IPAA Mid-Year Meeting Colorado Springs, Colorado June 14, 2004.

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Presentation transcript:

IPAA Mid-Year Meeting Colorado Springs, Colorado June 14, 2004

Plains All American Profile (NYSE: PAA)  Annual Revenue (2003) $12.6 B  Total Assets (3/31/04) $2.2 B  Enterprise Value $3.0 B  Equity Market Cap. $2.1 B  2003 Fortune 500 Rank 155  # Unitholders (approx.) 30,000 Aggregate Size  Assets: Pipelines (miles) 14,000+ Pipelines (miles) 14,000+ Tankage (MMbbls.) 36.6 Tankage (MMbbls.) 36.6 Truck Fleet (units) +/- 500 Truck Fleet (units) +/- 500  Crude handled (MMbpd) 2.4  Approx. number of grades & varieties handled 50+  Geographic footprint: USA (states) +/- 40 USA (states) +/- 40 Canada (provinces) 5 Canada (provinces) 5  Employees+/- 2,000 Operational Metrics

PAA’s Role in the Crude Oil Distribution Chain ProducersRefiners Plains All American’s Operations Gathering, Marketing, Terminalling, Storage and Pipelines Truck Terminal / Storage / Exchange Location Barge Pipeline Pipeline GatheringInjection Station Pipeline

PAA’s Principal Business Strategy Provide efficient solutions to the numerous complexities inherent in the crude oil industry and the regional crude oil supply and demand imbalances that exist in the U.S. and Canada…….. Paraphrased Excerpt

Is the U.S. Running Out of Oil?

The United States: l l Comprises < 5% of World Population l l Generates ~ 10% of World Petroleum Production l l Consumes ~ 25% of World Petroleum Production l l Currently Imports ~62% of Its’ Daily Crude Oil Consumption News Flash

Is the U.S. Running Out of Oil? World Accordingly, in practical terms, the U. S. issue is already resolved. The remaining question is:

A Popular Topic, but No Clear Public Consensus “We’re draining our reserves dry.” “Enough oil to last for 500 years.” Houston Chronicle May 30, 2004 Llewellyn King Chairman & CEO King Publishing Co. Publisher for: White House Weekly & Energy Daily Houston Chronicle May 30, 2004 H. Sterling Burnett Senior Fellow National Center for Policy Analysis

GLA Working Hypothesis: Why Not? l l Free markets work. l l Changing unit economics impact both supply and demand. l l There are significant, recoverable crude oil resources remaining – at the right price. NO

Free Markets At Work: Impact of Rising Prices Conservation & Demand destruction Fuel switching Reserve & production expansion Increase in service costs Innovation & technology are rewarded ($$$) Impact of Low Prices Unrestrained use & Demand stimulation Fuel switching Reserve & production contraction Pressure on service costs Low cost operators are rewarded ($$$) & technology advances Sample Factors

Elasticity of Oil Supply and Demand United States Oil Consumption & Commodity Prices Demand Price Price- Texas Production Regulated Texas Production Regulated Arab Embargo & U.S. Price Regulated Arab Embargo & U.S. Price Regulated Full Deregulation Sources: EIA, BP, WTRG, Bloomberg, various. Price Demand Price ?

Audience Participation l l Conservation l l Demand Destruction l l Lottery Tickets

The Forecasts of Today Seldom Become the Reality of Tomorrow

Accuracy of the Market’s Vision on Prices Actual Price Forward Curve

Source: Bloomberg U.S. Crude Oil Inventory vs Oil Price (The Last 10+ years) Economic Jaws of Inventory & Price – Leading Indicator or Symptomatic Result?

OK Greg, if it is that simple, why is it so hard to drive a consensus on the subject? Economic theories (and realities) are simple, but the inner workings of the oil industry are very complex.

How Complicated is the U.S. Crude Oil Industry? You be the judge.

Oil Imports 9.6 Domestic Production 5.7 Oil Exports.001 Stocks & Net Loss/Gain (0.1) Refined Products ImportsExports Other Liquids 0.1 NGPL Direct Use & Blends 0.7 Residential 0.8 Commercial & Industrial 5.2 Transportation 13.3 Electric Power 0.5 Crude Oil Refinery Input 15.3 NGPL Refinery Input 0.4 Other Liquids 0.9 Total Refinery Input 16.6 Processing Gain 1.0 Output 17.6 Aggregate Output Mogas 44% Distillate 20% LPG10% Jet 8% Resid 4% Other 14% The U.S. Demand Side of The Equation Volumes Approximate 2003 Daily Average (MMBLS) (1) (1) Source: EIA; BP; GLA estimates

Additional Complicating Factors Affecting Supply, Demand & Product Slate l l Changes in natural gas frac spreads affect availability of blendstock and raw products l l Seasonality (changing feedstock demands) l l Weather l l Transportation & scheduling logistics l l Competing fuels (natural gas, coal, etc.) l l Restrictions on product specifications l l Product imports/exports l l Multiple varieties of crude l l Metals content l l Emmission issues l l Scheduled/Unscheduled downtime l l Etc., etc., etc.

Additional Complicating Factors Affecting Supply, Demand & Product Slate l l Changes in natural gas frac spreads affect availability of blendstock and raw products l l Seasonality (changing feedstock demands) l l Weather l l Transportation & scheduling logistics l l Competing fuels (natural gas, coal, etc.) l l Restrictions on product specifications l l Product imports/exports l l Multiple varieties of crude l l Metals content l l Emmission issues l l Scheduled/Unscheduled downtime l l Etc., etc., etc. Two areas of Focus.

Getting 9.6 mmb/d of Oil to The U.S. Source: BP

V IV II I III (2.8 mmb/d) (3.9 mmb/d) (1.5 mmb/d) (0.2 mmb/d) (0.8 mmb/d) Petroleum Administration Defense Districts All Regions are Supply Deficient, but the Landlocked PADD II Region is the Focus Area for Transportation mmb/d Total Refinery Inputs 15.3 Domestic Production 5.7 Reliance on Imports 9.6

U.S. Pipeline Infrastructure Designed to Displace Crude to Meet PADD II Demand Inter-PADD Movements Driven Primarily by Economics of: Transportation differentials Quality issues (inter- grade surplus/shortage & refinery constraints)

PADD II Demand to Be Satisfied by Imports from Canada, Cushing & Gulf Coast BP Pipeline PAA Basin Pipeline Link Pipeline Seaway Pipeline BP Pipeline Shell (W. Tulsa) Pipeline Cush-Po Pipeline Mid-Continent Pipeline Osage Pipeline Ozark Pipeline Phillips Borger Pipeline PAA Red River Pipeline Mid-Continent (Sun) Pipeline STG Pipeline Capline Pipeline System Supply Shortfall 2.8 MMbbls Refinery Inputs: 3.3 MMbbls Production:.46 MMbbls Source: Energy Information Administration PADD II Supply Shortfall (Millions of Barrels per Day) Gulf of Mexico Foreign Imports

Multiple Crude Grades Add to Complexity Domestic Sweet Sour SpraberryW. Tx. Sour ScurryPoseidon W. Tx. Int.Mars Blend Okla. SweetOkla. Sour Kansas SweetWest Coast OCS N. TX Sweet Sunniland East TX SweetW. Central TX Light LA SweetQuitman Sour Heavy LA SweetSan Joaquin Light San Joaquin Heavy Eugene Island Bonita Foreign Sweet Sour Bonny LightMesa 30 BrentOriente Brass RiverMaya OseburgArab Medium GullfaksFuriel Cano LimonLeona 24 CuisanaArab Heavy FortiesMesa 28 Lago Cinco Olmeca Basrah BCF 17

Not All Crude Oil Is Equal Note: Values shown are approximate based on estimated yields and Platts’ indicated values on June 8, % 10% 30% 38% 32% $ $39.59 Gross Product Value in $/bbl

Variations in Selected Domestic Differentials to WTI

Variations in Selected Canadian Differentials to WTI

Example of an Impending Complication: Storm Clouds Forming or Light Shower? Situation: A.U.S. market is currently balanced with foreign waterborne imports. B.Canada is projected to ramp up oil sands production ~500,000 b/d+ C.U.S. GOM is projected to ramp up deepwater production ~500,000 b/d+ D.U.S. demand is not projected to simultaneously grow by 1 million b/d. E.Mideast Politcs are highly unstable.

Possible Outcomes: 1. The U.S. begins exporting over 500,000 b/d. 2. U.S. producers shut-in over 500,000 b/d or reduce drilling activities (at ~ $40.00/bo) to make room for incremental volumes. 3. Foreign sources of waterborne imports happily withdraw 500,000 b/d from the market (thus losing market share in the world’s most critical market?). 4. Inventories begin to build; price pressure hits the U.S. market and competition among grades and qualities intensifies. 5. Something unexpected happens to balance the market (strike, Mideast disturbance, explosion in demand, etc.) 6. Some combination of all of the foregoing Example of an Impending Complication: Storm Clouds Forming or Light Shower? Continued.

Oil Industry Prediction (Challenge): “We are going to be living in interesting times.” Chinese Proverb (Curse): “May you live in interesting times.”

GLA View is that both statements are correct, “We’re draining our reserves dry.” Houston Chronicle May 30, 2004 Llewellyn King Chairman & CEO King Publishing Co. Publisher for: White House Weekly & Energy Daily “Enough oil to last for 500 years.” Houston Chronicle May 30, 2004 H. Sterling Burnett Senior Fellow National Center for Policy Analysis Cheap GLA Edit ^, if the price is high enough. GLA Edit ^ with slight editing….

Not any time soon… …,but it could get REAL expensive. Is the U.S. Running Out of Oil? World

NYSE: PAA Except for the historical information contained herein, the matters discussed in this presentation are forward-looking statements that include risks and uncertainties. These risks and uncertainties include, among other things, market conditions, governmental regulations and other factors discussed in Plains All American Pipeline, L.P.’s filings with the Securities and Exchange Commission.