During the three months ended March 31, 2002, the Partnership incurred
$1,009,000 of expansion capital expenditures, which related primarily to the
Amarillo to Albuquerque refined product pipeline expansion project. The capital
expenditures for the Amarillo to Albuquerque refined product pipeline expansion
project are net of Phillips Petroleum Company's 50% share of costs. Upon
completion in January 2002, the Partnership's capacity in the Amarillo to
Albuquerque pipeline increased from 16,083 barrels per day to 20,750 barrels per
In May 2002, the Partnership expects to complete the acquisition of a 25-mile
crude hydrogen pipeline from Praxair, Inc. The pipeline originates at the
Celanese Chemical facility in Clear Lake, Texas and runs to Valero Energy's
Texas City refinery in Texas City, Texas. The pipeline will supply crude
hydrogen to the refinery under a long-term supply arrangement between Valero
Energy and Praxair, Inc. The total cost of the pipeline is estimated at
$11,000,000 and is expected to generate annual adjusted EBITDA of $1,300,000.
The Partnership anticipates that it will continue to have adequate liquidity to
fund future recurring operating, investing and financing activities. Cash
distributions are expected to be funded with internally generated cash.
tem 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership currently does not engage in interest rate, foreign currency
exchange rate or commodity price hedging transactions.
The principal market risk (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which the Partnership is exposed is interest rate
risk on its debt. The Partnership manages its debt considering various financing
alternatives available in the market. Borrowings under the revolving credit
facility do not give rise to significant interest rate risk because the interest
rate on borrowings under the facility float with market rates. Thus the carrying
amount of outstanding borrowings under the revolving credit facility
approximates fair value.
The Partnership's remaining debt is fixed rate debt with an 8% interest rate.
The estimated fair value of the fixed rate debt as of March 31, 2002 was
$10,300,000 as compared to the carrying value of $10,076,000. The fair value was
estimated using discounted cash flow analysis, based on current incremental
borrowing rates for similar types of borrowing arrangements. Since the total of
this fixed rate debt is not material to the Partnership's financial position or
performance, there is currently minimal exposure to market interest rate risk.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No material litigation has been filed or is pending against the Partnership as
of March 31, 2002.
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information