Nov 4, 2007
Executives
Greg L. Armstrong - Chairman and CEO Harry N.
Pefanis - President and COO Phil D. Kramer - EVP and CFO
Analysts
Barret Blaschke - RBC Capital Markets Harry Mateer - Lehman Brothers, Inc. John Edwards - Morgan Keegan and Co.
Ross Payne - Wachovia Securities Gil Alexander - Darsel Associates Yves Siegel - Wachovia Securities Jin Luo - JP Morgan Sam Arnold - Credit Suisse First Boston
Operator
Welcome to Plains All American Pipeline's Third Quarter 2007 Results Conference Call. During today's call, the participants will provide forward-looking comments on the Partnership's outlook as well as a review of the results of the prior period.
Accordingly in doing so, they will use words such as beliefs, estimate, expect, anticipate, etcetera. The Partnership intends to avail itself of Safe Harbor provisions that encourage companies to provide this information and directs you to the risks and warnings set forth in Plains All American Pipeline's most recently filed 10-K, 10-Q, 8-K and other current and future filings with the Securities and Exchange Commission.
In addition, the Partnership encourages you to visit its website at www.paalp.com. In particular, the section entitled Non-GAAP Reconciliation, which presents certain commonly used non-GAAP financial measures such as EBITDA and EBIT, which maybe used here today in the prepared remarks or in the Q&A session.
This section also presents a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures, and includes a table of selected items that impacts comparability with respect to the Partnership's reported financial information. Any reference during today's call to adjusted EBITDA, adjusted net income and the like, is a reference to the financial measure, excluding the effect of selecting items impacting comparability.
Today's conference call will be chaired by Greg L. Armstrong, Chairman and CEO of Plains All American Pipeline.
Also participating in the call are Harry Pefanis, Plains All American's President and COO; and Phil Kramer, Plains All American's Executive Vice President and CFO. I will now turn the call over to Mr.
Greg Armstrong.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thank you Jackie and welcome to everyone. This morning we had a little bit of technical difficulties on getting our slides uploaded.
If you are listening to the webcast, your slides are available right down the slides. If you are on the phone call, are being uploaded as we speak on the website and should be available momentarily.
So if you could, can follow along. As we discussed in our last conference call, our biggest challenge for the second half of the year will be to address the rapid transition of the crude oil market from a contango structure to backwardation.
And as indicated in our August 6th guidance we forecast that the transaction and other factors would mostly affect our fourth quarter results. Yesterday, we once again reported strong results that we were at the upper end of our guidance.
Although there was some shift of adjusted EBITDA between the third and fourth quarters, we increased the midpoint of our guidance for the full year of 2007 by $7 million and provided preliminary adjusted EBITDA again for 2008. Highlights for the third quarter are summarized on slide three, and I have just been informed that the slides are available now on our website.
As noted there, the Partnership reported EBITDA, net income, and net income per diluted unit of a $183 million, $98.4 million and $0.66 per unit, representing percentage increases of 33% and a decrease on net income per unit of 26%, compared to respective third quarter 2006 results of $138.8 million, $95.4 million and $0.89 per unit. Excluding selected items impacting comparability, third quarter adjusted EBITDA was $196.4 million and adjusted net income was a $111.5 million or $0.77 per diluted unit representing percentage changes of 50%, 27% and a negative 19% compared to corresponding results for the third quarter of 2006, $131 million, $87 million and $0.95.
As slide four shows, this marks the 23rd consecutive quarter that Plains All American has delivered results inline with or exceeding our guidance. While, cash distributions are arguably the most important measure of an MLP, one additional item I want to address is the decrease in our net income per unit between periods.
Our net income per unit for the current period is impacted by increased incentive distribution payments to the general partner as a result of the increase in distributions paid to LP unit holders, as well as the manner in which those increases are handled for financial reporting purposes. In addition, net income per unit for the comparative third quarter periods reflects the issuance of equity during the later part of 2006 and also in June 2007, to fund the Pacific acquisition and the equity portion of the 2007 capital program, as well as to pre-fund future expansion projects or acquisitions.
This equity capital is intended to keep our capital structure strong, while enabling PAA to make capital expenditures to increase future cash flow, the expansion projects, acquisitions and realization of synergies. Since closing the Pacific acquisition in November 2006, we have increased annualized distributions to limited partner by 12% from $3 per unit to $3.36 per unit.
Later in the call, Harry and Phil will address the major assumptions incorporated into the preliminary adjusted EBITDA guidance we are providing for 2008. Although, there have been some adjustments with respect to the timing of certain capital projects, overall this guidance is very much inline with the fundamental baseline performance envisioned at the time we announced the acquisition of Pacific in June 2006, and upon which we established our multiyear target range for growing our distribution at an average rate of 7% to 9% per year.
In addition, to delivering baseline performance our assets and business model were also designed to capture additional margin during certain types of markets. From early 2005 through mid 2007, we experienced favorable market conditions and PAA's operating results certainly benefited from these conditions.
Our initial 2007 midpoint adjusted EBITDA estimate was $690 million, which reflected our baseline run-rate including the cash flow associated with expansion projects projected to come on line in 2007, as well as the synergies expected as a result of the Pacific transactions. This guidance also reflected the visible impact of favorable market conditions for the first quarter of 2007 results.
As Phil will discuss in a moment, our current 2007 midpoint adjusted EBITDA estimate of $787 million includes an approximate $97 million uplift over the midpoint of our initial guidance. A portion of this excess performance is partially associated with stronger baseline activities, but the bulk is associated with the strong contango market conditions and favorable volatility we experienced throughout the later part of the year.
Similar to how we prepared our initial forecast for 2007, our forecast for 2008 is based on the assumption that market conditions are not as favorable as we've experienced during 2005 2006 and the first half of 2007. Accordingly we have projected $785 million for the midpoint of our adjusted EBITDA in 2008.
This represents a 14% year-over-year increase over our initial $690 million baseline adjusted 2007 EBITDA figure, and there's a slightly higher percentage increase due to first quarter impact of 2007. Our favorable marketing conditions were excluded from the 2007 initial guidance.
This level also provides us with solid coverage of our current distribution level as well as room to continue to grow distributions, especially as we continue to complete our capital projects that are scheduled to come on-stream throughout 2008, 2009 and 2010. To the extent that the market returns contango or we experience volatility that favors our asset allocations, we believe there might be upside to this number.
That being said, we continue to believe the most prudent course of action is to provide financial guidance in line with our baseline forecast and there by, excludes any market upside that is not visible at the time our forecasts are prepared. With those introductory comments, I will now turn the call over to Harry.
Harry N. Pefanis - President and Chief Operating Officer
Thanks Greg. In my part of the call, I will review third quarter operating results, address major operational functions for the fourth quarter guidance, and provide an update on our expansion of capital projects and recent acquisitions.
Each of our segments performed above the midpoint of the third quarter guidance we provided on August 6, 2007. As shown on slide five, adjusted segment profit for our Transportation segment was $92 million or $0.36 a barrel, with a $1.5 million above the midpoint of our guidance range.
Transportation volumes were approximately 2.8 million barrels per day, they were in line with our guidance. Segment profitability was favorably impacted by higher prices received from our pipeline loss allowance sales.
Adjusted segment profit for the Facilities segment was $28.9 million or $0.23 a barrel and was about $1.9 million above the midpoint of our guidance range. Volumes were 42.4 million barrels for the quarter and that's about 2.7 million barrels above our guidance, which would, and that difference is primarily due to the acquisitions of Bumstead facility in the third quarter.
Adjusted segment profit for the marketing segment was $75 million or $0.98 a barrel. That exceeded the midpoint of our guidance by $7.5 million.
Segment volumes were about 833,000 barrels per day during the quarter. That's a little lower than volumes of our guidance.
So, even though our lease gathering volumes were little lower, the primary reason for the overall performance was the strong gathering... strong margins we experienced in lease gathering business, which is typically the case when the market transitions from contango to backwardation.
In a moment, Phil will discuss our fourth quarter 2007 guidance, and this guidance assumes fourth quarter volumes from Transportation segment of approximately 2.8 million barrels per day. Estimated volumes for each of our larger systems are shown on slide six.
They are generally inline with the volumes for the first nine months of 2007. Fourth quarter guidance for our Facilities segment is based on an average capacity of 41 million barrels for the month; crude oil, refined product and LPG storage, 12.9 Bcf per month of natural gas storage capacity and 20,700 barrels per day of LPG processing throughput for a total of 43.8 million barrels per month.
Fourth quarter guidance for our Marketing segment, corporate lease gathering volumes of approximately 680,000 barrels per day. LPG sales of around a 105,000 barrels per day, refined product lines at 15,000 barrels per day and a waterborne foreign crude volumes of 60,000 barrels per day, for an estimated total volumes of 860,000 barrels per day.
I will point out that, we don't expect market conditions to be favorable in the fourth quarters but we don't expect to be less favorable than a typical market. Maintenance capital expenditures for the quarter were $9.9 million and we expect our full year 2007 cost will be about $48 million, and that's $4 million decrease from our last estimate.
The decrease is primarily due to timings. So the cost will simply carry over in to 2008.
Based on our current asset base, we'd estimate that annual maintenance capital expenditures leverage in the $50 million to $55 million per year. But the actual amount incurred and that given to you will vary based on a number of factors, including weather, availability of materials, the crude as well as any midcourse adjustments that may take want to look at our particular asset that's been undertaken or response to development that occurred during the year.
But we are still finetuning our 2008 plan forecast that is the result of the carry over activities from 2007 to 2008. We currently anticipate maintenance capital 2008 to range from $55 million to $65 million.
We have invested about $392 million in our capital expansion program during the first three quarters of this year. We expect total expansion capital invested over the years to be approximately $540 million.
As shown on slide 7, we've so far, as we show, completed the Cheyenne pipeline at the end of the third quarter. We have 850,000 barrel expansion at our Martinez terminal that we completed in January 2008.
However most of the facility will be in service by year end and these things are always to third parties. Our 3.4 million barrel Cushing phase six projects has brought 2.3 million barrels of tankage and service by the end of the year and the remaining 1.1 million barrels have been serviced in early 2008.
And the construction of these tanks were supported largely by long-term contracts to third parties. Our 2.7 million barrel Phase II expansion at St.
James was placed into service in the early part of 2008 as well as Salt Lake City pipeline project, and 2.6 million barrels Patoka Terminal was on track to be completed in the second half of 2008. As you can see we have the number of capital projects coming online the fourth quarter 2007, first half of 2008.
And these expansion projects combined with the acquisitions we completed in 2007 provide a significant portion of the 14% uplift in the midpoints of baseline guidance in 2008. Any conjunction with our 2008 capital program will set the stage for further increases in 2009 regardless of to the structure of the crude oil market.
And as operator of the PAA/Vulcan Gas Storage joint venture, we completed seven of the eight pipeline interconnect in the time period. During the fourth quarter, I think we'll be able to do again limited the wheeling operation, and wheeling is just the transferring of gas from one carrier to another across our header system.
Now we are continuing our leaching activities on the first cavern well and we continue to expect replace this cavern in the partial service in the first half of 2008, but we also expect to file an application with the FERC for 16 Bcf expansion in the next several months. On the acquisition front, we will be close to $54 million, terminal LPG storage facility, at the beginning of October.
This is a $1.4 million barrel underground granite storage cavern in operation since 1985. The facility is located in South Carolina has the ability to receive product from a Dixie pipeline system.
The Tirzah acquisition is our fourth acquisition this year, bringing our investment in acquisitions to approximately $120 million. So we'll be shy of our annual goal to average $203 million per year at acquisition covers as we stated in the past.
If we look at this as an average over two to three year period and believe we can contain to complete an average of $200 million to $300 million per year over a two to three year time horizon. With that I'll turn the call over to Phil.
Phil D. Kramer - Executive Vice President and Chief Financial Officer
Thanks Harry. During my portion of the call, I will view our capitalization and liquidity at the end of the third quarter, then walk through fourth quarter guidance, full year guidance as well as the preliminary guidance for next year.
Giving all attention to both the weakness in debt capital markets and the continued high grade trading in the and of the equity capital markets, I'm pleased to report that PAA is well positioned as we ended the third quarter with a strong credit profile, capital structure and excellent liquidity. I've summarized on slide 8, at September 30th PAA's long-term debt outstanding was approximately $2.6 billion.
Our book equity was approximately $3.4 billion and as a result our long-term debt to total cap percentage was approximately 43%. Our third quarter adjusted EBITDA and the interest coverage ratio was approximately 5.1 times in using the midpoint of our 2007 adjusted EBITDA range.
Our long-term debt to adjusted EBITDA ratios were approximately 3.3 times. In addition our long-term debt has an average tenure of approximately 14.1 years and we have no maturities of long-term debt until mid 2009, when we have a small charge of approximately $175 million maturing.
We also have significant liquidity. As of the end of the third quarter, we have approximately $1.5 billion of undrawn committed capacity on our $1.6 billion revolver that's available to meet our working capital needs, and we are currently in the process of renewing our 364-day $1.2 billion uncommitted Contango facility.
As shown on slide nine, even with over $5.4 billion in cumulative acquisitions and expansion capital investments since the fourth quarter of 2001, we've been within our targeted 50% of long-term debt-to-total cap percentage ratio in 23 of the past 24 quarters. As we've mentioned in previous calls the foregoing metrics excluded our short-term debt and Contango related interest costs, because our short-term debt primarily reflects borrowings on our Contango facility and revolver for hedge crude oil and LPG as well as exchange margin requirements.
As expected, due to the change in the market in reduction and Contango storage, our short-term debt balance has been reduced from approximately $890 million at June 30th to approximately $480 million on September 30th, reflecting the partial sale of Contango inventory and use of the proceeds to pay down the debt. To the extend, we remain in the backwardated market, this balance should continue to decrease and should stay well below the peak levels we experience during periods when the market wasn't in Contango.
Slide ten illustrates the impact of proactively financing our capital needs. With our June equity offerings, we are approximately $365 million ahead of our 50% equity and excess cash flow target.
That's even after funding our $540 million of 2007 capital program and over a $120 million in acquisitions that we may this year. Further, our long-term debt has remained flat with the beginning of this year and as I have mentioned earlier, our short-term debt has decreased by over $500 million.
Our equity compensation expense for the third quarter of 2007 was $1,500,000 of which is reflected in the selected items impacting comparability. This compares to $9.3 million that was forecast in our quarterly guidance, of which $8 million was included as a selective item.
The vast majority of the $8.3 million total difference reflects the cumulative impact of the lower unit price at September 30th on the equity compensation liability accrued during prior service periods. In addition to the factors, Greg discussed earlier that impacted our current period results, I should also point out that our third quarter was impacted by a net P&L charge of $4 million associated with an executive retirement, which is net of previously accrued obligations.
One of those obligations was associated with equity compensation that we elected to settle the cash rather than delivery of the unit. This payment reduced the accrued equity compensation obligation by $3.9 million.
The third quarter expenses associated with this executive's retirement is not included in selected items impacting comparability. Prior to discussing our guidance, I would mention that those investors that are interested in our gross receipts should pay a visit to Gross Receipts tab located under the Investor Relations portion of our website.
This webpage provides an approximation of this quarter's contribution to the annual gross receipts as well as the historical gross receipts per unit. Yesterday evening, we furnished in 8-K that incorporated actual results for the third quarter and updated our guidance for the fourth quarter of this year.
Although, there was some movement between third and fourth quarters from our previous guidance, overall we increased the midpoint of our guidance for the entire year by approximately $7 million. Our 8-K also includes preliminary guidance for the full year of 2008, and since that 8-K is available on our website, we are going to catch on the hard points of guidance and that also included on slide eleven.
In full year, we expect our adjusted EBITDA to range from approximately $777 million to $797 million or a midpoint of $787 million, and after the full year of this year. The midpoint is approximately $97 million higher than the initial guidance we provided for 2007 in our February conference call.
As a result of some shift in between periods, the fourth quarter is now expected to range slightly below our August forecast. Specifically for the fourth quarter in this year, we guide you to an adjusted EBITDA range of between a $165 million and $185 million or equating to a midpoint of $175 million.
We estimate fourth quarter adjusted net income will range from approximately $78 million to $102 million, that equates to a range of $0.48 to $0.68 per diluted unit. During the fourth quarter of this year we expect to realizing approximately $12 million gain from the sale of crude oil line fill.
The sale is the result of our periodic reassessment of line field and working inventory requires operator or pipelines. The projected gain is reflected in other income in our guidance and 8-K, but due to the infrequent nature of the gain, we have identified it as a selected item impacting comparability, and thus it is excluded from adjusted EBITDA and adjusted net income for the fourth quarter.
For additional details or assumptions, again I'd refer you to the 8-K that we furnished yesterday afternoon... yesterday evening.
Because of the timing and reduced visibility into the full year of 2008, our preliminary guidance for next year is less precise than our fourth quarter guidance. We are also still in our formal planning process for next year and we will provide more detailed guidance via our 8-K in February at the time of our year-end conference call.
With that said, we currently expect adjusted EBITDA in 2008 to range between $760 million and $810 million with a midpoint of $785 million. Further, we expect 2008 interest expense to be between $167 million to $177 million and 2008 maintenance cap to range between $55 million and $60 million.
As Greg mentioned earlier this forecast reflect the continuation of the current backwardated market conditions for our asset base in business model, and is more representative of what we believe the baseline performance which corresponds to the forecasts on which we manage our business over the long-term and on which we set our distribution growth target. Then finally, one more item before turning the call back over to Greg.
As you may know, Plains GP Holdings LP has filed an S1 for the IPO of PAA's general partner. And that the risk factors in PAA's 10-K in the GP IPO S1 document describe PAA could experience a technical termination under certain circumstances.
Due to a combination of factors including trading patterns of PAA's units and the structural modifications required to trade the IPO entity, we currently believe it is likely that PAA will experience a technical termination for federal tax purposes. Other than that excuse me, other than for tax purposes this is a non-event as the partnership is deemed to be immediately reconstituted.
Such an event would have no impact on our business or operations but could have... would have some tax impacts including a reduction in depreciation deductions allocated to unit holders during the first period as a new partnership.
This will result in the tax yield being lower than it otherwise would have been, absent the termination. However unitholders will recruit a portion of the foregone depreciation deductions and in subsequent periods due to accelerated depreciation methods.
To the extent that the transactions is consummated in late 2007 as opposed to early 2008, the reduction in depreciation deductions will be minimized. In addition PAA investors will receive 2-K once for the year in which the transaction was consummated.
The calculation itself is very complicated and it requires a look back test over a trailing 12-month period. Accordingly, we won't know for sure if the termination will be triggered, unless ad until the actual GP IPO transaction occurs but we did want to give you a hindsight of that this is a likely side effect of the GP IPO.
I would point out there are several other MLPs had experience technical terminations over the past several years and we did not expect this to have any material market impact on PAA. And then with that I'll turn the call back over to Greg.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thanks Bill. We're clearly pleased with the third quarter results.
Our fourth quarter guidance reflects the delayed impacts of the crude oil market transition effects, such as contango interest associated with profits realized in the third quarter as well as other market-related impacts of the transition. Despite some shift of profit and expenses between quarters, we expect to deliver full year result inline with a slightly ahead of the guidance midpoint we provided, on our second quarter results conference call in August.
Although a few months still remain in 2007, we have either achieved or position ourselves to achieve each of the five goals we established at the beginning of the year for 2007. These goals in our current status are summarized on slide 12.
We believe PAA is well positioned for the future and we are pleased with the overall increase in baseline operations we are forecasting for 2008. As we noted earlier, the preliminary guidance for 2008 does not include any forecast for a return of the contango market.
Our 7% to 9% annual distribution growth target over the next several years is underpinned primarily by our large portfolio of organic growth projects that we expect to complete from 2008 through 2010. Before we open the call up for questions, I also wanted to point out that despite recent disruptions in the debt and MLP equity capital markets, we believe PAA is very well positioned to fund its growth.
As a result of PAA disciplined approached to executing its financial growth strategy, we have strong credit metrics, an excellent committed liquidity and we are well positioned to activity on on-track of expansion and acquisition opportunity. That wraps up the items on our agenda.
We appreciate your continued support of our partnership and we look forward to discussion of our year-end results in our February call. A complete written transcript of our prepared comments for this call will be posted on our website at www.paalp.com very shortly.
You will also have the option to download an audio version of the call. Jackie, at this time, we can open the call up for questions.
Question And Answer
Operator
Thank you. Ladies and gentlemen we will now be conducting a question and answer session.
[Operator Instructions] Our first question is coming from Barret Blaschke with RBC Capital Markets.
Barret Blaschke - RBC Capital Markets
Hi guys couple of quick questions. I wondered, we got in to backwardation of little bit on the call.
What does that look like for the storage business, I mean where are you in terms of, how full are the tanks basically and how does marketing offer that?
Harry N. Pefanis - President and Chief Operating Officer
Well, we generally don't disclose how much oil we have in our tanks drawing for an account of our customers. A substantial amount of our tankage is leased to the third party customers.
Obviously it doesn't make much economic sense for us to hold crude oil in tanks in a backwardated markets.
Barret Blaschke - RBC Capital Markets
Great.
Harry N. Pefanis - President and Chief Operating Officer
So when the market flips from Contango to backwardation we generally,see, an uptick which was reflected and the third quarter and our fourth quarter guidance out there is probably reflective of a worsened, the normal margin and I think that had about $0.66 of barrel though typical... in a typical market.
We'd expect probably more than the $0.66 that's per barrel of our margin from that segment of our businesses. I don't know, if, I, really answered your question but...
Barret Blaschke - RBC Capital Markets
Yes, I didn't ask it really well probably. But I guess what I am wondering is what kind of downside protection do you have on the stores side or the contract?
Greg L. Armstrong - Chairman and Chief Executive Officer
Yes, let me breakdown the Tankage. We've got, right now I mean we are building more tanks.
Most of it as Harry pointed is under contract but of the 64 million barrels roughly that we have right now, we only use about 18% to 20% of that for our own purposes at peak during the contango period. So and about half of the 64 is used for servicing the pipeline side and the other part of it is all subject to leases that range anywhere from some 30 days but in most cases its three to five year leases.
So we have a fair amount under lease. So it's not as big an impact as you might expect.
It's, just when it happens it's very positive and that's why we have always been talking about the baseline level. So I would tell you as a result a combination of factors, increased number of products that have to be handled which we are pushing refineries to find other ways to store the crude if any more than on-time tankage for their refined products in the different varieties they have to carry the increased number and grades accrued and the increased influx of those coming from Canada.
There's quite a bit of demand out there just for fundamental tanking or take each for tunneling storage activities just to meet day-to-day needs. So again it's when the contango shows up its really affecting a small number of our tanks and just adds a lot of value when it's there.
When you pull that out though the baseline level's very, very solid.
Barret Blaschke - RBC Capital Markets
Okay. Thanks Greg.
Operator
Thank you. Our next question is coming from Harry Mateer, with Lehman Brothers Incorporated.
Harry Mateer - Lehman Brothers, Inc.
Hi guys. Just a question on your credit ratings.
It's still a negative outlook at S&P. You have obviously posted some pretty good results here and brought your Contango debt down, could you discuss a little bit A) your discussions with the rating agencies with respect to getting that negative outlook back to stay with S&P, and then further down the line you've spoken previously about your desire to get your credit ratings upgraded.
So if you could just update us on that front?
Greg L. Armstrong - Chairman and Chief Executive Officer
We've got in additional to Philip Kramer we also have Al Swanson here. So I'll turn it over to him and let him address it.
Phil D. Kramer - Executive Vice President and Chief Financial Officer
When S&P put us on negative they said that the likely time period was a year to which that year is currently coming up. Just in the normal course did it with the rating agencies, and we agree with you.
We would think that that should come off and that's the things that S&P has to see, I think that the company has delivered on since they put us on that watch. With respect to our ratings increased target, I mean that's still a target for us out there.
We think that given a normal situation, I think we think that we're a mid BBB company at least. Things haven't been normal and certainly the credit disruptions that occurred in the whole of the summer haven't improved that situation any.
So I don't know if that will impact rating agencies with respect to us, but it certainly can't help them to move forward the rating to increase,. Al, do you have anything that...
Greg L. Armstrong - Chairman and Chief Executive Officer
This is Greg I might just add that with respect to S$P and again trying to predict what rating agencies are going to do is maybe more difficult than trying to predict all prices in market structure, but they did have a one year period - November 15th will be that one year period. We have turned in very strong results, candidly I think the fact that we went from a contango market structure to a backward and that our numbers are not only resilient, but they are basically above where the forecasted baseline and would have been in the absence of those that market chatter.
We think good shooting. Could turn into a positive.
I think the fact that the debt has come down and as we said it, would have been self liquidating, we have raised more equity. It should all bode well for absolutely reinforcement of our current rating that we believe as Phil said, hopefully pushing them in the right direction to see us continue to go up.
We do have a target of being a mid to half BBB. We think the credit statistics that we have support that already and quite...
again the fact that the market has reversed to Contango to backwardation we think will give people a chance to see the full cycle benefit of our asset base and business model and that you shouldn't treat the contango numbers as if they are evil when they show up, they are actually incremental profits that go to fund capital and when you peel them out, we got an extremely strong capital structure.
Harry Mateer - Lehman Brothers, Inc.
Great thanks, guys.
Operator
Thank you. Our next question is coming from John Edwards of Morgan Keegan and Company.
John Edwards - Morgan Keegan and Co.
Good morning everybody. Can you hear me?
Greg L. Armstrong - Chairman and Chief Executive Officer
Yes we can, John.
John Edwards - Morgan Keegan and Co.
Okay. Hey, in the past you talked about I think it was about $1.2 billion of capital expansion project opportunities over the next three years.
I was wondering if you could confirm it that's still the case and maybe you could provide a little detail on specifics as far as when, how you think those will hit.
Greg L. Armstrong - Chairman and Chief Executive Officer
I can, the first answer your first question, is it still our belief that we have those, absolutely. As far as giving you a little bit of color, two things to caveat with and then I will answer your question.
We are still developing our 2008 capital program and for competitive reasons we are somewhat cautious about being too specific. But having said that, we can reconcile about half of the $1 billion to $1.2 billion that you reference simply by identifying the -- we think already based upon where we are in our capital program for 2008 that we have got probably $250 million to $300 million of projects that we will be implementing in 2008 and again did somewhere in that range we are still developing that and we will shortly give guidance in February as Phil mentioned.
None of those projects I think individually account for more than 25% to 30% of that total. So, again you are talking about good spread, good diversification without a whole lot of high concentration risk.
In any one. What's not included in that number is Pier 100 which is subject to regulatory approval, but as soon as we get that and we believe that that is more of a when not an if, that's going to add about $350 million to $400 million, somewhere in that range depending for what we spend in preliminary engineering design by the time that approved.
So, that alone accounts for in the order of magnitude of half to 60% of that million to $1.2 billion range. And the balance is a project, again we have identified during various stages of development and negotiations with our customers, as to the types of infrastructure that they willing to give us commitments to support or our assets with the markets conditions that we call those to build those irrespective of commitments.
But we don't want to be too specific because we are not the only guys out there trying to come up with great ways to build assets and generate returns. Is that...?
John Edwards - Morgan Keegan and Co.
Yes that helps and just one follow on to that is has the shift to a backwardated oil market impacted your...how has that impacted your capital expansion plans?
Greg L. Armstrong - Chairman and Chief Executive Officer
It hasn't. Zero.
John Edwards - Morgan Keegan and Co.
Zero. Okay, alright thank you very much.
Greg L. Armstrong - Chairman and Chief Executive Officer
John I would point out too that back to Barret's question earlier, of the roughly 12 to 14 million barrels that we have used for contango purposes for 2008, while not as attractive levels as we realized when we used them for proprietary, we basically got them either under leases or synthetic leases with market position. So again I think we were actually looking forward to looking back at the end of 2008 and looking forward for 2009 to get people report card on showing what our assets in our business model can do through the other leg of the cycle.
John Edwards - Morgan Keegan and Co.
Okay, great. Thanks a lot.
Operator
Thank you. Our next question is coming from Ross Payne of Wachovia Securities.
Ross Payne - Wachovia Securities
How you are doing guys? First question, cap lines seems to have been up nicely if you just kind a give a little color on what was driving that 26% year-over-year increase?
Greg L. Armstrong - Chairman and Chief Executive Officer
Well a couple of things has helped cap line. First of all, remember when hurricanes occurred in 2005 it took some of the Gulf of Mexico productions out.
So as those platforms have come back on line and I think into south Louisiana, St. James area, so that has helped capline.
We signed a agreement last year with one of the refiners on the capline system and that continually increased volume over and above the base level commitment to us. So that could...
primarily driven the, increased capline volumes.
Ross Payne - Wachovia Securities
Okay. Also on the distribution coverage, were you together in the quarter and what's kind of a range you're looking for over the next 12 months?
Greg L. Armstrong - Chairman and Chief Executive Officer
Yes. Ross we've been running very high coverage as a result of the Contango contribution that we have always again, that we don't really base our guidance on that, but the coverage for the year for based upon the midpoint of our guidance will come in right in about 120%, the guidance mid-to-high range for the fourth quarter is in the 95 to 104 range it will come on about flat, and if you just look at the midpoint of our 2008 over the current distribution, it's round about 110.
Ross Payne - Wachovia Securities
Okay.
Greg L. Armstrong - Chairman and Chief Executive Officer
Or as we look forward, again we are always going to filter out the market chatter associated with profit that we cannot reliably forecast will occur. As Wall Street Journal quoted, we're not, going to throw just because it's not repeatable but we are going to use it the very cost from our capital programs have to play out an additional equity on that, but I would say, again we've always said that we're comfortable somewhere in the 105 to 112 range, 110 and one that we probably quoted a few times, we base it with the reliability, the predictability of the, about face level operation at a very comfortable level.
Ross Payne - Wachovia Securities
Okay, one final question. I mean you have obviously got a lot of growth CapEx currently underway.
Can we think about certain kind of EBITDA multiples associated with that CapEx to kind of build in some pro forma, EBITDA on money that's already been spent out the door? That's kind of one way we could look to leverage a little differently as well.
But, can you give us a kind of a range of multiples in terms of some of the organic projects you're doing?
Greg L. Armstrong - Chairman and Chief Executive Officer
I'll give you a range and I'll give you kind of what I think you have to use for a weighted average. But first off, with respect to the guidance we are providing clearly part of the uplift from the base level of 690 that we entered in to 2007 versus the midpoint of our guidance of 785 reflects the benefit of the capital spend or at least part it.
As Harry pointed out some of those projects are going to come on in the fourth quarter of this year. Some are coming on throughout the first half of next year and then you've got some that carry over into late '08 or early '09.
So trying to use a formula of capital spend in the year divided by a multiple equal adds to the next year is a little bit tricky, depending on whether we come by a 6-month project or and 18-month project. The range of multiples if you will on the capital project, it can vary from some of our best ones look like a two or a three and some of our left power returns can be as high at nine.
Probably somewhere in the 6 to 7.5, 6.75 to 7 number is a comfortable range that won't get you in trouble. Over time we think that with value added from our margin activities, we can maybe push that a little bit lower than what I'd guide you to but I would say you're safe in that 6.75 to 7 range.
Ross Payne - Wachovia Securities
Very good. Thank you very much.
Operator
Thank you. Your next question is coming from Gil Alexander with Darsel Associates?
Gil Alexander - Darsel Associates
Good morning
Greg L. Armstrong - Chairman and Chief Executive Officer
Good morning.
Gil Alexander - Darsel Associates
Could you give us some perspective on how much saving is still to come in the Pacific acquisition?
Greg L. Armstrong - Chairman and Chief Executive Officer
You mean by savings by basic synergies?
Gil Alexander - Darsel Associates
Yes sir.
Greg L. Armstrong - Chairman and Chief Executive Officer
Our synergies came from some cost savings that were immediate, some over time and then some commercial and then capital. We plan some other assets in ours, initially we targeted 30 million for the first year and I think we had a projection that about 2010 that number climbed up to $54 million and our belief is, we are probably running higher than at that part of the uplift that I mentioned in the baseline forecast was associated with increased synergies.
We have certainly hit our target first term, and I hope S&P is listening to that and, but we are finding additional values in here to be able to extract value. So, I think we are going to still be harvesting synergies for some time to come.
Overall the order of magnitude is probably going to be in the $15 million to $25 million above what we forecast, some will begin. That has not all kind of launch because we take a lot of phase it in.
As I mentioned in prior phone call, the one before it, what we did find when we got Pacific, there were probably some near shorter term headaches that we had to handle, we had budget for those, we just didn't know exactly what they would look like. We are pretty much with most of that right now and ultimately that shorter-term headaches generally mean there is more long-term upside and that's what we are finding as we see.
Phil you --
Phil D. Kramer - Executive Vice President and Chief Financial Officer
Yeah, I do. Yes, the $1.2 billion of CapEx that we were looking at over the next several years also some amount of that's coming from new opportunities associated with Pacific assets as well.
Gil Alexander - Darsel Associates
Thank you.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thank you.
Operator
Thank you. Our next question is coming from Yves Siegel from Wachovia Securities.
Yves Siegel - Wachovia Securities
Thanks. Good morning.
First question is, you spoke about the movement from contango to backwardation. Is there a proper opportunity just because you had a step change in the absolute value of crude?
Greg L. Armstrong - Chairman and Chief Executive Officer
No, not really. Some of our mentioning hearing his comment.
We... part of our tariff structure in the pipelines side is we get a fraction of the percentage of the crude oil to be retained for the compensation of fuel and so I wonder if there's immediate spike in the prices of crude.
We have some ability to capture but we did not talk about huge volume. What Al said that even and we view it as a natural hedge is, currently the cost of our utilities go up as well and so we try to manage both sides of that equation or let it both flow, depending upon our view on the market.
So there is not really a direct impact, our margins aren't really affected by the absolute move in prices. If they were to fall extremely low, theoretically you start to leave volumes from producing that kind of self-fulfilling issue because as soon as you drop it low then all of a sudden demand goes up and by first on the upside.
Theoretically, you'd see a large explosion in drilling activity and we have seen some pick up in certain areas because of the high oil prices, but bottom line we have been... most of produces have been trying to run flat out want to clear the $40 a barrel anyway.
Yves Siegel - Wachovia Securities
Okay and then couple more, with the... looking forward at the potential projects that you have run on the slate, would you...,the return potential there, is it pretty much in the fair way that you answered Ross's question, is it better or worse or pretty much in the fair way and the second part of that would be is it possible to sort of look at that project slate and give a sort of average duration of how long those projects may take to come to fruition, come to the finish line?
Greg L. Armstrong - Chairman and Chief Executive Officer
The first part of your question will be a little bit, region in the last part.
Yves Siegel - Wachovia Securities
Okay.
Greg L. Armstrong - Chairman and Chief Executive Officer
Yes, the rate of return really hasn't moved a lot with the gyration in the market. What do say Harry?
I am --
Harry N. Pefanis - President and Chief Operating Officer
They can be pretty steady, yes.
Greg L. Armstrong - Chairman and Chief Executive Officer
They are in the 14%, 17% range, and if you average around 14%, that gives you about your 7 multiple. These are very, very long life assets, even though for accounting purposes we are somewhat forced to amortize our tanks over 40 years even though they will be here with my kids' kids' kids graduate such a life.
So when we do our rate of return though, we actually look at the beautiful life of the asset but when you get beyond a 100 years, it doesn't cater much to the rate of return. Having said that its somewhat of an inert.
The last of the five gets buried by the mix and I would probably tell you that whereas 5 years ago the duration from implementation of the projects, the realization of cash flow may have been in the sixth months to a year, we probably migrated on our probably here in the 12 to 18 capital month range.
Yves Siegel - Wachovia Securities
that was I would say the bulk of the mark 12 to 18 month [indiscernible]?
Greg L. Armstrong - Chairman and Chief Executive Officer
For instance to build tanks in Cushing like we do, we started early last year we will have most of them in position early this year, this coming year and so it's in that 12 to 18 month range so it's moved out from but its quite removed by factors 6 months on average.
Yves Siegel - Wachovia Securities
Okay and the last question related to given the dislocation that we saw in the credit markets earlier no. 1 and number two given the absolute level of commodity prices and the fairly high cost of infrastructure project and then looking North to Canada in terms of what's going on there.
Has the opportunity set changed a whole lot for acquisitions?
Greg L. Armstrong - Chairman and Chief Executive Officer
I would say it's in transition. I think it's clearly the sellers had figured out that when capital was available to every body it's very cheap, very low level and there were hardly any entry barriers to becoming an MLP, they could extract a lot of the value associated with that decline in the cost of capital.
We have participated in certainly a number of acquisition efforts and walked away from them. We were told we didn't make the cut because our number weren't high enough.
We didn't make the first round because we just fundamentally didn't see it the same way and while we knew returns relative to our cost of capital we also believe there is full cycle issue that tends to get carried away and drawn from the cue level of low interest rate that may not be there forever. We are hearing bad from some of those processes that they haven't closed yet or fellers are rethinking but we haven't posed a whole lot of deals either since the entire play were in transition.
I think we won't know probably until the middle of next year just whether this is a pause and then it's going to take off again or whether it's actually going to cause a recalibration of the sellers numbers that will pay the multiple come down. From our perspective that's the best of our world we...our balance sheet's strong, our growth strategy, financial growth strategy is always pretty solid and be ahead of it.
So we would actually want to judiciously guard our capital and invest it at the best rates of return, the facts that we have a fundamental business model that allows us to add synergies to assets should give us an ability to follow the different outsize returns. If we do that and actually will, but it does require that markets not calls but that is actually transitioned to a lower level.
That doesn't mean we can't make good investments. It just means we'd like to make great investments.
Yves Siegel - Wachovia Securities
Is Canada a viable option to expand?
Greg L. Armstrong - Chairman and Chief Executive Officer
We are expanding there. In fact we're still doing the capital budget.
But there is a lot of projects there. There is just a lot of demand for infrastructure that help move and if a displacement of crude.
Once a new particular crude comes on it causes rotation in other areas, it certainly affects the Rockies quite a bit and as far as you talk about acquisition. The only thing I can tell you is the Canadian capital markets were affected about a year ago, day before yesterday by the change in the income trust, backlog.
They have since recovered and while the MLP capital structure or capital supply has disruptions that occurred in early August, but you haven't seen that north of the border because I think most of the capital had already migrated down south back a year ago. So, I think that's when I require selling out crude.
Right now, I don't think, they are any screaming bargains up there. But I think over time it can and it should settle out and then of course you have to factor into that, the fact that Canadian dollar has gone from 1.55 ratio 7 or 8 years ago when we first entered Canada, now its 0.95.
So, we're doing very well with our investments that we have as our Canadian friends up there remind us and but we have to watch to make sure that our rate of return is taking effect, the currency change issues too.
Yves Siegel - Wachovia Securities
Thank you.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thanks Yves.
Operator
: Thank you. Our next question is coming from Jin Luo of JP Morgan.
Jin Luo - JP Morgan
Good morning everyone.
Greg L. Armstrong - Chairman and Chief Executive Officer
Good morning.
Jin Luo - JP Morgan
I have two questions regarding the GP IPO, who are the starting shareholders of the GP? My second question, as you mentioned that the tax share will be lower.
Can you comment on how much?
Greg L. Armstrong - Chairman and Chief Executive Officer
On the first issue, the selling unit holders the GP we anticipate will be almost profitable if there still some discussions going on. I think all of our owners would like to have a public mark out here but they'd like everybody else to sell it best and be enough willing fellows to do a minimum size deal.
We think it will be fairly uniform across, there may be a few holders that choose not to sale. As far as the tax yield, it's fairly complex and we're still calculating it.
The last time we calculated I think it's a time people would buy in the public market. I think we were looking for shields in around the 70% to 80% range.
And once we get through the transition period that would probably be back in the neighborhood. Phil if you want.
Greg L. Armstrong - Chairman and Chief Executive Officer
The one think I'll add to that is that it's packed down. The other thing that I'll add to that is that during 2007 and 2006 our unit holders have probably experienced lower shield than they will ordinarily would have anyway, based on the fact that we've generated excess cash flow in that income based on the contango market.
So their shield based on historical levels have probably come down as a result of that excess performance because that excess performance has not been distributed out. As Greg pointed out, we use that excess to fund projects.
As we look at 2008 with no real contango baked into our forecast, you may actually get an offset because that excess is not fair and you may not notice that big a difference, but as Greg pointed out it is a complicated calculation. At this point we don't really know precisely what is going to happen.
Jin Luo - JP Morgan
Another question regarding your December 8 guidance. How much CapEx spending you're taking in for 2008 in that guidance?
Greg L. Armstrong - Chairman and Chief Executive Officer
We are still developing that capital program there but very little of the capital that will be spent in 2008 will have any significant impact on the EBITDA guidance that we gave so I don't expect that to move a lot as a result of our capital program. If anything, it will affect 2009 and 2010 but the neighborhood if you will of capital that we expect is probably around the 250 to 300 range as we sit here today and again we are still trying to finalize that and that would not include we're anticipating that 300 or 400 approval if that happens then that number could move up a little bit, but again that's going to affect other years, not 2008 EBITDA performance.
Jin Luo - JP Morgan
So the year-over-year increase in estimate from summary from the 2007 spending ?
Greg L. Armstrong - Chairman and Chief Executive Officer
Correct. And the additional synergies from Pacific that we're realizing and then I will also -- I failed to say this earlier, but it was on one of Bill's slides, we have effectively prefunded our equity our approach is to fund our Cap expansion 50-50 debt and equity and we have already raised position equity to be prefund, certainly a capital program for 2008 and in the order of magnitude of the 250-300 range.
But that means you go back to the equity capital market and still has excess leftover for further capital expansion or for acquisition.
Jin Luo - JP Morgan
Thank you.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thank you.
Operator
[Operator Instructions]. Your next question is coming from Sam Arnold of Credit Suisse.
Sam Arnold - Credit Suisse First Boston
Hi, good afternoon guys, I guess good morning. Just two things, the first would be Greg, could you talk about, with the crude oil price where they're at, are you seeing an increase in drilling activity in your gathering areas?
And then the second question would be, given that the Marathon announcement on Detroit and with Wood River and BP and Whiting and some of these other guys reverting to Canadian heavy, do you try to quantify the impact, if you could see on Capline and Capwood volumes?
Greg L. Armstrong - Chairman and Chief Executive Officer
Yes. I'll take the first one, we have as crude oil has trended up from it hit I think the beginning of the certain year, price got as low as what 50, 55 and moved on a...
it's been fairly active growing in many of our areas in West Texas as there is a predominance of oil out there, while you heard people fall off in own shore drilling activities primarily being gaps, we are sure to see very active producers we're at, it's a little bit early to try and predict what $90, $94, lot of oil is going to do, but I am not too sure that just because the price went up I don't think that there are that many projects that have been waiting for that high fives to be active. I think we will probably see a high level of activity on areas already.
Again, I think quite candidly if you go down $30 or $40 and we'd still see a continuation of that. So I don't think there is really a cost related influence with the last price move.
Would you agree Phil?
Phil D. Kramer - Executive Vice President and Chief Financial Officer
I would, yes.
Greg L. Armstrong - Chairman and Chief Executive Officer
And you want to address.
Harry N. Pefanis - President and Chief Operating Officer
As far as Capline is concerned, when you look at the two entities, that you just mentioned, Marathon and BP, each have their own interest in Capline so their volume fluctuation is going to affect our interest in Capline, like we all have our own small pipes within the Capline pipeline system.
Sam Arnold - Credit Suisse First Boston
Okay, it's not just collective, it's the 20% that they, it would only affect their volumes, not...?
Harry N. Pefanis - President and Chief Operating Officer
we have our own share of space that says that we own 23% of the Capline which gives us about turn of 50,000 barrels of that capacity, and we can try for and receive all the benefit of that capacity we all share operating expenses proportionately.
Sam Arnold - Credit Suisse First Boston
Got you. Okay.
Alright now, that's good, thanks.
Harry N. Pefanis - President and Chief Operating Officer
Okay.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thank you Sam.
Operator
Thank you. There are no further questions at this time.
I would like to hand the floor over to management for any closing comment.
Greg L. Armstrong - Chairman and Chief Executive Officer
Thank you, Jackie. Thanks to everybody for attending and again for your continued support of the partnership.
We do indeed look forward to updating you in February with the additional results for the fourth quarter and more defined guidance for 2008. Thank you.
Operator
This does conclude today's teleconference. Thank you for your participation.