EXHIBIT 99.2
[PRICEWATERHOUSECOOPERS LOGO]
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INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS OF
PLAINS ALL AMERICAN PIPELINE L.P.
We have audited the balance sheet of MURPHY OIL COMPANY LTD.'S Canadian
Supply and Transportation ("S&T") business as at December 31, 2000 and the
statements of operations and owners' net investment and cash flows for the year
ended December 31, 2000. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Murphy Oil Company Ltd.'s S&T business as at
December 31, 2000 and the results of its operations and its cash flows for the
year ended December 31, 2000 in accordance with accounting principles generally
accepted in the United States of America.
PriceWaterhouseCoopers L.L.P.
March 30, 2001
Calgary, Alberta
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Balance Sheet
AS AT DECEMBER 31, 2000
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(expressed in thousands of U.S. dollars)
<Table>
<Caption>
2000
ASSETS
CURRENT ASSETS
Accounts receivable
Trade $ 65,775
Related parties (Note 4) 14,877
Inventory 5,069
Deferred income tax (Note 5) 1,933
--------
87,654
PROPERTY AND EQUIPMENT - net (Note 3) 55,050
--------
$142,704
========
LIABILITIES AND OWNERS' NET INVESTMENT
CURRENT LIABILITIES
Accounts payable and other accrued liabilities
Trade $ 50,986
Related parties (Note 4) 25,791
--------
76,777
DEFERRED INCOME TAXES (Note 5) 3,042
--------
79,819
COMMITMENTS AND CONTINGENCIES (Note 7)
OWNERS' NET INVESTMENT 62,885
--------
$142,704
========
See notes to the financial statements.
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Statement of Operations and Net Investment
FOR THE YEAR ENDED DECEMBER 31, 2000
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(expressed in thousands of U.S. dollars)
<Table>
<Caption>
2000
REVENUES
Crude oil and condensate sales $536,060
Crude oil and condensate sales - related parties 106,479
Pipeline tariffs 9,756
Trucking 13,176
Trucking - related parties 1,852
--------
667,323
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COSTS AND EXPENSES
Cost of crude oil and condensate sales 438,931
Cost of crude oil and condensate sales - related parties 179,456
Pipeline tariff expense 8,668
Operating costs 21,279
General and administrative 1,834
Depreciation and amortization 2,660
--------
652,828
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INCOME BEFORE INCOME TAXES 14,495
--------
INCOME TAX EXPENSE (Note 5)
Current 6,455
Deferred 143
--------
6,598
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NET INCOME FOR THE YEAR 7,897
OWNERS' NET INVESTMENT - BEGINNING OF YEAR 54,988
--------
OWNERS' NET INVESTMENT - END OF YEAR $ 62,885
========
</Table>
See notes to the financial statements.
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Statement of Cash Flows
FOR THE YEAR ENDED DECEMBER 31, 2000
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(expressed in thousands of U.S. dollars)
<Table>
<Caption>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income for the year $ 7,897
Items not affecting cash
Depreciation and amortization 2,660
Deferred income tax 143
--------
10,700
--------
Net change in non-cash working capital items
Accounts receivable
Trade (22,994)
Related party (2,771)
Inventory 209
Accounts payable and other accrued liabilities
Trade 14,360
Related party 13,524
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2,328
--------
13,028
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INVESTING ACTIVITIES
Capital expenditures (29,236)
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FINANCING ACTIVITY
Cash contributions by owner 16,208
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INCREASE IN CASH FOR THE YEAR --
CASH - BEGINNING OF YEAR --
--------
CASH - END OF YEAR $ --
--------
</Table>
See notes to the financial statements.
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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1 ORGANIZATION AND BASIS OF PRESENTATION
The Supply and Transportation business is involved in the pipeline
transport of crude oil and condensates, including associated services of
trucking and terminalling, and marketing of crude oil in Western Canada.
The accompanying financial statements present, in conformity with
accounting principles generally accepted in the United States of America
the assets, liabilities, revenues and expenses related to the historical
operations of the Canadian supply and transportation ("S&T") business of
the Murphy Oil Company Ltd. ("Murphy").
The accompanying financial statements have been prepared from Murphy's
historical accounting records and are presented on a carve-out basis to
include the historical operations applicable to the S&T business. All
assets and liabilities specifically identified with the S&T business have
been presented in the balance sheet. The owner's net investment ("Owner's
net investment") in the S&T business has been presented in lieu of
stockholder's equity in the financial statements. The financial
information included herein includes certain allocations based on
historical activity levels to reflect the financial statements in
accordance with U.S. generally accepted accounting principles and may not
necessarily reflect the financial position, results of operations of cash
flows of the S&T business in the future or had it existed as a separate,
stand-alone business during the period presented. The allocations consist
of general and administrative expenses incurred on behalf of the S&T
business by Murphy. This allocation has been made on a reasonable basis.
No amount in respect of interest has been allocated to this business.
2 SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and the disclosures of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Significant
estimates made by management include depreciation, impairment of
long-lived assets, salvage values and income taxes and related deferred
tax valuation allowance. Although management believes these estimates are
reasonable, actual results could differ from those estimates.
REVENUE RECOGNITION
Gathering and marketing revenues are accrued at the time title to the
product sold transfers to the purchaser, which occurs upon receipt of the
product by the purchaser, and purchases are accrued at the time title to
the product purchased transfers to the S&T business, which occurs upon
receipt of the product. Terminalling and storage revenues are recognized
at the time service is performed. Revenues for the transportation of crude
are recognized based upon regulated and non-regulated tariff rates and the
related transportation volumes. Trucking revenue is recognized when the
transportation services have been rendered.
(1)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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FOREIGN CURRENCY TRANSLATION
The functional currency of the S&T business is Canadian dollars. The
translation of these financial statements into United States of America
dollars (U.S. dollars) have been recorded using the exchange rate at the
balance sheet date for assets and liabilities and the exchange rate
applicable at the date of transaction for the revenues, expenses and cash
flows. The effect of translating the S&T business into U.S. dollars is
included in owners' net investment.
PIPELINE TARIFF EXPENSE
Pipeline tariff expense represents amounts paid to third parties to
transport crude oil and condensates. These costs are expensed on an
accrual basis.
PROPERTY AND EQUIPMENT
Crude oil pipeline, gathering and terminal assets are carried at cost.
Costs subject to depreciation are net of expected salvage values and
deprecation is calculated on a straight-line basis over the estimated
useful lives of the respective assets as follows:
o Crude oil pipelines - 10 to 35 years;
o Crude oil pipeline operation facilities - 10 years;
o Crude oil terminal, storage facilities and communication
equipment - 10 years;
o Trucking equipment - 10 years.
Acquisitions and improvements are capitalized; maintenance and repairs are
expensed as incurred. Pipeline linefill is recorded at cost and consists
of oil linefill used to pack a pipeline such that when an incremental
barrel enters a pipeline it forces a barrel out of another location. Net
gains or losses on property and equipment disposed of are reflected in the
statement of operations and net investment when incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying values of long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of any asset may not be recoverable. Recoverability of the carrying
value of an asset is assessed by reference to an estimate of the asset's
undiscounted future net cash flows. Measurement of any impairment would
include a comparison of discounted estimated future net cash flows to the
net carrying value of the related assets.
(2)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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INVENTORIES
Inventories of crude oil and condensates are valued at the lower of cost,
calculated on a last in first out (LIFO) basis, or market value. At
December 31, 2000 the replacement cost of crude oil and condensate
inventory was $9,304,435.
ENVIRONMENTAL LIABILITIES
A provision for environmental obligations is charged to expense when the
S&T business' liability for an environmental assessment and/or clean up is
probable and the cost can be reasonably estimated. Related expenditures
are charged against the reserve. Environmental remediation liabilities
have not been discounted for the time value of future expected payments.
INCOME TAXES
The S&T business accounts for income taxes using the asset and liability
method in accordance with Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. Under this method, income taxes are
provided for amounts currently payable, and for amounts deferred as tax
assets and liabilities based on differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Deferred income taxes are measured using enacted tax rates
that are assumed to be in effect when the differences reverse.
Income taxes have been calculated as if the S&T business had filed a
separate return for the year ended December 31, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to Statement of Financial Accounting Standards No. 107,
Disclosure About Fair Value of Financial Instruments, the S&T business has
estimated fair value of its accounts receivables, due from related party
and accounts payable and accrued liabilities to approximate the carrying
values due to the short term to maturity of these instruments.
(3)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133, as amended by SFAS 138, requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of the hedge transaction and, if so, the
type of hedge transaction. For fair value hedge transactions in which the
S&T business is hedging changes in an asset's, liability's, or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in
the hedged item's fair value. For cash flows related to a variable rate
asset, liability, or a forecasted transaction, changes in the fair value
of the derivative instrument will be reported in other comprehensive
income. The gains and losses on the derivative instrument that are
reported in other comprehensive income will be reclassified as earnings in
the periods in which earnings are affected by the variability of the cash
flows of the hedged item. The S&T business is required to adopt this
statement beginning in fiscal 2001. Management has determined that there
is no effect on the financial statements of the adoption of SFAS 133.
3 PROPERTY AND EQUIPMENT
<Table>
<Caption>
ACCUMULATED
COST AMORTIZATION NET
Pipelines $ 52,090 $(16,760) $35,330
Pipeline equipment 19,408 (3,052) 16,356
Trucking equipment 5,721 (3,342) 2,379
Linefill 985 -- 985
-----------------------------------------
$ 78,204 $(23,154) $55,050
=========================================
</Table>
During the year ended December 31, 2000, the S&T business acquired a
partner's ownership interest in the Manito pipeline for $26.6 million.
(4)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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4 RELATED PARTY TRANSACTIONS AND BALANCES
During the year ended December 31, 2000, the S&T business has entered into
transactions with other divisions of Murphy and affiliated companies. All
transactions were entered into in the ordinary course of business at
market prices. The aggregate amounts of related party transactions were as
follows:
<Table>
Revenues
Crude oil and condensate sales $106,479
Trucking 1,852
Costs and expenses
Cost of crude oil and condensate purchases 179,456
General and administrative 925
</Table>
REVENUES
Sales to related parties are derived from the crude oil and condensate
sales and trucking services to Murphy and its affiliates.
COSTS AND EXPENSES
The S&T business purchases crude oil and condensate from related parties.
General and administrative costs are allocated to the S&T business and
other divisions of Murphy.
ACCOUNTS RECEIVABLE - RELATED PARTIES
The accounts receivable from related party represents crude oil and
condensate sales to related parties subject to normal customer trade
terms.
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES - RELATED PARTIES
The accounts payable to related parties represents crude oil and
condensate purchases from related parties subject to normal customer trade
terms and the S&T business current income tax payable which is paid by
Murphy.
As described above, the S&T business has significant transactions and
balances with related parties. Because of these relationships, it is
possible that the terms of these transactions are not the same as
those that would result from transactions among wholly unrelated parties.
(5)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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5 INCOME TAXES
Deferred income taxes are provided for the temporary differences between
the book and tax bases of the S&T business's assets and liabilities.
Significant components of deferred tax assets and liabilities as of
December 31, 2000 are as follows:
<Table>
Deferred tax assets
Inventories $ 1,933
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Deferred tax liabilities
Property and equipment (3,042)
-------
Financial statements
Current deferred tax assets 1,933
Non-current deferred tax liabilities (3,042)
-------
Net deferred tax liability $(1,109)
=======
</Table>
The reconciliation of the differences between the company's tax expense
for income taxes and taxes at the statutory rate is as follows:
<Table>
Income tax expense based on the Canadian Statutory rate (44.89%)
Adjustments $6,506
Non-deductible items 92
------
Total income tax expense $6,598
======
</Table>
6 FINANCIAL INSTRUMENTS
The S&T business is primarily responsible for the transportation and sale
of Murphy owned production in Western Canada, and, accordingly the S&T
business enters into various forward purchase and sale agreements for
crude oil and condensates. The extent of these agreements are disclosed in
Note 7.
The S&T business primary credit risks are associated with trade accounts
receivable, evergreen sales contracts and cash. Trade accounts receivable
arise mainly from the sale of crude oil and condensates, pipeline tariffs
charged to shippers on S&T pipelines, and for trucking services performed.
The credit history and financial condition of potential customers are
reviewed before credit is extended, security is obtained when deemed
appropriate based on a potential customers' financial condition, and
routine follow-up evaluations are made. The combination of these
evaluations and the large number of customers tends to limit the risk of
credit concentration to an acceptable level.
(6)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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7 COMMITMENTS AND CONTINGENCIES
PURCHASE AND SALES AGREEMENTS
The S&T business has entered into evergreen purchase and sales agreements,
cancellable with thirty days notice, for crude oil and condensates. As at
December 31, 2000, the S&T business had evergreen contracts for purchases
of 444,000 m3 and sales of 298,000 m3 of crude oil and condensates at
market related prices.
ENVIRONMENTAL MATTERS
The parent, Murphy is liable for the reclamation costs associated with a
condensate spill on the Dulwich pipeline. The amount of reclamation costs
is dependent upon the method selected under current environmental laws but
has been estimated by management to be in the range of $67,000 to
$1,901,000. An accrual for these clean up costs has not been provided for
in these financial statements.
8 EMPLOYEE AND RETIREE BENEFIT PLANS
Murphy provides pension plans to its employees, including persons employed
in the S&T business. Murphy has a defined benefit and defined contribution
pension plan covering all the S&T employees.
The defined benefit pension plan provides a pension based on a formula of
best average earnings and years of credited service. The plan is
non-contributory however, an optional ancillary contribution account to
provide ancillary benefits or enhancements to the defined benefit pension
is contributory. The net pension credit recognized in the S&T business
earnings under the defined benefit pension plan for the year ended
December 31, 2000 was $583,000.
The defined contribution plan provides benefits based on the accumulated
balance in an employees account. The plan is non-contributory, however,
employees may contribute up to 2% of their earnings as an optional
contribution which is matched by Murphy dollar for dollar. The amount
charged to the S&T business earnings under the defined contribution
pension plan for the year ended December 31, 2000 was $61,000.
(7)
MURPHY OIL COMPANY LTD.
SUPPLY & TRANSPORTATION BUSINESS
Notes to Financial Statements
DECEMBER 31, 2000
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9 SEGMENT INFORMATION
The S&T division's reportable segments are organized into three major
types of business activities all operating within one geographic area,
Western Canada. The pipeline segment derives tariff revenue primarily from
the transportation of crude oil, the crude oil trading segment derives
revenue from the purchase and sale of crude oil and the trucking segment
derives revenue from the use of tractor trailers in hauling petroleum
products and water. Information about business segments is reported on the
following tables. Corporate and other activities are shown in the tables
to reconcile the business segments to the financial statement totals.
<Table>
<Caption>
CORPORATE
CRUDE OIL AND
PIPELINES TRADING TRUCKING ELIMINATIONS TOTAL
Revenues from external customers $ 16,137 $536,059 $15,443 $(8,646) $558,992
Revenues from related parties (note 4) -- 106,479 1,852 -- 108,331
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Total revenues 667,323
Income tax expense 3,224 3,525 641 (792) 6,598
Significant non-cash charges (credits)
Depreciation and abandonment 2,151 -- 374 135 2,660
Deferred income taxes 143 -- -- -- 143
Additions to property and equipment 29,236 -- -- -- 29,236
Property and equipment 52,672 -- 2,378 -- 55,050
Net income (loss) 3,957 4,329 787 (1,176) 7,897
</Table>
(8)