UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number: 1-14569

PLAINS ALL AMERICAN PIPELINE, L.P.

(Exact name of registrant as specified in its charter)

333 Clay Street, Suite 1600, Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

(713) 646-4100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

At May 1, 2008, there were outstanding 115,981,676 Common Units.

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except units)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per unit data)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(in millions)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME

(in millions)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Organization and Accounting Policies

As used in this Form 10-Q, the terms “Partnership,” “Plains,” “we,” “us,” “our,” “ours” and similar terms refer to Plains All American Pipeline, L.P. and its subsidiaries, unless the context indicates otherwise. References to our “general partner,” as the context requires, include any or all of PAA GP LLC, Plains AAP, L.P. and Plains All American GP LLC.

We are engaged in the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas-related petroleum products. We refer to liquefied petroleum gas and other natural gas-related petroleum products collectively as “LPG.” Through our 50% equity ownership in PAA/Vulcan Gas Storage, LLC (“PAA/Vulcan”), we are also involved in the development and operation of natural gas storage facilities.

Our condensed consolidated interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto presented in our 2007 Annual Report on Form 10-K. The financial statements have been prepared in accordance with the instructions for interim reporting as prescribed by the Securities and Exchange Commission. All adjustments (consisting only of normal recurring adjustments) that in the opinion of management were necessary for a fair statement of the results for the interim periods have been reflected. All significant intercompany transactions have been eliminated. The results of operations for the three months ended March 31, 2008 should not be taken as indicative of the results to be expected for the full year.

The accompanying condensed consolidated financial statements include Plains and all of its wholly owned subsidiaries. Investments in 50% or less owned entities over which we have significant influence but not control are accounted for by the equity method.  During the first quarter of 2008, we made an additional investment of $13 million in PAA/Vulcan. This investment did not result in an increase in our ownership interest.

Note 2—Recent Accounting Pronouncements

In March 2008, the Emerging Issues Task Force (“EITF”) issued Issue No. 07-04 (“EITF 07-04”), “Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships.”  EITF 07-04 addresses the application of the two-class method under Statement of Financial Accounting Standard (“SFAS”) 128 in determining income per unit for master limited partnerships (“MLPs”) having multiple classes of securities that may participate in partnership distributions according to a formula specified in the partnership agreement. The two-class method is an earnings allocation formula that determines earnings per unit for each class of common units and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. EITF 07-04 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and earlier application is not permitted. We are evaluating the impact of adoption of EITF 07-04.

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of SFAS 115” (“SFAS 159”), which allows entities to choose, at specified election dates, to measure eligible financial assets and financial liabilities at fair value, on an instrument-by-instrument basis, in situations where they are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings.  The standard also establishes presentation and disclosure requirements designed to draw comparisons between the different measurement attributes elected for similar types of assets and liabilities.  We have adopted SFAS 159 as of the beginning of 2008; however, we have elected not to apply the fair value option to any of our financial assets or liabilities existing at the time of adoption.  We will continue to evaluate all new financial assets and liabilities for treatment under SFAS 159.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures regarding fair value measurements. SFAS 157 does not add any new fair value measurements, but it does change current practice and is intended to increase consistency and comparability in such measurements. SFAS 157 also (i) establishes that fair value is based on a hierarchy of inputs into the valuation process, (ii) clarifies that an issuer’s credit standing should be considered when measuring liabilities at fair value, (iii) precludes the use of a liquidity or block discount when measuring instruments traded in an actively quoted market at fair value and (iv) requires costs relating to acquiring instruments carried at fair value to be recognized as expense when incurred.  SFAS 157 requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best available information.  These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the valuation technique.

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The provisions of SFAS 157 were deferred for one year for certain non-financial assets and non-financial liabilities, including our asset retirement obligations, goodwill, intangible assets and long-lived assets.  We have adopted SFAS 157 as of January 1, 2008 with the exception of those assets and liabilities that are subject to the deferral.

The provisions of SFAS 157 are to be applied prospectively, except for the initial impact of three specific items that are required to be recorded as a transition adjustment to beginning retained earnings in the year of adoption. We did not recognize a transition adjustment because the three specific items were not applicable to us.  SFAS 157 also requires new disclosures regarding the level of pricing observability associated with financial instruments carried at fair value.  See Note 10 for additional disclosure.

Note 3—Trade Accounts Receivable

Our accounts receivable are primarily from purchasers and shippers of crude oil and, to a lesser extent, purchasers of refined products and LPG. These purchasers include refineries, marketing and trading companies and financial institutions that are active in the physical and financial commodity markets. The majority of our accounts receivable relate to our marketing activities that can generally be described as high volume and low margin activities, in many cases involving exchanges of crude oil volumes. Recent turmoil in the financial markets, which escalated late in the first quarter of 2008, resulted in unprecedented actions by the Federal Reserve Bank to provide liquidity to financial institutions. We believe these conditions, combined with significant energy price volatility, have increased the potential credit risks associated with certain financial institutions and trading companies with which we do business. We closely monitor these conditions and make a determination of the amount, if any, of credit to be extended to any given customer and the form and amount of financial performance assurances we require. Such financial assurances are commonly provided to us in the form of standby letters of credit, advance cash payments or “parental” guarantees. At March 31, 2008 and December 31, 2007, we had received approximately $49 million and $43 million, respectively, of advance cash payments and prepayments from third parties to mitigate credit risk. In addition, we enter into netting arrangements with most of our counterparties. These arrangements cover a significant portion of our transactions and also serve to mitigate credit risk.

We review all outstanding accounts receivable balances on a monthly basis and record a reserve for amounts that we expect will not be fully recovered. Actual balances are not applied against the reserve until substantially all collection efforts have been exhausted. At March 31, 2008 and December 31, 2007, substantially all of our net accounts receivable classified as current assets were less than 60 days past their scheduled invoice date, and our allowance for doubtful accounts receivable totaled approximately $1 million and $1 million, respectively. Although we consider our allowance for doubtful trade accounts receivable to be adequate, actual amounts may vary significantly from estimated amounts.

Note 4—Acquisitions and Dispositions

We did not complete any acquisitions during the first quarter of 2008.  However, during April 2008, we signed a definitive agreement to acquire all of the shares of Rainbow Pipe Line Company, Ltd. (“Rainbow”) for approximately Canadian $540 million in cash. In conjunction with signing the agreement, we paid a deposit of approximately $54 million. Rainbow’s assets include approximately 480 miles of mainline crude oil pipelines, approximately 140 miles of gathering pipelines and approximately 570,000 barrels of tankage along the system. Upon closing, we will also acquire approximately 1 million barrels of crude oil linefill at a value based on crude oil prices at such time.  The system currently has a throughput capacity of approximately 200,000 barrels per day and 2007 volumes on the system averaged approximately 195,000 barrels per day.  The acquisition is expected to close in the second quarter of 2008 and the acquired operations will be reflected primarily in our transportation segment. The transaction is subject to receipt of regulatory approvals and satisfaction of customary closing conditions.

In anticipation of closing the Rainbow acquisition, we recently entered into forward currency exchange contracts, which exchange Canadian dollars and US dollars, to hedge the foreign currency exchange risk inherent in the acquisition price. Additionally, we entered into a financial option strategy, whereby we established a minimum and maximum per barrel price to hedge the commodity price risk associated with the anticipated purchase of crude oil linefill.

Note 5—Inventory and Linefill

Inventory and linefill consisted of (barrels in thousands and dollars in millions, except per barrel amounts):

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(1)      Includes the impact of inventory hedges on a portion of our volumes.

(2)      The prices listed represent a weighted average associated with various grades and qualities of crude oil, LPG and refined products and, accordingly, are not comparable metrics with published benchmarks for such products.

Note 6—Debt

Debt consisted of the following (in millions):

(1)      At March 31, 2008 and December 31, 2007, we have classified as short-term $284 million and $482 million, respectively, of borrowings under our senior unsecured revolving credit facility. These borrowings are designated as working capital borrowings, must be repaid within one year, and are primarily for hedged LPG and crude oil inventory and New York Mercantile Exchange (“NYMEX”) and Intercontinental Exchange (“ICE”) margin deposits.

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(2)      Includes adjustment related to fair value hedge.  Fair value hedge accounting was discontinued subsequent to June 30, 2007. The outstanding balance will be amortized over the remaining life of the underlying debt. Also includes the long-term portion of our revolving credit facility borrowings.

In April 2008, we completed the issuance of $600 million of 6.5% Senior Notes due May 1, 2018. The senior notes were sold at 99.424% of face value. Interest payments are due on May 1 and November 1 of each year, beginning on November 1, 2008. We used the net proceeds from the offering to repay amounts outstanding under our credit facilities. We may borrow under our credit facilities to fund our capital program, including the acquisition of Rainbow and other acquisitions, and for general partnership purposes. These notes were co-issued by us and a wholly-owned consolidated finance subsidiary and are guaranteed by substantially all of our subsidiaries other than (i) PAA Finance Corp., the co-issuer of the notes, (ii) subsidiaries that are minor, and (iii) subsidiaries regulated by the California Public Utilities Commission. See Note 14.

Letters of Credit

In connection with our crude oil marketing activities, we provide certain suppliers with irrevocable standby letters of credit to secure our obligation for the purchase of crude oil. These letters of credit are issued under our senior unsecured revolving credit facility, and our liabilities with respect to these purchase obligations are recorded in accounts payable on our balance sheet in the month the crude oil is purchased. Generally, these letters of credit are issued for periods of up to seventy days and are terminated upon completion of each transaction. At March 31, 2008 and December 31, 2007, we had outstanding letters of credit of approximately $91 million and $153 million, respectively.

Note 7—Earnings Per Limited Partner Unit

Except as discussed below, basic and diluted net income per limited partner unit is determined by dividing net income after deducting the amount allocated to the general partner (including the incentive distribution interest in excess of the 2% general partner interest) by the weighted average number of outstanding limited partner units during the period.  Subject to applicability of EITF Issue No. 03-06 (“EITF 03-06”), “Participating Securities and the Two-Class Method under FASB Statement No. 128,” as discussed below, Partnership income is first allocated to the general partner based on the amount of incentive distributions. The remainder is then allocated between the limited partners and general partner based on percentage ownership in the Partnership.

EITF 03-06 addresses the computation of earnings per share by entities that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the entity when, and if, it declares dividends on its common stock.  Essentially, EITF 03-06 provides that in any accounting period during which our aggregate net income exceeds our aggregate distribution for such period, we are required to present earnings per unit as if all of the earnings for the periods had been distributed, regardless of the pro forma nature of this allocation and whether those earnings would actually be distributed during a particular period from an economic or practical perspective. EITF 03-06 does not impact our overall net income or other financial results; however, for periods in which aggregate net income exceeds our aggregate distributions for such period, it will have the impact of reducing the earnings per limited partner unit. This result occurs because a larger portion of our aggregate earnings is allocated (as if distributed) to our general partner, even though we make cash distributions on the basis of cash available for distributions, not earnings, in any given accounting period. In accounting periods where aggregate net income does not exceed our aggregate distributions for such period, EITF 03-06 does not have any impact on our earnings per unit calculation.  The application of EITF
03-06 had no impact for the three months ended March 31, 2008 or for the three months ended March 31, 2007. Effective January 1, 2009, we will adopt the provisions of EITF 07-04. See Note 2 for further discussion.

The following table sets forth the computation of basic and diluted earnings per limited partner unit.  The net income available to limited partners and the weighted average limited partner units outstanding have been adjusted for the dilutive impact of units outstanding under our long-term incentive plans (“LTIP”) at March 31, 2008 and 2007 (amounts in millions, except per unit data).

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(1)      Our LTIP awards described in Note 9 that contemplate the issuance of common units are considered dilutive unless (i) vesting occurs only upon the satisfaction of a performance condition and (ii) that performance condition has yet to be satisfied. The dilutive securities are reduced by a hypothetical unit repurchase based on the remaining unamortized fair value, as prescribed by the treasury stock method in SFAS No. 128, “Earnings per Share.”

Note 8—Partners’ Capital and Distributions

Distributions

The following table details the distribution we declared subsequent to the first quarter of 2008 and distributions declared and paid in the three months ended March 31, 2008 and 2007 (in millions, except per unit amounts):

(1)  Payable to unitholders of record on May 5, 2008, for the period January 1, 2008 through March 31, 2008.

Upon closing of the Pacific acquisition, our general partner agreed to reduce the amounts due it as incentive distributions. The total reduction in incentive distributions related to Pacific will be $65 million. Following the distribution in May 2008, the aggregate remaining incentive distribution reductions related to Pacific will be approximately $38 million.

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Note 9—Equity Compensation Plans

Long-Term Incentive Plans

Our general partner has adopted the Plains All American GP LLC 1998 Long-Term Incentive Plan (the “1998 Plan”) and the 2005 Long-Term Incentive Plan (the “2005 Plan”) for employees and directors, the PPX Successor Long-Term Incentive Plan (the “PPX Successor Plan”) for former Pacific employees and new hires since the closing of the Pacific acquisition, and the Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan (the “2006 Plan”) for non-officer employees. The 1998 Plan, 2005 Plan and PPX Successor Plan authorize the grant of an aggregate of 5.4 million common units deliverable upon vesting. Although other types of awards are contemplated under the plans, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units (or cash equivalent) upon vesting. Some awards also include distribution equivalent rights (“DERs”). Subject to applicable earning criteria, a DER entitles the grantee to a cash payment equal to the cash distribution paid on an outstanding common unit. The 2006 Plan authorizes the grant of approximately 1.4 million “tracking units” which, upon vesting, represent the right to receive a cash payment in an amount based upon the market value of a common unit at the time of vesting. Our general partner will be entitled to reimbursement by us for any costs incurred in settling obligations under the plans.

Under SFAS No. 123(R) “Share Based Payment,” (“SFAS 123(R)”) the fair value of our LTIP awards, which are subject to liability classification, is calculated based on the closing market price of our units at each balance sheet date adjusted for (i) the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipients and (ii) an estimated forfeiture rate when appropriate. This fair value is recognized as compensation expense over the period the awards are earned. Our LTIP awards typically contain performance conditions based on attainment of certain annualized distribution levels, and vest upon the later of a certain date or the attainment of such levels. For awards with performance conditions, we recognize compensation expense only if the achievement of the performance condition is considered probable, and amortize that expense over the service period. At the time when performance conditions are first deemed probable of occurring, we incur additional LTIP compensation expense necessary to adjust the life-to-date accrued liability associated with the affected awards. Our DER awards typically contain performance conditions based on attainment of certain annualized distribution levels and become earned upon the earlier of a certain date or the attainment of such levels. The DERs terminate with the vesting or forfeiture of the underlying LTIP award. We recognize compensation expense for DER payments in the period the payment is earned.

At March 31, 2008 we have the following LTIP awards outstanding (units in millions):

(1)      Upon our February 2007 annualized distribution of $3.20, these LTIP awards satisfied all distribution requirements and will vest upon completion of the respective service periods.

(2)      These LTIP awards have performance conditions requiring the attainment of an annualized distribution of between $3.50 and $4.00 and vest upon the later of a certain date or the attainment of such levels. If the performance conditions are not attained, these awards will be forfeited. The awards are presented above assuming the distribution levels are attained and that the awards will vest on the earliest date possible regardless of our current assessment of probability.

(3)      These LTIP awards have performance conditions requiring the attainment of an annualized distribution of between $3.50 and $4.00. Fifty percent of these awards will vest in 2012 regardless of whether the performance conditions are attained. The awards are presented above assuming the distribution levels are attained and the early vesting requirements are met.

(4)      Approximately 2.1 million of our 3.5 million outstanding LTIP awards also include DERs, of which 1.3 million are currently earned.

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(5)      LTIP units outstanding do not include Class B units of Plains AAP, L.P. described below.

Our LTIP activity is summarized in the following table (in millions, except weighted average grant date fair values per unit):

Our accrued liability at March 31, 2008 related to all outstanding LTIP awards and DERs is approximately $52 million, which includes an accrual associated with our assessment that an annualized distribution of $3.50 is probable of occurring. We have not deemed a distribution of more than $3.50 to be probable.  At December 31, 2007, the accrued liability was approximately $51 million.

Class B Units of Plains AAP, L.P.

In August 2007, the owners of Plains AAP, L.P. authorized the creation and issuance of up to 200,000 Class B units of Plains AAP, L.P., to be administered by the compensation committee. At March 31, 2008, approximately 154,000 Class B units have been granted and the remaining units are reserved for future grants. The Class B restricted units are earned in 25% increments upon us achieving annualized distribution levels of $3.50, $3.75, $4.00 and $4.50 (or in some cases, within six months thereof). When earned, the Class B units are entitled to participate in distributions paid by Plains AAP, L.P. in excess of $11 million per quarter. Assuming all 200,000 Class B units were granted and earned, the maximum participation would be 8% of Plains AAP, L.P.’s distribution in excess of $11 million each quarter. Although the entire economic burden of the Class B units, which are equity classified, is borne solely by Plains AAP, L.P. and does not impact our cash or units outstanding, the intent of the Class B units is to provide a performance incentive and encourage retention for certain members of our senior management. Therefore, we recognize the grant date fair value of the Class B units as compensation expense over the service period. The expense is also reflected as a capital contribution and results in a corresponding credit to Partners’ Capital in our Condensed Consolidated Financial Statements. The total grant date fair value of the 154,000 Class B units outstanding at March 31, 2008 was approximately $34 million, of which approximately $3 million was recognized as expense during the three months ended March 31, 2008.

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Other Consolidated Information

We refer to our LTIP Plans and the Class B units collectively as our “equity compensation plans.” The table below summarizes the expense recognized and the value of vestings (settled both in units and cash) related to our equity compensation plans (in millions):

Based on the March 31, 2008 fair value measurement and probability assessment regarding future distributions, we expect to recognize approximately $53 million of additional expense over the life of our outstanding awards under our equity compensation plans related to the remaining unrecognized fair value. This estimate is based on the closing market price of our units of $47.54 at March 31, 2008. Actual amounts may differ materially as a result of a change in market price and/or probability assessment regarding future distributions. We estimate that the remaining fair value will be recognized in expense as shown below (in millions):

(1)      Amounts do not include fair value associated with awards containing performance conditions that are not considered to be probable of occurring at March 31, 2008.

(2)      Includes equity compensation plan fair value amortization for the remaining nine months of 2008.

Note 10—Derivative Instruments and Hedging Activities

The derivative instruments we use consist primarily of futures and options contracts traded on the NYMEX, the ICE and over-the-counter, including commodity swap and option contracts entered into with financial institutions and other energy companies.

Summary of Financial Impact

A summary of the earnings impact of all derivative activities, including the change in fair value of open derivatives and settled derivatives recognized in earnings, is as follows (in millions, losses designated in parentheses):

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