May 10, 2010
Executives
Greg Armstrong – Chairman and CEO Harry Pefanis – President and COO Al Swanson – SVP and CFO
Analysts
Darren Horowitz – Raymond James John Tysseland – Citigroup Jeremy Tonet – UBS Brian Zarahn – Barclays Capital Ross Payne – Wells Fargo
Operator
Welcome to Plains All American Pipeline first quarter 2010 results conference call. During today’s call, in addition to reviewing the results of the prior period, the participants will provide forward-looking comments on the Partnership outlook for the future, which may include words such as believes, estimates, expects, anticipates or other words that indicate a forward view.
The Partnership intends to avail itself of Safe Harbor precepts that encourage companies to provide this type of 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 the website at www.paalp.com.
And in particular, the section entitled Non-GAAP Reconciliation, which represents certain commonly used non-GAAP financial measures such as EBIT and EBITDA, which may be used here today in the prepared remarks or in the Q&A session. And this section of the website also reconciles the non-GAAP financial measures to the most directly comparable GAAP financial measures and includes a table of selected items that impact 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 measures, excluding the effects of selected items impacting comparability. Today’s conference 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 Al Swanson, Plains All American’s Senior Vice President and CFO.
I will now turn the conference over to Mr. Greg Armstrong.
Greg Armstrong
Thank you, Natalie. Good morning and welcome to everyone.
In addition to Harry and Al, we also have several other members of our management team available for the question-and-answer session, including Pat Diamond, our Vice President, responsible for Strategic Planning; Roy Lamoreaux, Director of Investor Relations; and Dean Liollio, President of PAA Natural Gas Storage. As a reminder, the slide presentation we will be referring to in this call is available on our website at www.paalp.com.
Yesterday afternoon Plains All American reported first quarter performance that met or exceeded the high end of our guidance range. In addition to delivering solid operating and financial results, we recently completed the IPO of PAA Natural Gas Storage.
The offering price on April 29th began trading under the symbol PNG on the New York Stock Exchange on April 30th and closing, including the exercise of the underwriters’ over-allotment option, occurred yesterday. As outlined on slide three, by adding PNG as a separate public traded entity, we intend to accomplish several purposes, including the ability to highlight an otherwise under-appreciated aspect of PAA and enhance our ability to make acquisitions in the natural gas storage sector.
In that regard, we believe PNG possesses several characteristics that will provide it with a lower cost of capital and enable PAA and PNG to more efficiently expand through acquisitions. These characteristics include low-risk, largely fee-based cash flow underpinned by multi-year contracts; non-depleting, long-lived assets with low maintenance capital requirements; solid visibility for attractive organic growth opportunities; a smaller MLP entity with a lower incentive distribution burden that should translate into a higher growth profile; and a proven, supportive, financially-strong and long-term-oriented sponsor.
These attractive characteristics combined with our belief that the natural gas storage business is poised for consolidation, underpins our conviction that having separate publicly traded MLP focused on the natural gas storage sector is a solid value-creating proposition for PAA. Although PNG is a separate trading entity, PAA unit holders will continue to participate in a significant way in the growth of the natural gas storage business that PAA will continue to own approximately 77% of PNG’s equity interest, including the GP interest, incentive distribution right in Series A and Series B subordinated units.
The Series A units represent 31% of PAA’s retained ownership, our conventional structure, and currently participate in distributions. The Series B units represent 26% of our ownership will begin participating in distributions as we expand our storage capacity at Pine Prairie and increase distributions to PNG unit holders.
Taken as a whole, we believe this structure provides downside protection for PNG’s common unit holders while at the same time appropriately compensating PAA unit holders for our substantial upfront investment in the long-term assets that enable the future growth of the entity at attractive rates. Overall, this structure provides substantial performance based alignment of interest between PAA and PNG unit holders.
As a result of all these factors, PAA remains motivate to continue to grow this business both organically and through acquisitions. I would also note that we have included a number of distinctive mechanisms in PNG’s partnership agreement that enabled PAA to assist PNG in its early stage growth.
Additionally, we have recruited a topnotch management team that will devote substantially all of their focus to executing PNG’s business strategies and its organic growth and acquisition activities. From a financial reporting perspective, PNG’s financial results will continue to be included in PAA’s consolidated financial results.
Effective with the second quarter results, we will coordinate the release of PAA’s and PNG’s results and devote a portion of PAA’s conference call to addressing PNG’s standalone performance and financial position. Later in today’s call, Al Swanson will address the impact of the IPO on PAA’s financial position and liquidity and also comment on PNG’s estimated first quarter results.
I’ll now turn to PAA’s operating financial results released yesterday afternoon. As illustrated in slide four, for the first quarter of 2010, we reported EBITDA of $276 million and net income of $151 million or $0.80 per diluted unit.
Excluding the selected items impacting comparability, which are included in the table at the bottom of the slide, our adjusted EBITDA was $272 million and adjusted net income was $147 million or $0.77 per diluted unit. Our results are in line with or above the high end of our guidance range for each of our three segments.
In 2009’s first quarter reported results, adjusted EBITDA from our fee-based segments increased 19%. Adjusted results in the Supply and Logistics segment decreased year-over-year due to lower contango related profits, less favorable crude oil differentials, and lower LPG margins in the current year period relative to the first quarter of 2009.
Overall, adjusted EBITDA for the first quarter of 2010 was on par with the first quarter of 2009. Adjusted net income and adjusted net income per diluted unit decreased 9% and 25% respectively due primarily to increased interest cost and an increase in the number of outstanding common units associated with debt and equity financings completed in early to mid 2009 as well as higher DD&A.
Slide five graphically represents this quarter’s solid performance versus guidance highlighting the fact that we have now delivered 33 consecutive quarters of results in line with guidance. These results were generated during a period of significant volatility and further reinforce the durable and predictable nature of PAA’s baseline cash flow stream.
PAA’s continued solid performance enabled us last month to declare a 3.3% year-over-year increase in our distributions to $3.74 per unit on an annualized basis. As of the distribution payable next week, PAA will have increased the distribution in 22 out of the last 24 quarters.
We continue to target and raising our annual distribution to $3.80 per unit by year-end. With that, I’ll turn the call over to Harry.
Harry Pefanis
Thanks, Greg. During my portion of the call, I’ll review our first quarter operating results compared to the midpoint of our guidance issued on February 10, 2010, discuss the operational assumptions used to generate our second quarter guidance, and discuss the progress of our expansion capital program and acquisition activities.
Let me begin with our operating results for the first quarter. As shown on slide six, adjusted segment profit for the Transportation segment was $134 million or $0.53 per barrel, which totals about $12 million above the midpoint of our guidance range.
Transportation segment volumes were down about 4%. However, net revenues were up 3%.
The revenue variance is primarily due to a combination of approximately $7 million of higher tariff and PAA revenue and approximately $5 million of lower operating expenses. Approximately $3 million of lower operating expenses were attributable to timing differences and our maintenance and pipeline integrity programs.
The bulk of the volume variance was attributable to timing differences with respect to refinery turnaround served by the Capline and Capwood systems. Adjusted segment profit for the Facilities segment was $61 million or $0.31 a barrel, which was in line with our guidance.
Segment volumes were about 66 million barrels. Most of the volume variance above the guidance was due to an increase in available takes in our West Texas facilities.
Adjusted segment profit for the Supply & Logistics segment was $79 million or $1.04 per barrel, which was in line with the midpoint of our guidance. Segment volumes of approximately 848,000 barrels per day were slightly lower than guidance.
LPG volumes were lower than forecasted. However, this was largely offset by higher waterborne crude oil imports and slightly higher lease gathering volumes.
Maintenance capital expenditures were $11 million for the first quarter. Although this was lower than planned, we continue to expect maintenance capital to run about $85 million for the year.
Let me now move to slide seven and review the operational assumptions used to generate our second quarter 2010 guidance, which was furnished on the Form 8-K issued last night. For the Transportation segment, we expect volumes of approximately 2.9 million barrels per day and a segment profit of $0.47 per barrel.
The volume increase was primarily associated with our acquisition of an additional interest in Capline. The segment profit is projected to be about 6% lower than first quarter results, primarily due to a higher level of integrity management activities scheduled in the second quarter of this year.
Our Facilities segment guidance assumes a total capacity of 70 million barrels of oil equivalent, an increase of about 4 million barrels over the capacity of the first quarter. The increase is primarily due to the additional 2 million barrels of storage that went into service at our Cushing terminal in April in addition to Cavern well 3 at our Pine Prairie facility that was recently placed into service.
Our guidance midpoint for segment profit per barrel is forecasted at $0.31 per barrel, which is in line with our first quarter results. Supply & Logistics segment volumes of approximately 800,000 barrels a day are forecasted in the quarter at projected midpoint segment profit of $0.64 per barrel.
Volumes are projected to be approximately 48,000 barrels a day lower than the first quarter, primarily due to seasonal decrease in our LPG sales volumes. We expect segment profit to be lower than the first quarter primarily due to lower seasonal margins in our LPG sales volumes.
Let me spend a few minutes addressing a couple of recent events. First, the favorable contango market in the near-term future’s contract and its impact on PAA’s guidance, and then also the potential impact of the oil release in the Gulf of Mexico on operations.
The June-July contango has recently widened approximately $3 a barrel, and the July-August contango is about$50 per barrel. However, beyond this timeframe, the contango narrows pretty significantly.
We expect to capture some benefit from the wide contango in both June-July and the July-August spreads in the third quarter, with our uncommitted tankage, which I know it’s only a portion of the tankage that we’ll use in our commercial activities. The benefit from the wider contango market is forecasted to offset the adverse impact of our integrity management costs have been deferred from the first quarter of 2010 to second half of 2010.
Our practice has been and continues to be not to incorporate a continuation of strong contango markets in our guidance beyond the near-term months. These conditions can change rapidly.
That said, if the market conditions do continue, it will have a positive influence on our outlook for the rest of the year. With respect to the impact of the oil release in the Gulf of Mexico, we currently believe that our primary exposure is the potential shutdown of the Port of Mobile.
Even if this does occur, we would not expect a meaningful impact to our operations as the volumes destined for Port of Mobile would likely be routed to other facilities we own, including our St. James facility.
Moving to slide eight, we’ve had good progress towards our 2010 capital program. Since our last call, we completed our 2 barrel Cushing Phase VII expansion, the dock at our St.
James terminal, and we expect to place our Patoka Phase II expansion in service later this month. We remain generally on time and on budget with our capital program.
Inspected in-service timing of our larger project is shown on slide nine. I’ll note that we are seeing a lot of activity in areas that we have historical had pipeline capacity.
We have recently seen more drilling in our core areas and we expect to continue to see opportunities to build up additional infrastructure within our supply – infrastructure to service our supply and logistics customers. Lastly, with respect to our acquisition activity, we continue to be very active in this area, evaluating opportunities in each of our operating segments.
With that, I’ll turn it over to Al.
Al Swanson
Thanks, Harry. During my portion of the call, I will discuss our capitalization and liquidity and our guidance for the second quarter of 2010.
We remain committed to a financial growth strategy that maintains a strong capital structure and significant liquidity to assist us in execution of our growth initiatives. As summarized on slide 10, we exited the quarter with solid capitalization, approximately $1.1 billion of committed liquidity and credit metrics in line with our target.
We’ve further enhanced this solid liquidity position by completing the PNG IPO transaction Greg discussed earlier, which included not only the sale of equity in PNG, but also the establishment of a separate credit facility for PNG. As a result, pro forma for the PNG IPO, including the underwriters' over-allotment option, our consolidated liquidity at March 31st increased to approximately $1.7 billion.
This includes approximately $200 million of availability under the PNG revolver. At March 31, our adjusted long-term debt capitalization ratio was 48% and our total debt-to-capitalization ratio was 55%.
The total debt ratio is burdened by $1.1 billion of adjusted short-term debt that supports our hedged inventory. This debt is essentially self-liquidating from the proceeds when we sell the inventory.
For reference, our short-term hedged inventory at March 31 was comprised of approximately 17 million barrels equivalent with an aggregate value of $1.2 billion. This does not include approximately 13 million barrels equivalent of crude oil, LPG and natural gas that we classify as a long-term asset.
This is an often overlooked and positive credit attribute that is somewhat unique to PAA. This liquid but long-term asset has a net book value of $644 million, but its market value is substantially higher and not only serves as a barrier to entry for our competitors, but also provides a large safety net for our investors.
Our adjusted-EBITDA-to-interest-coverage multiple was 4.7 times and our adjusted long-term debt-to-adjusted-EBITDA ratio was 3.8 times. Consistent with past practice, the long-term debt utilized in these ratios has been adjusted to exclude $209 million of our three-year senior notes utilized to fund short-term hedged inventory.
The same $209 million has been included in our adjusted short-term debt. Pro forma for the PNG IPO at March 31, our adjusted long-term debt-to-total capitalization and our total debt-to-capitalization ratios strengthened even more to 46% and 52% respectively.
The Partnership’s long-term debt at the end of the quarter remained at approximately $4.1 billion. As reflected on slide 11, our long-term debt consists of senior unsecured notes and has an average tenure of approximately 11 years.
We have no maturities until September 2012, and 93% of our long-term debt is fixed at an average rate of 6.3%. As Greg mentioned, PAA owns approximately 77% of PNG.
Accordingly, its results will continue to be consolidated in PAA’s financial results. PAA’s first quarter results reported yesterday incorporated estimated results for PNG.
As discussed in PNG’s S-1 under the caption Expansion Activity in First Quarter 2010 Performance Update. PNG’s first quarter results included some impact related to transitional issues and other IPO related activities.
The estimated adjusted EBITDA results for the routine storage activities for the first three months of 2010 are proportionately consistent with adjusted EBITDA levels experienced over the last four months of 2009. In the last several days, we placed an additional 10 Bcf of storage capacity at Pine Prairie in service, which increased the total storage capacity in service at Pine Prairie by approximately 70% and increased PNG’s total storage capacity by 25%.
Accordingly, the second quarter will reflect some transitional IPO-related and startup related items. As a result, the first reporting period for PNG without accounting and operational noise will be the third quarter.
We expect to file PNG’s inaugural 10-Q in the next 30 days. As Greg mentioned earlier, effective with second quarter results, we will coordinate the release of PAA and PNG’s results and devote a portion of PAA’s conference call to addressing PNG’s standalone performance, financial position and guidance.
The completion of the PNG IPO accelerated a portion of the contingent payment obligation to Vulcan Capital stemming from our 2009 acquisition of its interest in PNG. The amount triggered under the obligation totals $20 million and has been accrued for in our March 31st financial statement.
As this payment is made in the next few weeks, the remaining contingent payment obligation related to the 2009 acquisition will be $20 million. Let me now move on to guidance as summarized on slide 12.
Second quarter adjusted EBITDA is expected to range from $225 million to $250 million, with adjusted net income attributable to claims ranging from $91 million to $123 million or $0.36 to $0.59 per diluted unit. As I mentioned in our last call, our forecasted results for the second quarter are lower than the first quarter due to the seasonality of the LPG business, which typically drives stronger results for our Supply & Logistics segment in the first and fourth quarters and slightly lower results in the second and third quarters.
Additionally, for the first quarter of 2010, the contribution from our fee-based activities represented 72% of our adjusted EBITDA. Our forecast is that our fee-based contribution percentage will increase to 80% for the second quarter of 2010 and will average 77% for the year.
Before I turn the call over to Greg, it is with both regret and some pleasure that we announce that Tina Summers, PAA’s Vice President of Accounting and Chief Accounting Officer, has notified us of her decision to retire. Most of you probably know of her as Tina Val.
Tina recently remarried and intends to devote her full time and energy to her newly extended family. Tina has been with the Plains organization for 13 years and was promoted into her current position in 2003.
Tina will be missed, both professionally and personally. Tina’s retirement will become effective in August.
In consistent with our established succession plan, Chris Herbold, currently PAA’s Controller, will be promoted and will assume Tina’s position in August 2010. Chris is a CPA with solid background and over 15 years experience in accounting and financial reporting and has been with PAA since 2002.
Chris has rotated through a number of positions of increasing responsibility within PAA and was promoted to his current position in 2008. With that, I’ll turn the call back over to Greg.
Greg Armstrong
Thanks, Al. Before we open up the call for questions, let me quickly recap the major takeaways from today’s call.
First, PAA delivered another solid quarter of operating and financial performance and modestly increased our adjusted EBITDA guidance for the entire year of 2010. Additionally, as Harry mentioned, as the recent structural improvements with the crude oil market continue, they will have a positive influence of our outlook for the rest of the year.
Second, we have solid credit metrics and ample liquidity and are well positioned to continue to execute our business plan. Third, our consolidated capital program is progressing as planned, and we remain actively pursuing incremental acquisition opportunities.
Fourth, we believe the steps we have taken with respect to PNG’s IPO will further improve our acquisition outlook in the natural gas storage business. And finally, we believe PAA and PNG each provided attractive investment opportunity that provides a low-risk profile with an attractive current yield and positive outlook for future growth.
Prior to opening the call up to questions, I would also mention, on the morning of Thursday, June 10, PAA and PNG will plan to host a joint analyst meeting in New York City. If you wish to attend and have not yet responded, please advise our Investor Relations team at 713-646-4222.
The meeting will also be webcast live with participation instructions provided at a later date. Thank you for your participant in the call today.
We look forward to updating you on our activities in our second quarter call in early August. Natalie, at this time, please open the call for questions.
Operator
(Operator instructions) First comment or question comes from the line of Darren Horowitz. Please go ahead – with Raymond James.
Darren Horowitz – Raymond James
Greg Armstrong
Thank you, Darren.
Darren Horowitz – Raymond James
Couple quick questions for you. First, given the magnitude of the recent pull-back in crude coupled with what you guys outlined as it relates to the widening sequential contango, has there been any change to your thoughts on crude oil differentials, WTI, WTS in to the back half of this year?
I think your initial guidance was forecasting that spread around $1.75. And I’m just curious if you have any concerns volumetrically.
Harry Pefanis
No concerns volumetrically. I think the differentials have probably moved slightly in our favor relative to the first year, but not a significant move.
Volumetrically in the field there, we’re still seeing quite a bit of drilling activity and you’ve probably seen it or heard it on several of the other E&P company calls that there has certainly been an increased focus on drilling for oil and liquid versus natural gas has given the differentials between crude and natural gas.
Darren Horowitz – Raymond James
If you drill down, Greg, regionally, just focusing on the Gulf Coast, obviously Capline volumes were impacted by some refinery turnarounds. But is there anything within the Gulf Coast market that should stand out for concern?
Greg Armstrong
I think Harry referenced that what we can’t have visibility into is what’s happening in the Gulf of Mexico right now with respect to the oil spill. If it goes – if it drifts far enough east, it could affect imports into Mobile.
But as Harry mentioned, if that happens, we think the same volume will just come on around into the Texas coast and we will get it either at St. James or in the Texas area.
Darren Horowitz – Raymond James
Okay. And then final question from me, kind of bigger picture, Greg, when you look at pad-three crude volume, specifically imports, and you look longer term at what you could build from a vertically integrated standpoint at both St.
James and Patoka, can you give us a little bit more insight as to how both of those two locations grow?
Greg Armstrong
What I can tell you, there is a lot of activity going on behind the screens right now, clearly because of the multiple grades and varieties. As always, to the outside observer, it perform differently than you would think logic would dictate.
In some cases, we’re moving crude north on Capline. At the same time, a pipeline running not quite parallel but somewhat parallel the Capline is moving crude south.
And the reason for that lot of times is – are that the grades in the quality. I think there are some nuances going on in the market right now with respect to transportation differentials that will also add a little bit of chatter to that activity.
So ultimately that will probably translate into more need for tankage, both at St. James and Patoka.
And so from that standpoint, I think it’s ultimately a positive. It’s going to take, I think, several years for some of these issues to sort themselves out because of the fact pipeline capacity has got ahead of some of the import or the Canadian crude oil import capacity, which has obviously had an impact also on differentials, the cutback in refineries at the same time.
So there is just a lot of noise, if you will, going on in the background there. But ultimately, I think it basically is positive for a lot of parts of the infrastructure we are involved in particularly with respect to tanks at Patoka and St.
James.
Darren Horowitz – Raymond James
Thanks. I appreciate it, Greg.
Keep up the good work.
Greg Armstrong
Thank you, Darren.
Operator
Thank you. Our next comment comes from the line of John Tysseland with Citigroup.
John Tysseland – Citigroup
Hi, guys. Congratulations on your transactions.
Couple questions. Just on the – you had mentioned the risk of potentially Mobile getting shut down if things continue to move east, but is there any risk in your mind of the LOOP closing down at this point?
What have you heard on that? And just kind of any updates around that happening.
Harry Pefanis
We have not heard anything about Loop. We talked to several customers and they are still forecasting volumes that to move through (inaudible) LOOP to continue through the month.
Of course anything can happen, but that’s a sort of the status as of today and what sort of our customers’ expectations are.
Greg Armstrong
I might just comment, John, that if it does happen – and our number one goal, we want to make sure our customers have the crude they need to keep the refineries running. And if in fact something did happen, and let’s go back sometimes when the hurricanes come through and you see some of those areas likely impacted.
We’ve been able to shift volumes around on our system coming from West Texas and also, as Harry mentioned, we’ve got quite a bit of oil in our tanks and our pipelines. And so our goal will be to make sure we don’t let our customers run out of crude.
And in the process of doing that, I think the incremental margin we may make on that, which certainly we think at least offset the potential loss of revenue if in fact it did have something happen at the LOOP system.
John Tysseland – Citigroup
So is another way of looking at that is that if the LOOP got shut down you would see some regional price volatility or dislocations to where crude would flow there, vis-à-vis pipeline from either the Houston, Beaumont, or West Texas area and there's enough diversity of supply to get that there via pipeline?
Greg Armstrong
I think there is enough diversity of supply and inventory in the tanks that ultimately the commercial aspects of the market will settle itself out. They always balance the market.
They don’t price up a particular grade or location of crude in a way that it’s going to basically force it out of tankage or basically call some of the pipelines to redirect.
John Tysseland – Citigroup
Excellent. And then also last, on Patoka, I mean, any kind of update as to the Keystone expansion coming on line and seeing volumes coming in there, and what that has done to the pricing in Patoka or any kind of other volatility?
You spoke about it a little bit, but I know – with that on-line now, there might be some – I guess what are you looking for over the course of the next six months, 12 months as that ramps up in volume?
Greg Armstrong
We haven’t heard anything that would indicate that Keystone is any faster or slower than the timing that they have got out publicly. Our tankage is committed all at Patoka.
So I mean, at this point we’re looking more towards fully utilization of the tankage we’ve got, as Harry mentioned, and then potential expansion. I mentioned earlier, I think some of the cross current, is there’s several pipeline expansions that are either have come on or coming on in the very near term.
And obviously as an entire transportation universe, everything is working right now. So when you bring on more to pass, it’s going to cause ripples.
But ultimately I think that just turns into a little bit of regional volatility, which again should be favorable for those with tanks and the ability to build more tanks.
John Tysseland – Citigroup
I guess when you – when you mentioned earlier that you saw the pipelines getting ahead of more or less the terminals, do you still see increased terminal capacity coming into Patoka on an organic growth perspective?
Greg Armstrong
I think the answer to that is yes. And my comment, I may have misspoke earlier.
It really was that I think the pipelines have got ahead of the production capacity, and to some extent, we’ve seen refinery imports, which may have averaged in the high 14s, like around the low-14 million barrel day rate, sometimes in the 13.8. And so there is going to be excess pipeline capacity there for a while.
Some of these shippers have commitments on there to throughput. And so, yes, I think it will strain some of the terminals with that and companies such as PAA that are able to do both on expansion activities and attractive economics we think we should benefit in.
I would hope we would continue to see Patoka expand just as we’ve seen Cushing and we’ve seen St. James.
John Tysseland – Citigroup
And then last question, any view on another competitor coming into Cushing that we heard about on a call here recently in a new build project in Cushing?
Greg Armstrong
There is lot of interest, but no comment.
John Tysseland – Citigroup
Fair enough. Take care, guys.
Greg Armstrong
Thanks, John.
Operator
(Operator instructions) The next one comes from Jeremy Tonet with UBS. Please go ahead.
Jeremy Tonet – UBS
Good morning.
Greg Armstrong
Good morning, Jeremy.
Jeremy Tonet – UBS
Just a question, now that PNG is publicly traded, when you guys are thinking about acquisition opportunities, how do you think about allocating them between PAA and PNG? Would all nat gas opportunities go to PNG or is the decision more driven by a risk profile?
Any color on that?
Greg Armstrong
I’d say, if you look through short-term aberrations that I’ll sort of go back to, our goal is to have PNG be the natural gas storage platform for the entire PAA organization. So preferentially, we’re going to just basically look to do all the gas storage acquisitions in that entity.
I think there are a couple of things that I think you’re alluding to that would make sense. If we acquire a bigger entity that has a combination of petroleum products, whether it be crude or refined products and then also have gas storage in it, we may end up initially taking it all in to PAA and then dropping it down.
In addition, while PNG is growing very rapidly, it has a lot of visibility of organic growth. If we made an acquisition that was so sizable that it might overwhelm PNG’s capital structure and we didn’t want to dilute the near-term growth in the per-unit basis that we built in organically and let that have a chance to mature, I think there is certainly the opportunity for PAA to warehouse all or a portion of a much larger acquisition out there, but again with the intent to ultimately have it reside in PNG.
I can say on both behalf of PNG and PAA, our goal is not to try and arbitrage capital or acquisition opportunities between PAA and PNG. It’s really just to facilitate the growth.
And our interests, as I mentioned earlier, are so aligned because of our large equity ownership position and the fact that we participate, if we’re successful, disproportionately in the future growth really encourage us to make sure that PNG is successful on its own right and we are here just to facilitate that.
Jeremy Tonet – UBS
That’s great color. I was also wondering about if there's pure-play, long-haul, natural gas pipelines or natural gas gathering and processing, how you would think about those types of acquisitions as well.
Greg Armstrong
N
Jeremy Tonet – UBS
That's very helpful. Thank you.
Greg Armstrong
Thank you.
Operator
Thank you. Our next one comes from Brian Zarahn with Barclays Capital.
Please go ahead.
Brian Zarahn – Barclays Capital
Good morning.
Greg Armstrong
Good morning, Brian.
Brian Zarahn – Barclays Capital
Can you give us a little more color on Capline? It looks like volumes were a little bit lower than expected but you raised your full year guidance.
Harry Pefanis
Volumes were lower because there were refinery turnarounds on the system. Those are done for the year.
It’s really just a matter when we thought the turnarounds would occur during the year. And we’ve got an additional interest in Capline and we’ve got more volume committed to it with more volume on it because of the additional capacity.
Brian Zarahn – Barclays Capital
No impact from Keystone, no change in view of that, in terms of your volumes on Capline?
Harry Pefanis
Long-term, there could be a little bit of an impact from Keystone on to Capline, but we don’t see anything significant. And really – I don’t really think there is going to be a whole lot – it's not like they are shut in Canadian crude that’s not finding the market.
It’s just the route that’s getting the market. So the first thing that will happen is that Keystone will reshuffle the way crude is being moved into the US.
It will go on Keystone and off of some of the existing pipelines. And so I don’t see a tremendous impact on our Capline space because of –
Greg Armstrong
There is nothing – there is no new development that would change our view of what we have forecasted for the year because it was already incorporated into that outlook. The other element that is kind of favoring Capline over the long-term is clearly it’s been set up to bring in condensate.
It may not ship on our space. It will ship on other space.
But that again consumes part of the total pipeline capacity and then that goes up to Patoka and then into some of the new pipeline – Southern Lights, which is going to take condensate up here into Canada, which will facilitate more southern movements.
Brian Zarahn – Barclays Capital
If I can get maybe a little bit of an answer – excuse me, a reaction on Cushing. Another competitor is looking to enter with a 2 million barrel project.
Enbridge is looking at capacity, a very large MLP, looking to grow its crude oil business and has a position in Cushing already. Obviously inventories are rising, Canadian crude is supposed to come down.
A lot of puts and takes, but can you give us a broader review of how you think of the competitive landscape in Cushing for storage?
Greg Armstrong
Well, I mean, certainly we are far from dominant in Cushing. And the feedback from the government listings [ph], we have plenty of competition in Cushing and this just proves it.
I do think that we have probably one of the most favorable land positions and our location of our header system, nobody has to do a header systems and the ability to hit all the pipelines the way we do. And so when people say they are in Cushing, I mean, they could literally build 20 miles from the manifold and claim they are in Cushing.
And that’s not the same as being at Cushing central. That’s just one observation I would pass.
The second one is that because of what we just talk about, I don’t think anybody can build incremental tanks in Cushing at the low cost that we can and provide the higher service. So we – people may build, but that doesn’t necessarily mean that it’s going to be a preferred location.
Brian Zarahn – Barclays Capital
So you're not concerned by the increasing amounts of supply in Cushing in terms of how it may affect pricing for contracts?
Greg Armstrong
Long-term, Brian, I mean, there is no question. Every market always gets overbuilt.
And so at some point in time, there is an overbuilding and consolidation with a view toward that. I can’t recall if it was this last conference call that we had in February or the one in November, but we’ve termed up a lot of our contracts for an extended period of time at rates that we think are very attractive with customers that are going to use tankage regardless whether there is a contango market or not.
And so I think that’s distinctive for PAA. And some of these others that you mentioned I think are more project type financing deals and not really a business platform.
Ultimately, those types of things may make a return on and investment, but they don’t necessarily make a business. And so the question will be, do they become acquisition opportunities later on.
So there is a silver lining to a lot of different clouds.
Brian Zarahn – Barclays Capital
Okay. Thanks, Greg.
Greg Armstrong
Thank you.
Operator
Thank you. (Operator instructions) The next line comes from Ross Payne with Wells Fargo.
Please go ahead.
Ross Payne – Wells Fargo
How are you doing, guys?
Greg Armstrong
Hey, Ross.
Ross Payne – Wells Fargo
I guess, Greg, the question that I've got is if you go back about six or nine months ago, it felt like you guys were ready for a good bit of acquisitions. Obviously PNG was peeled off here recently.
It also feels like there's a lot of acquisition opportunity there. Would you say that the opportunities on the acquisition front are greater at PNG now than they are at PAA, or how would you characterize that?
Greg Armstrong
I would say they are both equally attractive. I think we are better equipped at the gas storage activity level because we now have PNG as a publicly traded entity.
So I think we’re going to have a chance to close some of the bid/ask spread there, not necessarily by overpaying, not at all, but by being able to basically strip out a portion of our business that has probably some of the best MLP characteristics of any type of industry out there. And I kind of went through those earlier, so I won’t repeat them.
And so that’s the reason why it has a low cost capital, it has good growth and it has extreme stability and high contracts and et cetera, et cetera. So I think our ability to compete for what we think are several billion dollars worth of natural gas storage opportunities has been enhanced.
I think you are correct. It was several months ago that we announced that we had doubled our acquisition staff.
And we did that with a view not for the next six months when we made that comment, but for the next 18 to 24 months we just think that there is a tremendous window of opportunity to take advantage of some attractive acquisition opportunities out there coming from everywhere from the majors to some extent with the momentum out of the space a little bit, with demand slowing down. We’re getting the chance, when the tide goes down, to see really who is well equipped, so to speak, in that environment.
So I think we’ve got a chance to consolidate and add too. So we’re very – we've put a lot of our focus in on expanding through acquisitions, and we think they are both good at both PNG and PAA.
Ross Payne – Wells Fargo
Great. And finally, can you kind of talk generally about the kind of assets you are seeing on the PAA side?
Greg Armstrong
I can. I mean, generally we talked about it a little bit last time.
I mean, clearly there are major divestiture programs coming from some of the majors. There is also some of the resource plays are causing independence to evaluate their capital needs and looking for ways to get some of the infrastructure either bought or built.
So it’s really in that arena as well as just I think some consolidation opportunities. While I’m on the subject, let me not forget.
I mean, one thing that we’ve always done is we’ve always kept a strong balance sheet. And I want to make sure that you realize this.
We’re not going to sacrifice that even though we’re talking aggressively about acquisition. And in fact, if you look at the other arrows we’ve simply added to the quiver lately, I think Al took you through the pro forma numbers with this recent capital raise and it’s really dropped us down to 46% debt-to-total cap, debt-to-EBITDA numbers that are very in line with and not conservative to the range that we would say are credit metrics.
So yes, I think you’re going to see from our best capital providers that we’re taking care of business on the capital structure, yet still positioning to take advantage of attractive opportunities.
Ross Payne – Wells Fargo
Great. Greg, that's very helpful.
Thank you.
Greg Armstrong
Thank you, Ross.
Operator
Thank you. (Operator instructions)
Greg Armstrong
Natalie, if there is no other question, we’ll go ahead and conclude the call. Again, I want to thank everybody for their support of PAA and PNG, and we pledge to continue to deliver good results, and we look forward to updating you on our second quarter call.
Operator
That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service.
You may now disconnect.