 -1.0 0.0 0.0 0.0 0.0 0.0 0.0979.0 530.0 300.2 1,040.0 780.0 790.0 540.0 440.0 390.0

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0-67.0 -79.0 17.0 -240.7 64.5 65.0 34.8 23.3 9.9

2,150.0 -284.0 1,342.0 -138.2 660.3 634.3 355.3 -192.3 -595.1-2.0 17.0 362.0 -24.7 35.8 -39.1 -30.2 30.3 52.3

26.0 24.0 41.0 403.0 378.3 414.1 375.0 344.8 375.124.0 41.0 403.0 378.3 414.1 375.0 344.8 375.1 427.4


Page 21

Plains'All'AmericaCommon%Size%Income%Statement


Revenue - Supply and logistics segment revenue - Transportations segment revenue - Facilities segment revenueTotal Revenue - Purchase and related costs - Field Opeartion costs - Depreciation and AmortizationGross Profit - Operating ExpensesOperating Income - Interest Expense - Foreign Exchange Losses (Gains) - Net Non-Operating Losses (Gains)Pretax Income - Income Tax Expense - Deffered Income Tax ExpenseIncome Before XO Items - Extraordinary Loss Net of Tax - Minority InterestsNet Income - Total Cash Preferred Dividends - Net income available to general partnersNet Inc Avail to Common Shareholders

2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

96.40% 96.31% 96.89% 94.57% 95.35% 95.78% 95.82% 95.86% 95.86%1.65% 1.66% 1.78% 3.27% 2.83% 2.60% 2.64% 2.63% 2.63%1.95% 2.03% 1.33% 2.16% 1.82% 1.62% 1.55% 1.51% 1.51%

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%90.93% 91.04% 90.88% 87.00% 89.00% 89.70% 90.00% 90.10% 90.00%

3.12% 3.13% 3.35% 3.80% 3.70% 3.50% 3.30% 3.10% 3.00%1.28% 0.89% 0.90% 1.70% 1.59% 1.51% 1.55% 1.61% 1.69%4.67% 4.94% 4.87% 7.50% 5.71% 5.29% 5.15% 5.19% 5.31%0.90% 0.85% 0.75% 1.30% 1.15% 1.10% 1.00% 1.00% 0.90%3.77% 4.09% 4.12% 6.20% 4.56% 4.19% 4.15% 4.19% 4.41%0.76% 0.72% 0.78% 1.73% 1.56% 1.58% 1.57% 1.61% 1.64%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

-0.12% -0.15% -0.24% -0.52% -0.46% -0.42% -0.41% -0.40% -0.39%3.12% 3.53% 3.58% 5.00% 3.47% 3.03% 3.00% 2.98% 3.15%0.14% 0.24% 0.16% 0.30% 0.21% 0.18% 0.18% 0.18% 0.19%0.00% 0.00% 0.23% 0.10% 0.07% 0.06% 0.06% 0.06% 0.06%2.98% 3.29% 3.19% 4.60% 3.19% 2.79% 2.76% 2.74% 2.90%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%0.09% 0.07% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%2.89% 3.22% 3.18% 4.58% 3.18% 2.78% 2.75% 2.73% 2.89%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%0.81% 0.93% 1.15% 1.38% 0.95% 0.83% 0.82% 0.82% 0.87%2.09% 2.29% 2.03% 3.21% 2.23% 1.95% 1.92% 1.91% 2.03%


Page 22

Plains'All'AmericaCommon%Size%Balance%Sheet



Liabilities & Shareholders' Equity Accounts Payable Short-Term Borrowings Other Short-Term LiabilitiesTotal Current Liabilities Long-Term Borrowings Other Long-Term LiabilitiesTotal Long-Term LiabilitiesTotal Liabilities Total Preferred Equity Minority Interest Share Capital & APIC Retained Earnings & Other EquityTotal EquityTotal Liabilities & Equity

2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

0.12% 0.20% 1.81% 1.68% 1.66% 1.38% 1.19% 1.24% 1.38%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

18.52% 17.87% 11.75% 9.48% 10.66% 11.75% 12.19% 12.25% 12.15%6.29% 5.23% 4.00% 3.32% 3.77% 4.20% 4.53% 4.56% 4.52%1.82% 1.08% 1.21% 1.19% 1.30% 1.40% 1.42% 1.42% 1.41%

26.76% 24.38% 18.78% 15.66% 17.39% 18.73% 19.33% 19.47% 19.46%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

50.13% 53.14% 55.14% 60.62% 60.52% 60.35% 60.64% 61.08% 61.52%57.93% 61.26% 63.70% 71.09% 72.07% 73.04% 74.74% 76.88% 79.27%

7.79% 8.12% 8.56% 10.47% 11.55% 12.70% 14.10% 15.80% 17.76%23.11% 22.48% 26.08% 23.72% 22.09% 20.92% 20.03% 19.45% 19.02%13.18% 12.29% 11.08% 10.93% 9.91% 9.08% 8.52% 8.16% 7.93%

3.68% 3.92% 4.18% 2.61% 2.73% 2.80% 2.83% 2.85% 2.83%1.42% 1.23% 0.84% 0.82% 0.77% 0.83% 0.84% 0.85% 0.84%1.78% 2.38% 7.80% 7.70% 6.97% 6.39% 6.00% 5.74% 5.58%3.05% 2.65% 2.20% 1.66% 1.70% 1.82% 1.84% 1.85% 1.84%

73.24% 75.62% 81.22% 84.34% 82.61% 81.27% 80.67% 80.53% 80.54%100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

19.87% 19.56% 13.42% 10.67% 12.22% 13.29% 13.46% 13.82% 13.99%5.65% 5.47% 5.78% 5.71% 5.37% 4.93% 4.62% 4.43% 4.30%1.43% 1.55% 2.17% 1.19% 1.10% 1.04% 1.06% 1.06% 1.05%

26.95% 26.58% 21.37% 17.56% 18.69% 19.26% 19.14% 19.30% 19.34%32.86% 32.98% 39.37% 39.08% 38.44% 38.25% 38.92% 38.93% 38.67%

3.05% 2.61% 2.46% 1.36% 1.49% 1.61% 1.63% 1.64% 1.62%35.90% 35.59% 41.83% 40.45% 39.93% 39.86% 40.55% 40.57% 40.29%62.85% 62.17% 63.20% 58.00% 58.63% 59.12% 59.69% 59.87% 59.63%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%2.65% 0.29% 0.26% 0.26% 0.23% 0.21% 0.20% 0.19% 0.19%

33.21% 36.10% 35.02% 40.05% 39.49% 39.01% 38.42% 38.19% 38.34%1.29% 1.45% 1.53% 1.69% 1.65% 1.66% 1.69% 1.75% 1.83%

37.15% 37.83% 36.80% 42.00% 41.37% 40.88% 40.31% 40.13% 40.37%100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%


Page 23

Plains'All'AmericaCommon%Size%Balance%Sheet



Liabilities & Shareholders' Equity Accounts Payable Short-Term Borrowings Other Short-Term LiabilitiesTotal Current Liabilities Long-Term Borrowings Other Long-Term LiabilitiesTotal Long-Term LiabilitiesTotal Liabilities Total Preferred Equity Minority Interest Share Capital & APIC Retained Earnings & Other EquityTotal EquityTotal Liabilities & Equity

2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

0.06% 0.10% 0.93% 1.42% 1.28% 0.99% 0.84% 0.87% 0.97%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%9.43% 8.61% 6.02% 8.00% 8.20% 8.40% 8.60% 8.60% 8.60%3.20% 2.52% 2.05% 2.80% 2.90% 3.00% 3.20% 3.20% 3.20%0.93% 0.52% 0.62% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

13.62% 11.75% 9.61% 13.22% 13.38% 13.39% 13.64% 13.67% 13.77%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

25.51% 25.61% 28.23% 51.16% 46.57% 43.13% 42.80% 42.89% 43.54%29.48% 29.52% 32.62% 59.99% 55.45% 52.21% 52.75% 53.98% 56.11%

3.97% 3.91% 4.39% 8.83% 8.88% 9.07% 9.95% 11.09% 12.57%11.76% 10.83% 13.36% 20.01% 16.99% 14.95% 14.14% 13.65% 13.46%6.71% 5.92% 5.67% 9.23% 7.62% 6.49% 6.01% 5.73% 5.62%1.87% 1.89% 2.14% 2.20% 2.10% 2.00% 2.00% 2.00% 2.00%0.72% 0.59% 0.43% 0.69% 0.59% 0.59% 0.59% 0.59% 0.59%0.91% 1.15% 3.99% 6.49% 5.37% 4.57% 4.23% 4.03% 3.95%1.55% 1.28% 1.13% 1.40% 1.31% 1.30% 1.30% 1.30% 1.30%

37.27% 36.44% 41.59% 71.17% 63.56% 58.09% 56.93% 56.54% 57.00%50.89% 48.19% 51.21% 84.38% 76.94% 71.47% 70.57% 70.21% 70.78%

10.11% 9.43% 6.87% 9.00% 9.40% 9.50% 9.50% 9.70% 9.90%2.87% 2.63% 2.96% 4.82% 4.14% 3.52% 3.26% 3.11% 3.05%0.73% 0.75% 1.11% 1.00% 0.85% 0.75% 0.75% 0.75% 0.75%

13.71% 12.81% 10.94% 14.82% 14.38% 13.77% 13.51% 13.55% 13.69%16.72% 15.89% 20.16% 32.98% 29.58% 27.34% 27.47% 27.33% 27.37%

1.55% 1.26% 1.26% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%18.27% 17.15% 21.42% 34.13% 30.73% 28.49% 28.62% 28.48% 28.52%31.98% 29.96% 32.36% 48.95% 45.11% 42.25% 42.12% 42.04% 42.21%0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%1.35% 0.14% 0.13% 0.22% 0.18% 0.15% 0.14% 0.13% 0.13%

16.90% 17.39% 17.93% 33.80% 30.39% 27.88% 27.11% 26.81% 27.14%0.66% 0.70% 0.78% 1.42% 1.27% 1.18% 1.20% 1.23% 1.30%

18.91% 18.23% 18.85% 35.44% 31.83% 29.22% 28.45% 28.18% 28.57%50.89% 48.19% 51.21% 84.38% 76.94% 71.47% 70.57% 70.21% 70.78%


Page 24

Plains'All'AmericaValue&Driver&Estimation

Fiscal&Years&Ending&Dec.&31

Operating*RevenueLess*COGS*(excl*depr*&*amort)Less*depreciation*&*amortizationLess*SG&APlus*implied*interest*on*operating*leasesEBITA

Less*Adjusted*Taxes:Marginal*Tax*Rate*Provision*for*income*taxesPlus*tax*shield*on*unusual*expensePlus*tax*shield*on*implied*lease*interest*expPlus*tax*shield*on*interest*expense

2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

37797 42249 43464 26719 32331 37980 41002 43032 4389335548 39787 40956 24261 29971 35397 38255 40106 40820314 375 392 454 513 574 634 692 743342 359 325 347 372 418 410 430 39521 34 41 42 47 53 59 64 69

1614 1762 1832 1699 1523 1644 1761 1868 2003

5% 5% 5% 5% 5% 5% 5% 5% 5%54 99 171 107 90 92 98 102 1118.4 0 0 0 0 0 0 0 01 2 2 2 2 3 3 3 3

14 15 17 23 25 30 32 35 36Less*tax*shield*on*nonoperating*income

Total*Adjusted*Taxes

Deferred*Tax*LiabilityDeferred*Tax*AssetPlus:*Change*in*Deferred*TaxesNOPLAT

Invested'CapitalOperating*Current*Assets

Cash*(make*sure*not*excess)Trade*&*other*receivables,*netInventoryOther*current*assets

Total*operating*current*assetsOperating*Liabilities

Accounts*payableIncome*tax*payableAccrued*PayrollMiscellaneous*Current*Liabilities

Total*operating*current*liabilities

Net'Operating'Working'CapitalPlus:*Net*PPEPlus:*PV*of*operating*leasesPlus:*Net*intangible*assets,*excluding*g/wLess:*Other*operating*liabilitiesInvested'Capital'(IC)

Value'DriversReturn'on'Invested'Capital'(ROIC)CY*NOPLATPY*Invested*CapitalROIC

Free'Cash'Flow'(FCF)CY*NOPLATCY*Invested*CapitalPY*Invested*CapitalFCF

Economic'Profit'(EP)PY*Invested*CapitalROICWACCEP

2 3 5 7 8 8 9 9 976 113 185 125 110 117 125 132 142

397 398 498 525 547 570 595 620 64828 56 56 56 56 56 56 56 56240 ]27 100 27 22 23 25 26 28

1778 1622 1747 1601 1436 1550 1661 1762 1889

24 41 403 378 414 375 345 375 4273563 3638 2615 2138 2651 3190 3526 3701 37751209 1065 891 748 938 1139 1312 1377 1405351 220 270 267 323 380 410 430 439

5147 4964 4179 3531 4326 5085 5593 5883 6046

3822 3983 2986 2405 3039 3608 3895 4174 4345

275 315 482 267 273 283 306 321 3274097 4298 3468 2672 3313 3891 4201 4495 4673

1050 666 711 859 1014 1193 1392 1388 13739643 10819 12272 13668 15055 16382 17547 18455 19112636 770 791 894 1000 1106 1206 1296 1374453 403 363 326 294 264 238 214 193108 138 145 152 160 168 168 168 168

11674 12520 13992 15596 17203 18778 20216 21185 21883

1778 1622 1747 1601 1436 1550 1661 1762 18898941 11674 12520 13992 15596 17203 18778 20216 2118519.9% 13.9% 14.0% 11.4% 9.2% 9.0% 8.8% 8.7% 8.9%

1778 1622 1747 1601 1436 1550 1661 1762 188911674 12520 13992 15596 17203 18778 20216 21185 218838941 11674 12520 13992 15596 17203 18778 20216 21185

''''''''''''(955) ''''''''''''''776' ''''''''''''''275' ''''''''''''''''(3) ''''''''''''(172) ''''''''''''''(24) ''''''''''''''223' ''''''''''''''792' '''''''''''1,191'

8941 11674 12520 13992 15596 17203 18778 20216 2118519.9% 13.9% 14.0% 11.4% 9.2% 9.0% 8.8% 8.7% 8.9%

6% 6% 6% 6% 6% 6% 6% 6% 6%'''''''''''1,260' ''''''''''''''945' '''''''''''1,021' ''''''''''''''789' ''''''''''''''531' ''''''''''''''553' ''''''''''''''572' ''''''''''''''589' ''''''''''''''660'


Page 25

Plains'All'AmericaWeighted(Average(Cost(of(Capital((WACC)(Estimation

Equity DebtShares'outstanding'(Mn) 367'''''''''' Book'value'of'debt'(ST'&'LT) 10,049'''''Price'per'share 49.86''''''' Increase'in'FV'of'debt

Operating'leases 791''''''''''Market'value'equity 18,323''''' Total'debt 10,840'''''

Weight'of'equity 0.63''''''''' Weight'of'debt 0.37'''''''''

Beta'(3'year) 0.73''''''''' Cost'of'debt,'preQtax 5.30%Risk'free'rate'(30Qyr'US'TQBond)'as'of'2/25/15 2.71%Market'risk'premium'(1928Q2013'TQBond) 4.85% Marginal'Tax'rate 5.00%Cost'of'Equity'by'CAPM'Model 6.25% After'tax'cost'of'debt 5.04%

WACC 5.80%


Page 26

Plains'All'America

Discounted+Cash+Flow+(DCF)+and+Economic+Profit+(EP)+Valuation+Models

Key$Inputs:$$$$$CV$Growth 2.00%$$$$$CV$ROIC 9%$$$$$WACC 5.80%$$$$$Cost$of$Equity 6.25%

Fiscal+Years+Ending+Dec.+31 2015E 2016E 2017E 2018E 2019E 2020E

DCF'Model

NOPLAT 1601 1436 1550 1661 1762 1889Change$in$Invested$Capital 1604 1607 1575 1438 969 698FCF Q3 Q172 Q24 223 792 1191Continuing$value 38570Periods$to$discount 1 2 3 4 5 5PV$of$FCF$discounted$by$WACC (3)$$$$$$$$$$$$$$$$ Q153 Q20 178 598 29097Value'of'operating'assets 29,695''''''''

Plus$Investment$in$unconsolidated$entities 1735Less$debt 10049Less$Other$non$operating$liabilities 106Less$Minority$Interest 58Less$PV$of$operating$leases 791Value$of$equity 20426Shares$outstanding 427Intrinsic'value'(per'share)'as'of'12/31/14 47.78

EP'Model

Economic$profit$to$discount 789 531 553 572 589 660Continuing$value 17384Periods$to$discount 1 2 3 4 5 5PV$of$FCF$discounted$by$WACC 746$$$$$$$$$$$$$ 475 467 457 445 13115PV$(Economic$Profit) 15,703$$$$$$$$Plus$beginning$invested$capital 13992

Value'of'operating'assets 29695

Plus$Investment$in$unconsolidated$entities 1735Less$debt 10049Less$Other$non$operating$liabilities 106Less$Minority$Interest 58Less$PV$of$operating$leases 791Value$of$equity 20426Shares$outstanding 427Intrinsic'value'(per'share)'as'of'12/31/14 47.78

Initnsic'value'per'share'as'of'today $48.67


Page 27

Plains'All'AmericaDividend'Discount'Model'(DDM)'or'Fundamental'P/E'Valuation'Model

Fiscal'Years'Ending'Dec.'31 2015E 2016E 2017E 2018E 2019E 2020E

EPS 2.21$....... 1.79$....... 1.77$....... 1.85$....... 1.89$....... 2.01$.......

Key$Assumptions...CV.growth 2%...CV.ROE 10.1%...Cost.of.Equity 6.3%

Future$Cash$Flows.....P/E.Multiple.(CV.Year) 18.9.....EPS.(CV.Year) 2.01.....Future.Stock.Price 37.9.....Dividends.Per.Share 1.80 1.70 1.75 1.80 1.85.....Future.Cash.Flows 1.80 1.70 1.75 1.80 1.85 37.93$.....

1 2 3 4 5 5.....Discounted.Cash.Flows 1.69 1.51 1.46 1.41 1.37 28.01

Intrinsic'Value 33.76$'''''

Initnsic'value'per'share'as'of'today $34.39


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Plains'All'AmericaKey$Management$Ratios

Fiscal$Years$Ending$Dec.$31 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Liquidity(RatiosCurrent2ratio 1.0 1.0 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0Quick2ratio 0.7 0.7 0.7 0.6 0.6 0.7 0.7 0.7 0.7 0.7Cash2ratio 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Activity(or(Asset2Management(RatiosAccounts2Receivable2Turnover 11.5 11.2 11.7 13.9 11.2 13.5 13.0 12.2 11.9 11.7Inventory2Turnover 25.6 31.4 33.8 40.4 28.4 34.1 32.8 30.1 28.8 28.4Net2Working2Capital2Turnover 34.1 48.2 49.2 63.1 34.0 34.5 34.4 31.7 31.0 31.8Fixed2Asset2Turnover 4.8 4.3 4.1 3.8 2.1 2.3 2.4 2.4 2.4 2.3Total2Asset2Turnover 2.4 2.2 2.1 2.0 1.2 1.4 1.5 1.5 1.5 1.4

Financial(Leverage(RatiosDebt/Equity2Ration 0.9 1.0 1.0 1.2 1.1 1.1 1.1 1.1 1.1 1.1Interest2Coverage2Ratio 5.2 5.6 5.8 5.4 3.7 3.0 2.7 2.7 2.7 2.8

Profitability(RatiosGross2Margins 4.6% 4.7% 4.9% 4.9% 7.5% 5.7% 5.3% 5.2% 5.2% 5.3%Operating2Margins 3.8% 3.8% 4.1% 4.1% 6.2% 4.6% 4.2% 4.2% 4.2% 4.4%RoE 16.2% 15.3% 17.7% 16.9% 12.9% 10.0% 9.5% 9.7% 9.7% 10.1%RoIC 14.5% 19.9% 13.9% 14.0% 11.4% 9.2% 9.0% 8.8% 8.7% 8.9%

Payout(Policy(RatiosDividend2Payout2Ratio 84.5% 77.8% 83.9% 95.6% 81.3% 95.1% 98.8% 97.6% 97.9% 99.5%

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