Plains All American Pipeline, L.P. (PAA) Q3 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the PAA and PNG Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Mr. Roy Lamoreaux, Director of Investor Relations. Please go ahead.

Thank you, Lola. We welcome you to Plains All American Pipeline and PAA Natural Gas Storage's Third Quarter Results Conference Call. The slide presentation for today's call is available under the Conference Call tab on the Investor Relations section of our websites at www.paalp.com and www.pnglp.com. I would mention that throughout the call, we will refer to the companies by their respective New York Stock Exchange ticker symbols of PAA and PNG respectively. As a reminder, Plains All American owns the 2% general partner interest and approximately 62% of the limited partner interest in PNG, which accordingly is consolidated into PAA's results. In addition to reviewing recent results, we'll provide forward-looking comments on the partnership's outlook for the future. In order to avail ourselves of the Safe Harbor precepts that encourage companies to provide this type of information, we direct you to the risks and warnings set forth in partnership's most recent and future filings with the Securities and Exchange Commission. Today's presentation will also include references to certain non-GAAP financial measures such as EBIT and EBITDA. The Non-GAAP Reconciliation section of our websites reconciles certain non-GAAP financial measures to the most directly comparable GAAP financial measures and provides a table of selected items that impact comparability of the partnership's reported financial information. References to adjusted financial metrics exclude the effect of these selected items. Also for PAA, all references to net income are references to net income attributable to Plains. Today's call will be chaired by Greg L. Armstrong, Chairman and CEO of PAA and PNG. Also participating on the call are Dean Liollio, President of PNG; and Al Swanson, Executive Vice President and CFO of PAA and PNG. In addition to these gentlemen and myself, we have several other members of our management present and available for the question-and-answer session. With that, I'll turn it over to Greg.

Thanks, Roy. Good morning, and welcome to everyone. We have quite a bit to cover today. And during the call, we will discuss PAA's third quarter operating and financial results, our 2011 expansion capital program and acquisition activities, our financial position and our updated guidance for the fourth quarter. We'll also discuss our preliminary financial guidance and distribution growth targets for 2012. We'll be providing similar information for PNG during the call as well. Yesterday, after market close, Plains All American announced third quarter adjusted EBITDA of $414 million. These results exceeded the midpoint of our guidance range by $89 million or 27% and were $74 million above the high end of our guidance range. Such performance is slightly ahead of the performance levels we communicated in our September 22 press release. In comparison to last year's third quarter, as detailed on Slide 3, adjusted EBITDA, adjusted net income and adjusted net income per diluted unit for the third quarter of 2011 increased 57%, 96% and 103% respectively. PAA's results were driven by solid performance in all 3 segments, with the Supply and Logistics segment being the largest contributor to over-performance. As shown on Slide 4, our third quarter results marked the 39th consecutive quarter that PAA has delivered results in line with or above guidance. Additionally, last month PAA declared a 4.7% year-over-year increase in our run rate distribution to $3.98 per unit on an annualized basis. As shown on Slide 5, PAA has increased this distribution in each of the last 9 quarters and in 28 out of the last 30 quarters. As demonstrated by our strong third quarter and 9-month results, PAA has executed very well in the current energy environment, which is favorable for our assets and business model, and we're on track to meet or exceed our 2011 goals. Yesterday evening, we furnished updated financial and operating guidance for 2011, increasing the midpoint of our full year 2011 guidance by $154 million. Al will review our 2011 guidance in his section of the call. And in my closing remarks, I will review our 2012 preliminary guidance, provide an update on acquisition activity, as well as provide comments on our distribution outlook for PAA. During today's call, I will be filling in for Harry Pefanis, our President and COO, to review third quarter operating results compared to the midpoint of guidance issued on August 3. I'll discuss the operational assumptions used to generate our guidance for the fourth quarter and discuss our capital program. Harry is unable to be with us today, as he's representing PAA as well as the pipeline industry in an industry event. Following my comments, Dean will cover the PNG-specific information. So moving on. As shown on Slide 6, adjusted segment profit for the Transportation segment was $155 million, which exceeded the midpoint of guidance for this segment by approximately $11 million. Volumes for this segment of a little more than 3 million barrels a day were in line with our guidance, and unit profit was $0.55 a barrel or about $0.03 per barrel above our guidance forecast. About half of the over-performance relative to midpoint is related to an earlier restart of our Rainbow Pipeline system than was previously forecasted, while lower expenses made up the majority of the balance. I would also note that Capline volumes were about 50,000 barrels per day below our third quarter forecast. This reduction is primarily due to a fire at a refinery in Memphis, but repairs have since been made and shipments have since returned to levels comparable to our forecast. Moving on to the Facilities segment. Adjusted segment profit for the Facilities segment was $96 million or approximately $4 million above the midpoint of our guidance. Volumes of 84 million barrels and unit profit margin of $0.38 per barrel were both in line with to slightly above the midpoint guidance. Adjusted segment profit for the Supply and Logistics segment was $161 million or approximately $73 million above the midpoint of our guidance. In total, our volumes were 852,000 barrels per day compared to our guidance of 830,000 barrels per day, and segment profit margin was $2.05 per barrel, nearly $0.90 per barrel above the midpoint of guidance. The volume variance is due to higher than forecasted lease gathering volumes. Our financial over-performance for the quarter was due to a variety of factors, including improved lease gathering margins, favorable basis differentials and other market-related opportunities. To summarize, through the 9 months of the year, all 3 business segments have performed very well, capitalizing on the strength of our asset base and business model during a period of strong fundamentals and favorable market conditions. Let me now move on to Slide 7 and review the operational assumptions used to generate our fourth quarter midpoint guidance, which was furnished on our Form 8-K last night. For the Transportation segment, we expect volumes to average just over 3 million barrels per day, which is in line with to slightly higher than volumes in the third quarter, while segment profit per barrel of $0.56 is generally in line with third quarter levels. Facilities segment guidance assumes an average capacity of 86 million barrels per day -- barrels of oil equivalent, with segment profit per barrel of $0.38 per barrel. The segment profit is in line with third quarter results and the quarter-to-quarter capacity increase is primarily due to placing 3 million barrels of tankage in service at our Cushing terminal during the quarter. Supply and Logistics segment guidance volumes are projected to average 880,000 barrels per day for the quarter, reflecting our estimate of incremental volumes related to the winter heating season at our LPG business, as well as containing strength in our lease gathering business. Projected midpoint segment profit of $1.91 per barrel is lower than third quarter metrics, reflecting both the product mix and the impact of market opportunities in the third quarter that are not forecasted for the fourth quarter. Let's move on to Slide 8, which summarizes our current estimate of capital expenditures for 2011. Although the overall profile of our 2011 projects has not changed significantly, you will note the overall amount we expect to occur in 2011 has decreased about $65 million. A portion of this decrease is associated with projects coming in lower than we've originally forecast, but the majority of the decrease is due to a shift in expenditures from 2011 into early 2012. The shift is primarily associated with delays related to obtaining right of way; some delays in equipment deliveries; and in a few cases, waiting on commercial commitments. These delays do not impact 2011 results, and because of the diverse nature of our project portfolio, are expected to have minimal impact on 2012 results. Since our last call, we've completed our last 3 expansions at our Cushing crude oil storage facility, adding approximately 4 million barrels of storage capacity in 2011. We also completed our Ridgelawn (Sidney) LPG storage facility. And as announced in late September, we are proceeding with the addition of an approximate 1.2-million-barrel Phase 4 expansion at our St. James facility, which includes adding the ability to load barges. Additionally, we are on track to complete our Bakken North Pipeline project in the fourth quarter of 2012, which will move production to our Wascana pipeline in Canada and away from the Cushing markets. Maintenance capital expenditures were $25 million for the third quarter, which is in line with our expectation, and that's about $100 million to $110 million for the full year. Before I turn the call over to Dean to review our gas storage activities which are conducted through PNG, let me just say that unlike the crude oil sector of the industry, market conditions in the natural gas storage sector have been challenging, if not extremely challenging. From our perspective, we believe PNG has performed very well both in relative and absolute terms. We also believe that the opportunity often exists to make attractive acquisitions during challenging environments, and we look forward to continue building out PAA's natural gas storage platform through our holdings in PNG. I will now turn the call over to Dean.

Thanks, Greg. In my part of the call, I will review PNG's third quarter operating and financial results and provide an update on PNG's operations, fourth quarter guidance and preliminary 2012 guidance. I will also provide a few comments on our recent distribution increase. As shown on Slide 9, PNG announced solid third quarter 2011 result, including adjusted EBITDA of $26.9 million, adjusted net income of $16 million and adjusted net income per diluted unit of $0.22. These results were in line with to slightly above the midpoint of our guidance range due to lower cost and higher hub services activities. Operationally, we are on pace with our organic growth capital program. We are currently leaching on Cavern Well #5 at Pine Prairie and expect to be able to bring this cavern well into storage service during the second quarter of 2012. The addition of this cavern well and the opportunistic fill/dewater activities should bring Pine Prairie's total working capacity to approximately 42 Bcf by year-end 2012, an increase of 9 Bcf over our projected year-end 2011 capacity. At Bluewater, we have taken delivery of the final components required to replace the gas handling portion of the facility that was damaged in the first quarter of 2011, and we expect to be fully functioning for the winter withdrawal season by mid-November. At Southern Pines, we continue leaching operations on Cavern Well #4, and we expect to bring this cavern into storage service in the second half of 2012. We are also conducting solution mining under gas within existing caverns as market conditions permit. We currently expect that our expansion capital expenditures in 2011 will be around $93 million, which is about 7% lower than our prior estimate. About half of this reduction is attributable to certain costs that we expect to come in below budget, and the balance reflects activity that will carry over into the first part of 2012. In our last few calls, we provided a fairly comprehensive discussion of the challenging market conditions facing the natural gas storage market. As shown on Slide 10, there's been little change in near-term market conditions, so I won't belabor this call with a repeat of my prior comments. I do want to note that the recent ramp-up in storage injections late in the season is an indication of the significant increase in domestic gas production and that, without the severe warm weather we experienced this past summer, total storage capacity would likely have been tested in 2011. Clearly, that type of development in 2012 would be a positive factor for storage in general and hub service activities in particular. As represented on Slide 11, PNG has an attractive contract position with approximately 95% of our storage capacity leased to third parties for the 2011-2012 storage season, and approximately 80% of our current capacity leased for the 2012-2013 storage season. These contracts provide solid support for our cash flow over the next few years with the balance of available capacity being managed by our commercial optimization team. Let me now address our guidance for the fourth quarter of 2011 and our preliminary guidance for 2012. As shown on Slide 12, we are forecasting adjusted EBITDA for the fourth quarter of 2011 to range between approximately $28 million and $32 million, with a midpoint of $30 million. Combined with our performance through the first 9 months of the year, this forecast yields a total implied adjusted EBITDA midpoint of approximately $104 million for the full year, which is consistent with our prior full year guidance issued in August. We are still finalizing our 2012 operating and capital plan, but our preliminary guidance for 2012 projects adjusted EBITDA ranging from $115 million to $125 million, as shown on Slide 13. The $120-million midpoint of this range represents a 15% increase over our 2011 midpoint guidance of $104 million. With respect to our expansion capital activities, we currently expect to invest approximately $50 million to $60 million in 2012, principally related to the buildup of our facilities at Pine Prairie and Southern Pines. Financially, PNG remains very well positioned. Included on Slide 14 is a condensed capitalization table for PNG at September 30, 2011. PNG ended the third quarter with a debt-to-capitalization ratio of 25% and long-term debt-to-adjusted EBITDA ratio of 3.9x. Subject to covenant compliance, PNG's committed liquidity was approximately $194 million at September 30. As a result, PNG is positioned to finance the remaining portion of our 2011 projected organic growth capital expenditures, as well as our 2012 capital program from existing financial resources, while still maintaining a strong capital structure and solid credit metrics. On October 11, we announced an increase in PNG's quarterly distribution to $35.75 per unit or $1.43 per common and subordinated unit on an annualized basis. This distribution is payable on November 14 and represents a 5.9% year-over-year increase in distribution and is consistent with our revised target for 2011. Given the current market challenges facing the natural gas storage sector, we are not in a position to provide a target distribution growth range as we have in the past. However, there are some key points I would like to make regarding distributions for 2012: First, at the midpoint of the preliminary guidance range for 2012, PNG's distribution coverage of the current $1.43 distribution level is approximately 106%. Distribution coverage in any given quarter will vary above or below that level due to seasonality and the addition of incremental storage capacity. At the high end of the guidance range, the distribution coverage is 111%. And at the low end, the calculated coverage is right at 1:1. Accordingly, we believe PNG's current distribution is well supported by our preliminary EBITDA guidance, which takes into account the current challenging environment and has upside if we continue to perform at or above the midpoint of our guidance range. I would also note that with the meaningful distribution increase implemented for this last quarter, even holding the current distribution constant during the 2012 will represent an approximate 2.5% increase over the average distributions paid during 2011. On behalf of PNG and our management team, I thank you for your investment and support and want you to know we believe PNG's strategically located and operationally flexible assets, attractive multiyear contract portfolio, solid capital structure and low-cost expansion projects position PNG to grow and prosper from continued organic growth activity as well as acquisition. With that, I'll turn it over to Al.

Thanks, Dean. During my portion of the call, I will discuss our capitalization, liquidity and recent financing activity, as well as review PAA's guidance for the fourth quarter of 2011. I will also provide you with a brief update on the financial impacts of the Rainbow Incident. As summarized on Slide 15, PAA ended the third quarter with solid capitalization, $2.5 billion of committed liquidity and credit metrics that are favorable to our targets. At September 30, PAA's long-term debt-to-capitalization ratio was 45%, and our total debt-to-capitalization ratio was 48%. Our long-term debt balance was approximately $4.5 billion. Our long-term debt-to-adjusted EBITDA ratio was 2.9x, and our adjusted EBITDA to interest coverage ratio was 6.7x. As of September 30, $500 million of 3-year senior notes are now within the 1-year maturity -- within 1 year of maturity and are reflected as short-term debt on our balance sheet. We issued these notes in 2009 to supplement our hedged inventory credit facility during a period where there was significant uncertainty about the depth of the bank market. In anticipation of this maturity, we increased the size of our hedged inventory facility when we renewed and extended that facility in August 2011. I would also note that our total debt ratio includes $619 million of short-term debt that primarily supports our hedged inventory. This debt is essentially self-liquidating from the cash proceeds when we sell the inventory. For reference, our short-term hedged inventory at September 30, 2011, consisted of approximately 15 million barrels equivalent with an aggregate value of approximately $1.1 billion. These amounts do not include approximately 13 million barrels equivalent of linefill and base gas in PAA's and third-party pipelines and terminals that are classified as a long-term asset on our balance sheet, with a book value of approximately $670 million and a market value of over $900 million. In August, we renewed, extended or refinanced a total of $2.9 billion worth of credit -- bank credit facilities. At PAA, we renewed and extended our $1.6-billion senior unsecured revolving credit facility that now matures in August 2016. We also entered into a new 2-year hedged inventory facility, increasing the facility size from $500 million to $850 million and replacing a facility that matured annually. At PNG, we entered into a new 5-year, $450 million credit facility that matures in August 2016. This facility includes a $200-million term loan with tax-exempt features, as well as a $250-million revolver. We also made various modifications to financial covenants under the facilities that provide PAA and PNG with increased flexibility. I would like to thank all of our banks for their participation in these credit facilities and for their continued support. As Greg will discuss in his closing remarks, we remain active both with respect to acquisitions and also our organic growth activities. We remain committed to prudently financing our growth with a balance of retained cash, equity, and long-term debt. We will also look at various opportunities to pre-fund our growth to capitalize on favorable market conditions and avoid getting behind the curve with respect to maintaining a solid capital structure and attractive credit metrics. In that regard, let me also address steps we have taken to lock in attractive interest rates on both future refinancing of debt maturities and incremental debt that we expect to issue in connection with our ongoing capital program. To hedge these expected long-term debt issuances, we began entering into long-dated forward-starting swaps in June 2011, as interest rates began falling to all-time lows. We currently have an aggregate $750 million hedged for issuances anticipated during the 2012 to 2015 time period. This represents approximately 30% of our expected long-term debt issuances over that time period, assuming no acquisition. While these actions ensure we'll be receiving attractive index rates when we issue the debt, since we began this program the benchmark interest rate indexes have continued to fall. If interest rates remain at current low levels, we will have missed the opportunity for approximately 30% for issuing at very low rates but will get the benefit on the remaining 70% of the new-issue amounts. If interest rates rise back to historical long-term levels, we will have locked in some of the benefit from interest rates being at or near historic lows. This is an ongoing hedging program, and we continue to monitor both the interest rate market and our anticipated requirements. These transactions are treated as hedges, and any fluctuations in interest rates versus our hedged position are reflected in our Other Comprehensive Income or OCI and accumulated OCI. For more information, please refer to Footnote 12 in either our June 30 10-Q that has been filed or our September 30 10-Q that will be filed in a few days. I will now provide an overview of our guidance for the fourth quarter and full year 2011, the high points of which are summarized on Slide 16. For more detailed information, please refer to the 8-K that we furnished last night. We are forecasting adjusted EBITDA for the fourth quarter of 2011 to range from $395 million to $425 million, with adjusted net income ranging from $246 million to $286 million or $1.23 to $1.49 per diluted unit. The midpoint of our full year 2011 adjusted EBITDA guidance has been increased to $1.538 billion, which is more than $300 million above the midpoint of our initial annual guidance we provided in February 2011. These results exclude the benefit of any meaningful, un-forecasted acquisitions and are the result of solid execution during a period of strong industry fundamentals. We also provided preliminary guidance for 2012, which Greg will cover during his closing remarks. Before turning the call back to Greg, I wanted to provide a quick update on the financial impact of the Rainbow Pipeline incident. The gross cost estimate for the response, cleanup and remediation related to the incident has not changed materially from what we disclosed last quarter. The estimate remains approximately $70 million. We estimate the cumulative economic impact on our 2011 result at approximately $34 million, which consists of the net $13 million of estimated expenses recognized in the second quarter that will not be reimbursed by insurance and approximately $21 million in lost net revenues experienced equally between the second and third quarters. This is about $4 million to $5 million less than what we had forecast since, as Greg mentioned in his comments, we were successful in bringing that portion of the Rainbow Pipeline back online about 30 days earlier than forecast. With that, I'll turn the call over to Greg.

Thanks, Al. We are very pleased with PAA's third quarter results, as well as the organization's overall execution thus far in 2011. We look forward to closing the year out in strong fashion. And as summarized on Slide 17, we are well positioned to meet or exceed each of the 4 goals we established at the beginning of 2011. The midpoint of our full year 2011 updated guidance for adjusted EBITDA is a little over $1.5 billion, which represents a 26% increase over the annual guidance we provided in February and is nearly 40% higher than 2010's reported results. We have increased our quarterly cash -- quarterly distribution in each of the 4 quarters during 2011. With the payment of the quarterly distribution on November 14, we will have met our distribution growth target for the year, exiting the year at an annualized distribution of $3.98 per unit and thus, delivering a 4.7% increase over the $3.80 distribution paid in November 2010. As represented on Slide 18, achievement of the midpoint of our guidance range will result in a distribution coverage of approximately 138% and enable us to retain over $300 million of cash in excess of distributions. We are on track to invest approximately $1.3 billion of growth-related capital in 2011. Such amount includes the $560 million of expansion capital expenditures projected for the year and $765 million of acquisitions completed through the end of the third quarter. PAA has prudently funded these capital expenditures and has in excellent health -- financial health, because we have approximately $2.5 billion of liquidity, a strong capital structure and our credit metrics are all favorably positioned relative to our targeted credit profile. Looking forward, we are also excited about our prospects for 2012 and beyond. Yesterday, we furnished 2012 preliminary guidance on Form 8-K, which information is summarized on Slide 19. Such guidance projects PAA's adjusted EBITDA of a range between $1.4 billion and $1.5 billion or a midpoint of $1.45 billion. This guidance excludes the impact of potential acquisitions, which I will discuss at the end of the call. On Slide 20, we have illustrated the relative adjusted segment profit guidance for each of our 3 segments for the last 3 years and for the projected midpoint segment guidance for 2011 and 2012. In the aggregate, adjusted EBITDA for 2012 from our fee-based Transportation and Facilities segments is forecasted to increase 8% to 9% over 2011 guidance, primarily reflecting the fee-based contributions from capital expenditures made during 2011 and 2010. Forecasting results from our Supply and Logistics segment requires judgment about market conditions in 2012 relative to 2011. In preparing our preliminary forecast, we have incorporated the uplift in our baseline activities in this segment associated with increased volumes and what we believe represent reasonably sustainable margins. We have assumed that market conditions in 2012 and our related margins will -- excuse me. We have assumed that market conditions in 2012 and our related margins will continue to be favorable, but not as favorable as conditions experienced throughout 2011. As a result, the midpoint of our guidance range assumes adjustment segment profit from our Supply and Logistics segment will decrease by about $150 million to $175 million in 2012 relative to 2011. The baseline growth in Supply and Logistics segment, as well as the significant over-performance related to 2011's very favorable market conditions, is illustrated by the highlighted box on the right side of Slide 20. The growth of our baseline results in Supply and Logistics over the last few years is supported by both increased volumes and margins. Based on our 2011 guidance, we expect lease gathering volumes of 733,000 barrels per day, which is 113,000 barrels per day or 18% above 2010 actual volume levels. Thus, you can see there the comment about improvement in baseline results. This growth is due to a number of factors, including strong industry fundamentals and drilling activity in the resource plays we service, as well as our December 2010 acquisition of Nexen's crude oil business in the Bakken. We expect to see continued growth in our U.S. lease gathering volumes in 2012. Our comparable Canadian volumes may trend lower as we high grade the profitability of our lease portfolio and redeploy our assets in Canada. Any decrease in Canadian volumes will likely have minimal impact on our segment profit, as these are generally low-profitability barrels. Accordingly, the overall forecasted decreasing results from the Supply and Logistics segment is unrelated to our baseline business activities, but simply reflects our assumption that certain market-related opportunities available to us in 2011 will not recur in 2012. If market conditions in 2012 are as favorable as we experienced in 2011, there's a clear upward bias to our operating and financial guidance. This solid outlook for growth in our baseline cash flows provide strong visibility and support for attractive distribution growth. We have not yet completed our 2012 budgeting forecasting process, and we will provide definitive guidance when we report fourth quarter 2011 earnings in February 2012. However, based on our preliminary forecast, we currently anticipate targeting 2012 distribution growth of 6% to 7%. The midpoint of our preliminary guidance range for 2012 clearly supports this level of distribution growth, while also maintaining solid distribution coverage levels. Based on our current capital structure, achieving the midpoint of our adjusted EBITDA and distribution growth targets for 2012 will provide more than 110% distribution coverage even after raising the distribution 6% to 7%. We have covered a lot of important material today and the length of the call reflects that. However, if you'll bear with me a few more minutes, I would like to shift the discussion to our acquisition activities. We have been and continue to be very active in identifying, analyzing and pursuing and negotiating acquisitions. Subsequent to the end of the quarter, we have closed one acquisition, signed a definitive agreement on a second acquisition and executed a letter of intent on a third acquisition opportunity. These 3 transactions represent potential aggregate purchase price consideration of approximately $525 million to $625 million. For competitive reasons and due to confidentiality restrictions, I'm limited to what I can provide with respect to the specifics at this particular point in time. I can say that all 3 of these opportunities are complementary to our existing asset base and consistent with our proven business model. Additionally, these targets have a high proportion of cash flow derived from fee-based activities and hold the potential of enhanced cash flow levels through the application of activities we routinely conduct in our Supply and Logistics segment. I would also characterize these 3 opportunities as bolt-on-type transactions, and thus we expect a smooth integration without significant interruption to our existing business activities. We are also pursuing other attractive acquisition opportunities, some of which are more public than others, and expect to remain active in that regard. As Al mentioned in his remarks, the board and the entire management team are committed to maintaining a credit profile that is consistent with a mid to high BBB credit rating. Accordingly, we will continue to prudently and timely finance our growth through a combination of equity, retained cash and long-term debt. Let me add one more comment regarding 2012 distribution growth and the acquisition activities I just discussed. The 2012 target distribution growth of 6% to 7% over 2011 is not dependent on the success of our acquisition activities. As we have discussed in the past, each acquisition has a unique profile and the potential impact on our established growth target will be a function of the actual mix of all completed acquisitions, the timing of closing such acquisitions, the realization of synergies from each acquisition, and the method and timing of financing. At a minimum, we would expect successfully completed acquisitions to enhance and expand our distribution outlook, but cannot make any comments at this time about the specific impact of potential acquisitions on 2012 distributions. That concludes our prepared remarks, but before we open the call up for question, let me acknowledge that on Monday, October 24, we issued a press release disclosing PAA's proposal to purchase all of the outstanding shares of SemGroup Corporation. Given the regulatory complexities associated with this type of situation and the fact that the content of the press release stands on its own, I've asked -- been asked by our lawyers to tell you that we will not be taking questions on that potential transaction during today's question-and-answer session. Your cooperation and restraint in that regard will be much appreciated. Thank you for participating in today's call and for your investment in PAA and PNG. We look forward to updating you on our activities during our fourth quarter results call in February. And operator, at this time, we're ready for questions.

[Operator Instructions] And first, we'll go to the line of Brian Zarahn with Barclays Capital.

On the 3 pending acquisitions you referenced, can you talk a little bit about the geographic footprint?

Brian, unfortunately, I can't. It's -- as I mentioned, we've got both some competitive issues, as well as some confidentiality issues.

Okay. Fair enough. On the -- can you give us a quick update on your Eagle Ford pipeline and basin pipeline projects?

They're both proceeding pretty much according to schedule. We've had a little bit of equipment delays on the Eagle Ford and right of ways, and so that's caused a little bit of that to shift into the first quarter. But overall, we are on track, we think, to still bring it up pretty much at the point in time when we targeted to bring it online. We'll just have to work a little bit harder toward the end, but everything is proceeding right on schedule.

And given the strong gathering backdrop, any plans to increase your truck fleet?

We've already taken quite a few steps to do that. I believe, overall, we're going to be up about 180 trucks. I think we ordered [indiscernible]. We ordered, I believe, 70 that were supposed to be delivered in this year early, and then we've got 70 that were coming a little bit later this year. And then we've also taken some steps to not retire 40 trucks that were scheduled to be rotated out, and we're basically just doing major overhauls on those. So the answer to your question is yes, and it's about 180 trucks. Am I right about that, Mark?

And then on PNG, Dean, can you sort of remind us what you're expected average capacity will be in 2012, given the Pine Prairie and Southern Pines expansions?

Brian, it should be right around 80 -- high 80s. Year end, we're looking at exiting around 88 Bcf.

Okay. And, Greg, you mentioned in your remarks about the potential acquisition opportunities. Given the depressed gas storage market, are you seeing valuations becoming more attractive for some assets?

My comments earlier about each acquisition is pretty unique. I think, in general, some of the enthusiasm for gas storage assets in general has subsided a little bit. Those that are more highly contracted have a more active following than those that do not. But I think it's going to take a while. I think we may still be 12 to 18 months for this to kind of settle in. I think we first raised kind of the red flag that the market was getting soft, I believe, in August 2010, and I think we were standing by ourselves at that point in time. Today, I think there's a lot of red flags standing everywhere. And it takes a while for that to kind of settle in, but I do believe PAA and PNG working together are probably as good, if not better, positioned than anybody to try and build out that platform by consolidating that part of the industry.

Next, we'll go to the line of Michael Cerasoli with Goldman Sachs.

I just have a few questions also on your acquisition strategy, just very general. I'm curious to know how comfortable you are owning assets outside of liquids infrastructure and nat gas storage. And is there an asset class in particular that you don't own that you think would be a good fit for you guys?

Michael, it's a great question. We -- clearly, we started with both feet firmly planted in the crude oil terminaling business. We then moved into the crude oil pipeline business and extended into gathering, and then we moved in to LPG and refined products, and we've got platforms now there, as well as with natural gas. If you recall, about 2 years ago, I think it is now maybe 2.5, we bought CDM Max, which was a gas processing, and we acquired what we think are some of the best talent in the industry. And we've since started to build that out. We've built several plants there. We'd continue to expect to grow our processing capabilities. There's -- it's hard to draw some really crisp lines between some of the businesses as they start to carry over. LPG and NGLs are somewhat interchangeable, but they come from different sources. So we've got our facility out in California. We've got a facility up in Canada, then we've got 2 or 3 facilities in U.S. So I think you would see us continuing to look to build out on those platforms as well. At the end of the day, it's an integrated energy business and I think what you're seeing PAA do is extend that -- its energy platforms to integrate all those together.

That's helpful. And then, how does your team factor in the strong liquids marketing environment when you come -- when you offer bids, specifically in regards to Mid-Con assets? I mean, is that marketing environment becoming an impediment to closing deals?

Well, I tell you, we approach it with tremendous respect. We understand we're at a very high part of that market. And we have some ability because, again, the integrated approach to have natural hedges in parts of our business, that where one piece goes down another piece goes up, and I think that allows us to view certain businesses a little bit differently that somebody that's trying to buy it as a separate standalone. But as far as being able to get into any specifics about, are we aggressive or not, we certainly want to be considered aggressive to be invited in every data room that we can. But we don't want to be so aggressive that we've got "mullet" written across our forehead.

Just one last question. A little different, it's also about asset acquisitions -- well, acquisitions. You spoke earlier, your challenging conditions in nat gas storage. Would you consider rolling up PNG if valuation continue to be under pressure? Or are you still very much in wait-and-see and have a wait-and-see mode and have a more kind of bullish long-term view on that space?

Well, it's a great question, and one that -- we made our announcement on October 24. There was a little bit of confusion on Reuters, I think, that raised -- there was some cross confusion between PAA, PNG and SemGroup at one point. But I think what you should take away from this call is that we like the platform we have. We like the vehicle that we have. We have confidence that we're performing as well as anybody could perform in that business. On a relative basis, I think we're outperforming, and I think it's a valuable platform to continue to have exactly as it is. Long term, it's a function of how the market shakes out and how we execute. So if I could leave it at that, I'd sure appreciate it.

Next, we'll go to the line of John Tysseland with Citigroup.

Greg, I wanted to get your perspective on the current margin environment, particularly in the Eagle Ford. One thing that seems consistent among most of the MLPs out there and that operate in Texas anyway, is they're focused on adding capacity in the region. And whether that be on the crude -- or lease acquisition business, pipelines or terminals, how do you view that market as it evolves over the next year? And do producers really need that much infrastructure? Or do you see the margins in that region contracting as some of these assets come into the market?

The answer is, over time, I think unless volumes significantly outperform what current expectations are, I think the answer is there will be some margin pressure with the passage of time. Clearly in today's environment, there's more volumes than there are takeaway capacity, but there's a lot of projects that are being built. I haven't done the tallies lately, John, but I think there were 7 different pipeline projects. And if you totaled them all up, we think it could be about double what the projected production capacity is expected to be. So just pure Business 101 tells you, at some point in time, you're going to put a lot of pressure on margins. I think what we tried build into our expectations internally and what we're trying to manage externally is that clearly, we're making some great margins in certain areas. Trucks are very valuable. Truck drivers are very valuable today. And what we try to do is make sure that we use those to our advantage when we're trying to base load our pipeline project. And so we're probably making less than we could be making with certain customers. Because they're willing to support our pipeline project, we're willing to make sure their crude comes out of the market. And so we've already kind of built some of that into our own expectations and hopefully into yours. As we see those -- our pipeline project come up and start operating late next year, you'll see volumes that are going to be shifting from our Supply and Logistics business over into our pipeline business. By definition, those are -- that's a cheaper form of transportation. That means it's a lower margin. And so the question really at that point in time is, do we -- if the business is in parity, then we'll end up parking some trucks or moving them to different parts of the U.S. If the answer is, by moving those barrels over to the pipeline, we free up trucks that can then reach out to grab more remote barrels in South Texas, then that's probably incremental opportunity than what we perhaps got built into our own expectations during the years. If you roll the clock out 3 or 4 years, at some point in time either volumes have to continue to go up or all these -- some of these pipeline projects have to not get built or we're going to end up with margin compression.

That's very helpful. And my second question is based on the lease acquisition business and your view of competition in this particular part of the value chain. Plains has proven to be a pretty successful operator and consolidator even in a low-margin environment. But now that margins are expanding, are you beginning to see new entrants in this market? And are they being successful? How do you view it from a consolidation perspective? Are you more willing to go new assets and invest in new assets? Or do you see a roll up strategy that might be effective in this market?

I would say there's no shortage of competition. I mean, there's -- clearly, it's attracting a lot of capital and it's attracting a lot of individual talents that are getting married up with capital. So we have as much competition and more than we've had in quite some time. Again, if you go back to your original question, at some point, some of the momentum starts to go out of the system and people start to realize it's not always up and to the right. And clearly, there's going to be opportunities for some consolidation at that point in time. And I would say Plains stands better positioned or as well positioned as anybody to be able to help execute that strategy. So I think, we feel very good about our outlook in the business. I think as it has in the past, we're going to have to adjust and change and adapt to the changing circumstances because this is not going to continue to go up and to the right, year after year after year. It actually can last a couple of years but again, if oil prices were to drop to $50 a barrel, man, we'd be -- everybody's going to be singing a different song. So right now, it just appears everything is going the right direction. I would tell you that I think we have probably, again, we've given up some of the upside already in our performance even in this quarter and in future quarters to try and make sure you we protect against the downside. And that we're the most likely owner of assets in any given area over time. I mean, at some point in time, some of these individuals will want to monetize. And if they want to monetize in a high market, we can talk about that as long as we can hedge ourselves. And if they want to monetize it in a low market, we're probably the most active in that type of market than others are.

Next, we'll go to the line of Yves Siegel with Crédit Suisse. Yves Siegel - Crédit Suisse AG, Research Division: Just a quick follow-up. Number one, on the 3 transactions that you're close to consummating, is that in your 2012 guidance?

No. Yves Siegel - Crédit Suisse AG, Research Division: Okay. Then the second is, when you think about organic growth projects, the -- you've done really well with the scalable projects and the fact that no one big project sort of overwhelms you. But having just said that, are there larger projects out there that you're looking at?

Yves, there are. They're not really greenfield projects though. I mean, they would involve issues that would probably optimize our existing assets, but they could be -- require significant capital. I mean, it could be in the close to $1 billion range. So we're not shying away from them. We don't run from them just because they're big. We just have a respect for the fact that sometimes if you go to a pure greenfield project, you build something that is going to be in service in 3 years from now. Sometimes the world looks a whole lot different 3 years from now than it does then. If you're in the middle of the fairway of things you're already doing, you may get surprised, but the surprises are small and they cause you to make slight adjustments, not complete reversals. Yves Siegel - Crédit Suisse AG, Research Division: Okay. Yes. And then the last question is, has there been any change in terms of how you're thinking about acquisitions from perspective of timing? Is there a thought perhaps that there's a window of opportunity, so perhaps you're getting a little bit more aggressive than you might otherwise be? Or would you characterize your acquisition strategy as being pretty much the same as it always has been?

I don't think we're getting any more aggressive because of any perceived window. I do think our capacity as an organization to evaluate and pursue simultaneously multiple acquisitions is significantly higher today than it was 5 years ago. And it's probably significantly higher today than it was 1.5 years ago. You may recall -- I can't -- I believe it was 2 or 3 years ago, we gave everybody a heads up that we were starting to staff up in that area. And then about 1.5 years ago, we announced bringing on John Rutherford to head up that effort. And today our staff is, again, very strong and much bigger than it used to be. I think as an organization, that's consistent with our growth. But we're able now to pursue, again, simultaneously a larger number of acquisitions and not drop the ball on our operations. And so that would close up that part of your question. I think it just so happens that whether we were lucky or smart, we were able to do that right at about the time that we think the market is offering up a lot of opportunities. And if we go back 10 years ago, I can remember getting questions that says, "Everybody sold all the big stuff, so acquisitions are probably can't play a bigger role." I got to tell you, Yves, there's a ton of assets still out there. Yves Siegel - Crédit Suisse AG, Research Division: Yes. Yes. And I lied as I always do. I really have one other one, and that is -- so I apologize. But any thoughts on Oxy and the relationship there and potential for business opportunities going forward?

No update to that. I would just say it's -- again, we're pleased with the relationship that we have. We certainly are looking for opportunities to work together on things. And we've done -- made some progress in the small case. What a great combination. We've been kind of knocking the cover off the ball. If you've been following them, they've been doing the same thing, so I'm just be pleased to be in their company.

[Operator Instructions] And next, we'll go to the line of Michael Blum with Wells Fargo.

I just wanted to continue along the lines that John was asking about, the crude lease gathering business. You threw a couple of different dates. I mean, it sounds like in terms of -- I guess I'm trying to figure out how sustainable these margins are and for what period of time. And it sounds like you think ultimately as pipelines come on that, that impinges on the crude lease gathering margins. But how long do you think this can last?

Well, unfortunately, these teleconferences are great, but I don't have a map or a whiteboard where I can kind of show you what I would gesticulate. Part of it depends on how these sweet spots develop in certain areas of the resource plays. The pipelines aren't going to be connected directly to the leases in all areas. They're just generally being built right now into what we think, or we call them jet lines, right in the middle of where we think most of the activity is going to be. As these areas develop over time, maps change, technologies get refined. And so if I drew it on the whiteboard, you could see what I was thinking about. But if the jet line's located in the middle of the page, so to speak, and all of a sudden you find out the sweet spot's over to the right, as that develops, you're going to end up using a lot of trucks and a lot of activity to try and transport from those more remote locations to the pipeline injection points. Ultimately even that will get built out, and it just kind of depends on how the area develops. So you've asked a great question. I'm not trying to avoid it. I just don't think we have enough information right now to actually put a defined time period on it. I will say if you want to pull up a map of West Texas and you look -- or even our map, and you see our assets out there, you can see just how widespread those assets are today. They didn't happen all at one time. Those were actually built in stages. And so, again, dependent on the overall level of activity, you could see margins sustained for quite some period of time. But you have to make in your model the assumption that we're going to have high oil prices and a conducive administration in Washington so that they don't prohibit the development of those resources. But from an oil standpoint, unlike natural gas, we've got a lot of ledge. Natural gas, we're right now getting almost at parity where we don't need additional imports. And so there's nothing else to back out. If you bring on natural gas supply in the U.S. and the demand doesn't go up, you're kind of stuck with just selling it at low prices or actually, you're now talking about exporting it. In crude oil, we only produce about -- let me pick a number that's high enough to catch up with the recent increases -- 6 million barrels a day, and we need 15 million barrels per day. That means we import 9 million barrels a day. So if we go another million or 2 million barrels of production in U.S., we just back out foreign crude. There are some quality issues that go with that but -- and geographic location. But we've got a lot of running room. So it's not a question of demand. It's really a question of, is the resource there? It appears to be. Is the price high enough to support the development of it? And will Washington let us do it? If that happens, this thing has a lot of running room. And I can't answer your questions when the bloom falls off. Tell me the oil prices are going to $50 a barrel, I can give you another scenario. Tell me that Washington doesn't do what makes sense, and I'll give you another scenario. But the supply-demand balance really is conducive to this being an extremely long run.

Okay. And then, I guess the second part of that question -- and that's actually very helpful, so I appreciate it. Historically, we've thought of your business as you can make money in a contango environment and in a backwardated market, though, at least in my mind, I've always thought that the contango market is a more profitable environment for you. Now I'm just wondering, is that still a good assumption, given this change in the crude lease gathering business, where maybe in a backwardated market, you're actually, at least, as well off or better off than in contango?

Great question. I think what's changed in -- perhaps, at least a change in perception out there, is our asset base is so much different today than it was 10 years ago when that was definitely a true statement. And so for example today, if you said, "Well, production's going to flatten out in the U.S.," okay, and we're going to end up with needing to -- right now our forecast for the fourth quarter shows, I think, we're bringing in 0 waterborne cargoes. So our profitability in that part of the business has gone down to 0 and yet, we're still forecasting a midpoint EBITDA guidance next year -- next quarter of $410 million. So if for some reason we have declines in domestic production, okay, that means we're going to have to import more. Guess what? We start making more money on imports and less in certain parts of our areas. So I think what hopefully everybody would take away is Plains, within the crude oil and the LPG sector, has built out a platform that really is capable of making a whole lot of money in almost any environment.

Okay. Last question for me, and I appreciate the time. Any change to the long-term distribution target of 3% to 5%?

And I'm glad you asked that. We instituted that target, if you recall, when the world was ending in 2008, 2009. We didn't know which banks were going to be around. We didn't know what was going to happen to the financial structure. What we were trying to communicate at that point in time is that, notwithstanding pretty much what happened around us, we felt like we could generate throughout the worst of conditions 3% to 5% over an extended period of time. Clearly, we were 4.7% growth this last year, and we're targeting 6% to 7%. So I think the answer to your question is, yes, we are departing from the 3% to 5%. It didn't actually resonate as much as we thought it would, because I think, while others may not have grown at all, they at least promised higher growth than what they delivered. I think from our perspective, we delivered at the high end of that range, and we're positioned to deliver north of that. And in lease environments, we look forward -- we're feeling pretty good about being north of that 5%.

Next, we'll go to the line of John Edwards with Morgan Keegan. John D. Edwards - Morgan Keegan & Company, Inc., Research Division: ; I just wanted to ask about a project you haven't talked about in a long time. But just out in California, the project in Long Beach at pier, I can't remember what number it was. But any -- if you could comment, any developments in that area.

Not much that going to be reportable. Yes, the project is still alive and kicking. There's interest from the refiners. We've got a more accommodative stance, I think, from the regulators. We actually did get issued, Mark, the permit to construct in September. And we have the air emission credits that we need to be able to move the project forward. So a lot of discussions going on. Unfortunately, everything came together in an environment where -- an economy where petroleum demand is down, and the economy in California is not quite what it was, so -- but nothing really to report other than the fact that we're still positive on the project, but we probably got to fish or cut bait on the next 12 months to 18 months. John D. Edwards - Morgan Keegan & Company, Inc., Research Division: Okay. And then, I was just curious. What's -- so now what's your current inventory of potential projects? I mean, I think at the Analyst Day, you threw out a number, and forgive me if it's way off. I think you said something like $5 billion or so of inventory. But what -- kind of where does that stand now?

Now we did throw it out there, and I think we also pointed out that if you kicked out the 3 largest projects, one of which was the Pier 400 that you mentioned, I think it was around $4 billion or $3 billion if you kicked out the 3 biggest. And our message there was, "This is not any 1 or 2 projects that make up a large number." Today, I think that number is still around by $5 billion and if you kicked out the 3 largest projects, you're still around $4 billion to $4.3 billion, so. And it's a different composition, John. I mean, there are some projects that we've moved out of that and there is more that we've put in there. I think that's probably the way it's going to be for the next several years. John D. Edwards - Morgan Keegan & Company, Inc., Research Division: Okay, great. And then, just in the guidance, and pardon me if you put this out on the 8-K. But what was the margin you assumed in your Supply and Logistics in your guidance for 2012, per barrel?

I don't really want to give that level of detail on that. And we're still -- if you'll notice on the slide, I think it was Slide 20, we kind of fuzzed the lines up a little bit and took away the scale. We're really -- it's still in the preliminary stages of trying to finish the guidance. And clearly, we're going to have a better spiel in February, when we furnish what I'd call a very hard guidance for the year, of exactly what the market conditions are. We'll also have finished our allocations between different segments because if you recall, we have to allocate G&A and things like that. But I would tell you that it's certainly not anywhere near the level that we've been experiencing, and that's the reason why you have the roughly $150-million to $175-million decrease in Supply and Logistics. A lot of that is offset by the way of a fairly significant increase in the fee-based part of it. The net of all that is, I think, we're showing our midpoint is about $90 million less than what we think we'll do in 2011. So we'll firm that up as we get there. And again, this does not include some of the acquisitions we're talking about, and then we'll also have a better scout on the market. John D. Edwards - Morgan Keegan & Company, Inc., Research Division: Okay. So you are assuming then a pretty significant compression in the differentials we've been seeing between WTI and...

Yes, I think we were assuming market conditions aren't going to be nearly as favorable. And we hope to heck we're wrong. It's kind of fun to make that excess cash flow and keep it. John D. Edwards - Morgan Keegan & Company, Inc., Research Division: Okay. And then, at the risk of you saying you're not going to comment on this, thought I'd ask anyway, just thoughts on the recent gas storage acquisition that was made, I guess, Boardwalk buying from Enterprise the Petal -- the Petal deal. Any insights or thoughts you can provide us? Or is it just a no comment?

No, I think you assumed correctly.

Next, we'll go to the line of Paul Jacob [ph] with Raymond James [ph].

The first question is, with several recent announcements surrounding crude oil and condensate volumes ramping up out of the Eagle Ford and West Texas, and targeted potentially at Cushing and Corpus Christi, when you look at that competitive landscape and as it's continuing to change, where do you see your best opportunities going forward?

Well, each of our asset managers would all hold up their hand and say they're in their regions. It's hard to rank. And at this point in time, they're all very attractive. And clearly, we're active in almost all these areas. I mean, the 3 big areas that are the most active drilling in the U.S. today are the Eagle Ford area in South Texas, West Texas and the Rockies. And I would just tell you I think we're pretty enthusiastic about all 3 areas.

Okay. Great. And last call, you touched on some potential opportunities for possible transport of crude by rail. I was just curious, as you look to de-bottlenecking some of this crude regionally, is there any opportunity that you're looking at specifically as far as crude, or any volume uptick that we could think about? And how would we think about that going forward?

Yes, we're continuing to pursue rail solution. We just finished the rail facility at Sidney, which will bring crude out of the Bakken and allows us to take it into St. James. We're increasing our off-loading capacity at our St. James terminal from, I think, its 65,000 barrels a day to 130,000. And we're not the only ones that are pursuing the rail solution. So I would say that the market is adapting. It's much more expensive to move by rail than it is by pipeline. That said, if you have the wide differentials that we've been experiencing, there's enough economic incentive to overcome the transportation cost and the capital cost that it takes to build the facilities, so you can be able to do it with the wide spreads that we've had, and it's been effective. I mean, if you look at the inventories in Cushing, today, I think there are 32 million barrels roughly. And that's down from, call it, 42 million barrels in May. So over a 150-day period, it's come down 10 million barrels. Part of that is a function I think of -- as I mentioned to people, the easiest way to get crude out of Cushing is don't take it there, and so that's what's been happening. And in addition, some of the excess pipeline capacity, and it's not much, has been used to bleed that down. So if you recall from prior calls, we said we thought that there was maybe a 60,000, 70,000 barrel-a-day imbalance. And if you do the math, but if you divide 10 million barrels by 150 days between May and November 1, it's about 65,000 barrels a day. And that means that, that much has been not only pulled down but then, there's more that's been diverted. So there's probably in the neighborhood of 120,000 to 130,000 barrels a day that's been diverted away from Cushing, either by pulling it down or just going around it. And a big part of that's been rail.

Okay. And then just as a follow-up to that. When you look at those rail projects, is there a time line that you consider for payback, given your views on what's likely to manifest in the market as far as that drawdown?

Not that we want to state publicly.

Okay. Okay. And then just to touch on some of the opportunities for waterborne crude. Recognizing that currently the United States is in an unusual position of exporting historic volumes of petroleum and then looking at the imports on your waterborne crude line, how should we think about any opportunities for potentially exporting crude?

Well, it's going to require Washington to make a big -- today, it's not actually -- you're not permitted to. I think it's actually illegal to export crude. So we're able to export products but we're not able to export crude. So and but -- and you're absolutely on point. I think I saw -- the last numbers in October was I think we're importing 1.9 million barrels of petroleum products, and we're exporting 2.6 million. So we're actually net exporters of petroleum products today, but you cannot export crude at this point in time.

Okay. Okay, great. I guess the final question is just touching on acquisitions. And maybe you can't really specify a range, but just out of curiosity, when you think about acquisitions, do you target a specific range based on the cash flow? Or is it really going to vary from deal to deal, depending on possibly the synergies that you're looking at, the geographic position, the nature of the assets?

Are you talking about acquisition multiples?

Yes.

No, you're correct. It varies by -- if it's half fee-based, obviously, the multiple can be a little bit higher than if it's very low fee-based, and you're taking a little bit more execution risk on it. Whether it's committed, whether it's acreage dedications makes -- there's just so many variables on it making it very difficult to come up with a rule of thumb. But -- and then clearly, there's what the seller thinks they're selling and what we think we're buying in terms of synergies. So it's really hard. It's almost a case-by-case basis.

Next, we'll go to the line of Jeremy Tonet with JPMorgan. Jeremy Tonet - JP Morgan Chase & Co, Research Division: Just want to touch base on the natural gas operations at PNG. Notwithstanding that it seems that your expansion opportunities are advantaged versus peers, but I was just curious what it would take for you guys to cancel or even just postpone some of the expansions that you guys have coming online, given how weak the market is right now?

Yes, Jeremy. I'll answer that. What we have in particular is we're growing out at Pine Prairie is low-cost expansions, as we've mentioned before. And even in these markets, the returns we see on that is still very -- is strong. So there are no plans to curtail those low-cost expansions.

I would say what we are already doing, Jeremy, is we're not -- our foot's still on the gas, but it's not stomping on the floor. We have the ability -- as to the kind of projects that Dean's mentioned where the well is already drilled and we're simply using our existing leaching systems, et cetera, we're able to add space on an incremental basis, in the $3-million-per-Bcf range. That compares to acquisition transactions and even newbuild with grassroots that probably are in the $18-million to $20-million range per Bcf. That's an advantage. Now if we thought the market was there at a little bit more attractive levels than it is right now, we could build new storage, that is to drill a new well within our existing facilities, and that's probably going to put us closer to, call it, $8 to $10 -- $8 million to $10 million per Bcf, which is still about half of what we think some competitors have. But we're not pursuing those right now because the returns aren't as attractive, and it's not our goal to continue to pound the market with excess storage. But when you can build it for $3 million versus others building it at $18 million to $20 million, it makes sense.

Next, we'll go to the line of Rick Gross with Barclays Capital.

Actually I had a Utica question, but I'm going to save it for offline.

Okay.

All right. So next, we'll go to the line of Lynn Chin [ph] with Hite [ph].

It's actually James Jim [ph] from Hite [ph]. As suffering PNG unit holders here and I guess, hearing on the call that distribution increases are probably unlikely in the near future, anything you can do to help us, especially given the limited liquidity, would be helpful.

Duly noted.

Now to my question. Cushing inventories are down, and with -- we were going to see, most likely, I would think a reversal of Seaway and we have Wrangler and Keystone XL. So how are you guys preparing for the exodus of crude from Cushing? Or do you not see that at all?

Well, I think, James [ph], we've pointed out already, they're down 10 million barrels. Again, we think it's going to be challenging to build a new pipeline that's not underpinned by long-term commitments. I think long-term commitments -- it probably has to be in the 10-year range to be able to really support it. It's most likely that those -- that, that pipeline is Keystone XL that's supported by Canadian commitments that have a need to get a particular type of crude to a different market. And so we're kind of watching with interest. Right now we're positioned. We don't have really anything at risk, other than potential marketing margin that we kind of factored out of the future in our guidance that we've given to you. If for some reason, differentials stay very wide and therefore very attractive, we have the opportunity with our assets and our business model to make more money than what we forecast.

So the guidance reflects a narrowing of the WTI differential spread?

It reflects a general -- we've run -- it's probably not as easy to put it that simple. We've run a variety of scenarios. That's just one of many differentials that exist in the market. What we've done is we basically looked at what we've experienced in 2011. We looked forward to some of these infrastructure solutions. And to some extent, there's as much perception as there is reality in some of these differentials. And when your inventories are coming down 10 million barrels and your differential is still very wide, and somebody says, "There's a bottleneck in Cushing," the answer is, "I think somebody figured part of that out." And so I think perception becomes part of the reality of the actual differential as opposed to the physical immobility of the barrel. But so as we look forward, we ran a variety of scenarios. Again, it's preliminary guidance. We're still in November just barely. We'll provide you better updated guidance in February. But even assuming what we think conditions could be in 2012 that are a lot less favorable than they have been and they currently are, we think we can generate the guidance that we provided. If it stays at the current level and differentials do stay wide, not just the ones you referenced but others, then there's upward bias to our guidance.

I see. And lastly, how would you handicap the eventuality of an overcapacity or overbuilt situation in Cushing?

It's probably better than 50-50.

And there are no more questions in the queue.

Thanks, everybody, for your time invested in the call and for following PAA and PNG. And we look forward to updating you in February.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.