Lakehead Pipe Line MLP Form 10-K

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Lakehead Pipe Line MLP Form 10-K Lakehead Pipe Line Partners, L.P. 1999 Annual Report Lakehead Pipe Line Partners, L.P. System Map Lakehead Pipe Line Partners, L.P. (the Partnership) Lakehead Pipe Line Company, Inc., the general part- is a publicly traded master limited partnership that owns ner of the Partnership (the General Partner), conducts Headquarter Location the United States portion of the world’s longest liquid the operations of the Partnership through service agree- Lakehead Pipe Line petroleum pipeline. Combined with the Canadian por- Partners, L.P. ments with its affiliates, primarily Enbridge (U.S.) Inc., tion of the pipeline system operated by Enbridge Enbridge Pipelines a subsidiary of Enbridge Inc. of Calgary, Alberta, Canada. Pipelines Inc., the operationally integrated pipeline sys- Systems The General Partner holds an approximate 15 per- tem spans over 3,100 miles across North America and Connecting Carrier cent interest in the Partnership. The remaining 85 per- has been in business since 1949. The System serves Enbridge Joint Venture Systems cent, represented by 24,990,000 Class A Common as a common carrier, transporting western Canadian crude Units, is held by approximately 40,000 registered or oil and natural gas liquids to refining centers in the beneficial owners. The Partnership’s Class A Common midwestern United States and Ontario, Canada. The Units are traded on the New York Stock Exchange Lakehead system has available capacity of approxi- under the symbol “LHP.” mately 1.738 million barrels per day and delivered on average 1.369 million barrels per day during 1999. Lakehead Pipe Line Partners, L.P. Financial Highlights Year ended December 31, 1999 1998 1997 1996 1995 Financial (dollars in millions) Operating revenue $312.6 $287.7 $282.1 $274.5 $268.5 Operating income $130.3 $105.4 $108.1 $ 87.4 $ 73.3 Net income $ 78.7 $ 88.5 $ 78.3 $ 52.4 $ 39.6 Capital expenditures $ 82.9 $487.3 $126.9 $ 76.7 $ 35.5 Per Unit (dollars) Net income $2.48 $ 3.07 $ 3.02 $ 2.11 $ 1.60 Cash distributions $3.485 $ 3.36 $ 2.92 $ 2.60 $ 2.56 Operating Deliveries (thousands of barrels per day) 1,369 1,562 1,512 1,451 1,409 Barrel miles (billions) 350 391 389 384 385 Average haul (miles) 700 686 704 723 749 1 BOARD OF DIRECTORS Pictured from left to right Front row: Stephen J. Wuori–President & Director, Ernest C. Hambrook–Director Middle row: Lawrence H. DeBriyn–Vice President & Director, Patrick D. Daniel–Director Back row: Derek P. Truswell–Director, Charles A. Russell–Director, F. William Fitzpatrick–Director 2 DELIVERING THE FUTURE To Our Unitholders: of approximately Cdn $17 billion to increase oil sands and At the dawn of a new century, we are pleased to report other heavy oil production in the next several years. By the that the Partnership remains financially strong, operationally year 2003, total crude supply is forecast to increase to 2.5 mil- sound and strategically positioned to deliver long-term growth lion bpd from approximately 1.9 million bpd today. and unitholder value well into the 21st century. Traditionally, the Enbridge and Lakehead systems have trans- The solid performance of the Partnership in 1999 enabled ported approximately 75% of total western Canadian supply. the Board of Directors to increase quarterly cash distributions Lakehead's access to growing production of heavy crude from $0.86 per unit to $0.875, furthering our objective of pro- oil is enhanced by the completion of the Enbridge Pipelines viding increased distributions to unitholders. (Athabasca) Inc. pipeline, which links the oil sands near Fort In 1999, however, the Partnership was not able to main- McMurray, Alberta, to the Enbridge Pipelines Inc. system at tain its historic trend of rising earnings as net income declined Hardisty, Alberta. Over the next few years, the Athabasca from a record $88.5 million in 1998 to $78.7 million in 1999. system will provide up to 570,000 bpd of crude oil to This decline was due primarily to the reduced crude oil sup- attractive refinery market destinations in the U.S. Midwest. ply from western Canada prompted by the dramatic decline When supply increases of this magnitude materialize, they in world oil prices in 1998. While crude prices recovered dur- will support completion of subsequent phases of the Terrace ing the latter part of 1999, exploration and development Expansion Program, bringing the total additional heavy crude spending by western Canadian producers has been slow to oil capacity resulting from Terrace to 520,000 bpd. The recover, the impact of which has affected the utilization of Partnership is ready to begin future phases of this expansion Lakehead delivers a our system. As a consequence, daily deliveries of crude oil growing supply of when demand warrants, which is currently anticipated by and natural gas liquids declined to an average of 1,369,000 petroleum to midwestern 2002, along with other expansions as needed. and Canadian refinery barrels per day (bpd) in 1999 compared with 1,562,000 bpd markets every day. We are positioned to serve key refinery centers in 1998. Despite the decrease in net income, cash flow in with valuable services and economical pipeline 1999 remained strong, reaffirming our ability to continue transportation. solid growth. The Partnership is uniquely positioned between produc- The Partnership is confident in its future as ers and refiners of crude oil and natural gas liquids. The U.S. the dominant transporter of crude oil supplies Midwest refinery market that Lakehead primarily serves is produced in western Canada. economically attractive to western Canadian producers. Access The projected rise in crude oil production in western to western Canadian crude provides cost advantages to these Canada is expected to support increased utilization of the refinery centers as compared with alternatives from U.S. Gulf Lakehead system in the second half of 2000 and beyond. sources. Refiners in the region have invested in upgrades to While production continues to lag behind the recovery in oil process lower cost heavy crude oil and are increasingly turn- prices, forecasts confirm a substantial increase in heavy crude ing to alternative Canadian supply sources as U.S. on-shore oil production over time. Producers have targeted investments production steadily declines. These factors prompted the 3 construction of the Enbridge Pipelines (Toledo) Inc. pipeline, Existing business strategies and strengths will which was completed in 1999. The Toledo pipeline provides enable us to deliver long-term value to unitholders. 80,000 bpd of heavy crude capacity from the Lakehead con- Utilization of currently available surplus pipeline capacity, nection at Stockbridge, Michigan, to Toledo, Ohio, and opens realization of future expansions and provision of valuable trans- new markets for the Partnership in this region. portation services to current and new markets will contribute Increasing demand for western Canadian heavy crude oil to improved earnings. These factors, along with the Partnership’s in the U.S. Midwest is expected, over time, to offset the decline continued strong cash flow, will support our objective of pro- in deliveries of crude to Ontario, Canada. The Partnership saw viding future cash distribution increases to unitholders. a decline in such deliveries in 1999, when Ontario refineries Future growth also may be fueled by acquisitions of assets gained access to foreign light crude by the reversal of Line 9, that are complementary to our core business and expertise. an Enbridge-owned pipeline that now transports crude oil from With energy industry mergers and acquisitions, we anticipate Montreal to southwest Ontario. opportunities to acquire pipelines and related assets, and we High standards for will consider prudent strategic partnerships and acquisitions Lakehead Pipe Line remains the carrier of choice operating practices that will leverage our existing assets, in-house technology contribute to the integrity by providing economical, reliable and safe pipeline of Lakehead’s pipeline and resources. transportation to strategic markets. system. In 1999, the Lakehead is fortunate to have outstanding men and women The Partnership continues to be one of the lowest cost company reported no lost-time accidents in to serve and guide the Partnership and we thank them for their pipeline operators in the U.S. This accomplishment is the workplace for the contributions during the last year. These people were respon- achieved through effective integration of affiliated pipelines second consecutive year. sible for optimizing the performance of the Partnership with our system and continual implementation of operating during a year when system capacity was underutilized. We cost reductions. Furthermore, we build on our reputation for also offer our special thanks to those people who worked so excellent customer relations through high service standards, diligently to prepare for Y2K and who participated in the year- competitive transit times, unparalleled scheduling flexibility end rollover to ensure a smooth, uneventful transition to 2000. and commodity batching services. We are confident in the knowledge that we have the peo- We are proud of our record in providing value to our ple, operations and financial strength to stay ahead in a com- customers and meeting expectations for safe, reliable and For more information petitive marketplace. We are poised to meet future business environmentally responsible operations. Our high standards about Lakehead Pipe needs. We are prepared to increase pipeline capacity as required. and operating practices continue to contribute to the integrity Line Partners, L.P., visit We will deliver a strong, stable energy bridge to the future. of our pipeline system. We also are pleased to report that our Web site at On behalf of the Board of Directors, www.lakehead.com during 1999, for the second consecutive year, we had no lost-time accidents in the workplace. Stephen J.
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