Partners’ Capital and Distributions

Our Shares

Our Class A shares, Class B shares and Class C shares represent limited partner interests in us. The holders of our Class A and Class B shares are entitled to exercise the rights or privileges available to limited partners under our partnership agreement, but only holders of Class A shares are entitled to participate in our distributions. The Class C shares, which were created and issued to PAA as part of the Simplification Transactions, are non-economic, and provide PAA, as the sole holder, rights with respect to director nominations and voting rights in director elections together with the holders of our Class A and Class B shares, commencing in 2018.

Exchange and Redemption Rights

Holders of AAP units and their permitted transferees each have the right to exchange all or a portion of their AAP units for Class A shares at an exchange ratio of one Class A share for each AAP unit exchanged (referred to herein as their “Exchange Right”). This Exchange Right may be exercised only if, simultaneously therewith, an equal number of Class B shares and general partner units are transferred by the exercising party to us. Additionally, a holder of vested AAP Management Units is entitled to convert his or her AAP Management Units into AAP units and a like number of our Class B shares based on a conversion ratio of approximately 0.941 AAP units for each AAP Management Unit. Following any such conversion, the holder will have the Exchange Right for our Class A shares. Holders of AAP Management Units who convert such units into AAP units and Class B shares will not receive general partner units and thus will not need to include any general partner units in a transfer or the exercise of their Exchange Right. See Note 16 for additional information regarding the AAP Management Units and Note 13 for additional information regarding the deferred tax asset associated with the Exchange Right.

Additionally, subject to certain limitations during the first twelve months following the closing of the Simplification Transactions, a holder of AAP units (other than us and GP LLC) will have the right (a “Redemption Right”) to cause AAP to redeem any or all of such holder’s AAP units in exchange for the distribution of an equivalent number of PAA common units held by AAP (“AAP Unit Redemption”). In connection with any AAP Unit Redemption, the redeeming holder will transfer the AAP units to AAP and a corresponding number of Class B shares and general partner units (if any), in each case, to us. The AAP units transferred to AAP will be canceled, the Class B shares transferred to us will be canceled and the general partner units transferred to us will remain outstanding and increase our ownership percentage in our general partner.

Continuous Offering Program

On December 27, 2016, we entered into an equity distribution agreement pursuant to which we may, from time to time through sales agents, sell Class A shares representing limited partnership interests having an aggregate offering price of up to $500 million. We had not issued any Class A shares under our continuous offering program as of December 31, 2016.

Pursuant to the Omnibus Agreement entered into in conjunction with the Simplification Transactions, we have agreed to use the net proceeds from any public or private offering and sale of Class A shares, after deducting the sales agents’ commissions and offering expenses, to purchase from AAP a number of AAP units equal to the number of Class A shares sold in such offering at a price equal to the net proceeds from such offering. The Omnibus Agreement also provides that immediately following such purchase and sale, AAP will use the net proceeds it receives from such sale of AAP units to us to purchase from PAA an equivalent number of common units of PAA.

Shares Outstanding

The following table presents the activity for our Class A shares, Class B shares and Class C shares:



	Class A Shares	Class B Shares		Class C Shares
Balance at December 31, 2013	50,257,321	177,319,493		—
Shares issued/(exchanged) in connection with Exchange Right exercises ⁽¹⁾	27,450,437	(27,450,437	)	—
Balance at December 31, 2014	77,707,758	149,869,056		—
Shares issued/(exchanged) in connection with Exchange Right exercises	8,383,468	(8,383,468	)	—
Shares issued in connection with PAGP LTIP award vestings	7,811	—		—
Balance at December 31, 2015	86,099,037	141,485,588		—
Shares issued in connection with conversion of AAP Management Units	—	14,693,093		—
Shares issued/(exchanged) in connection with Exchange Right exercises	15,099,678	(15,099,678	)	—
Shares issued in connection with PAGP LTIP award vestings	7,811	—		—
Shares issued in connection with the Simplification Transactions	—	—		477,648,826
Shares issued in connection with PAA common unit issuances	—	—		11,226,520
Shares issued/(redeemed) in connection with Redemption Right exercises	—	(3,035,517	)	3,035,517
Balance at December 31, 2016	101,206,526	138,043,486		491,910,863


⁽¹⁾	Includes 25,910,938 Class A shares issued to Oxy immediately preceding the sale of such shares in an underwritten secondary public offering.

Distributions

We distribute 100% of our available cash within 55 days following the end of each quarter to Class A shareholders of record. Available cash is generally defined as all cash on hand at the date of determination of available cash for the distribution in respect to such quarter (including expected distributions from AAP in respect of such quarter), less reserves established by our general partner for future requirements.

The following table details the distributions paid to Class A shareholders during the periods indicated (in millions, except per share data):



Year	Distributions Paid		Distributions per Class A Share
2016	$	234	$	2.40
2015	$	195	$	2.35
2014 ⁽¹⁾	$	91	$	1.78


⁽¹⁾	The distribution paid to our Class A shareholders in the first quarter of 2014 was based on the prorated distribution received from AAP attributable to the period beginning on the date of the closing of our IPO through the end of the fourth quarter of 2013.

On January 9, 2017, we declared a cash distribution of $0.55 per outstanding Class A share. This distribution of $57 million was paid on February 14, 2017 to shareholders of record at the close of business on January 31, 2017, for the period October 1, 2016 through December 31, 2016.

Other Comprehensive Income/(Loss)

Other comprehensive income/(loss) attributable to our Class A shareholders is comprised solely of their proportionate share of PAA’s other comprehensive income/(loss) based on our indirect ownership interest in PAA during the period.

Consolidated Subsidiaries

Noncontrolling Interests in Subsidiaries

As of December 31, 2016, noncontrolling interests in our subsidiaries consisted of (i) a 67% limited partner interest in PAA, (ii) an approximate 58% limited partner interest in AAP and (iii) a 25% interest in SLC Pipeline LLC.

Subsidiary Distributions

PAA Cash Distributions. PAA distributes 100% of its available cash within 45 days following the end of each quarter to unitholders of record, including AAP. Available cash is generally defined as all of PAA’s cash and cash equivalents on hand at the end of each quarter, less reserves established by its general partner for future requirements.

The following table details distributions paid by PAA (in millions, except per unit data):



	Distributions Paid						Distributions per common unit
Year	Common Unitholders		AAP ⁽¹⁾		Total		Distributions per common unit
2016	$	1,062	$	565	$	1,627	$	2.65
2015	$	1,081	$	590	$	1,671	$	2.76
2014	$	934	$	473	$	1,407	$	2.55


⁽¹⁾	During the years ended December 31, 2016, 2015 and 2014, AAP’s incentive distributions were reduced by approximately $18 million, $22 million and $23 million, respectively, which were agreed to in connection with certain acquisitions.

On January 9, 2017, PAA declared a cash distribution of $0.55 per unit on its outstanding common units. The total distribution of $371 million was paid on February 14, 2017 to unitholders of record on January 31, 2017, for the period October 1, 2016 through December 31, 2016.

Prior to the Simplification Transactions, AAP was entitled to receive (i) distributions representing its 2% indirect general partner interest in PAA and (ii) as the holder of PAA’s IDRs, incentive distributions if the amount PAA distributed with respect to any quarter exceeded certain specified levels. Under the quarterly distribution provisions contained in PAA’s partnership agreements effective prior to the Simplification Transactions, AAP was entitled directly and indirectly, without duplication and except for the agreed upon adjustments discussed below, to 2% of amounts PAA distributed up to $0.2250 per unit, referred to as the minimum quarterly distribution, 15% of amounts PAA distributed in excess of $0.2250 per unit, 25% of the amounts PAA distributed in excess of $0.2475 per unit and 50% of amounts PAA distributed in excess of $0.3375 per unit.

PAA In-kind distributions. In 2016, PAA issued 3,358,726 additional Series A preferred units in lieu of cash distributions of $89 million. On February 14, 2017, PAA issued 1,287,773 additional Series A preferred units in lieu of a cash distribution of $34 million.

AAP Distributions. AAP distributes all of the cash received from PAA distributions on a quarterly basis, less reserves established in the discretion of its general partner for future requirements. Generally, distributions are paid to its partners in proportion to their percentage interest in AAP. The following table details the distributions to AAP’s partners paid during the periods indicated from distributions received from PAA (in millions):



								Distributions to AAP’s Partners
Year	Available Cash Before Reserves			Cash Reserves				Total		Noncontrolling Interests		PAGP
Year	Available Cash Before Reserves			Cash Reserves				Total		Noncontrolling Interests		PAGP
2016	$	598	⁽²⁾	$	(11	)	⁽³⁾	$	587	$	353	$	234
2015	$	590		$	(14	)		$	576	$	380	$	196
2014 ⁽¹⁾	$	473		$	(14	)		$	459	$	368	$	91

⁽¹⁾

The distribution paid by AAP in the first quarter of 2014 was prorated as of the date of the consummation of our IPO, such that the owners of AAP prior to our IPO received the portion of the distribution attributable to the period prior to our IPO, and the owners of AAP at the date of record of January 31, 2014, including us, received the portion of the distribution attributable to the period beginning on the date of the IPO through the end of the fourth quarter of 2013.

⁽²⁾

Includes $33 million that was borrowed under the AAP senior secured revolving credit facility. AAP agreed to borrow funds under its credit agreement as necessary to make a special true-up distribution to its partners that, when added to the distributions paid to AAP in respect of its 2% general partner interest in PAA and the IDRs, equaled the total distribution its partners would have received if the closing of the Simplification Transactions had occurred immediately prior to the record date for the third quarter distribution.

⁽³⁾

The amount of the distribution paid to AAP’s partners in November 2016 assumed that the Simplification Transactions had closed as of the date of record for the third quarter distribution. Pursuant to the Omnibus Agreement entered into as part of the Simplification Transactions, AAP’s expenses will be paid by PAA. Therefore, no cash was reserved from this distribution for future expenses of AAP.

On February 14, 2017, AAP distributed $134 million to its partners from distributions received from PAA. Of this amount, $77 million was distributed to noncontrolling interests and $57 million was distributed to us.

Other Distributions. During the years ended December 31, 2016, 2015 and 2014, distributions of $4 million, $3 million and $3 million, respectively, were paid to noncontrolling interests in SLC Pipeline LLC.

Issuance of Units by Subsidiaries

PAA Common Unit Issuances. PAA has entered into several equity distribution agreements under its Continuous Offering Program, pursuant to which PAA may offer and sell, through sales agents, common units representing limited partner interests. In addition to its Continuous Offering Program, PAA may sell common units through overnight or underwritten offerings.

The following table summarizes PAA’s issuance of common units in connection with its Continuous Offering Program and underwritten offerings (net proceeds in millions):



Year	Type of Offering	Units Issued	Net Proceeds ⁽¹⁾
2016 Total	Continuous Offering Program	26,278,288	$	796	⁽²⁾

2015	Continuous Offering Program	1,133,904	$	58	⁽²⁾
2015	Underwritten Offering	21,000,000	1,041
2015 Total		22,133,904	$	1,099

2014 Total	Continuous Offering Program	15,375,810	$	848	⁽²⁾


⁽¹⁾	Amounts are net of costs associated with the offerings.


⁽²⁾	PAA pays commissions to sales agents in connection with common unit issuances under its Continuous Offering Program. PAA paid $8 million, $1 million and $9 million of such commissions during 2016, 2015 and 2014, respectively.

For the period following the Simplification Transactions, the proceeds from the issuance of additional common units are shared pro rata among all of PAA’s common unitholders, including AAP, based on their percentage ownership of common units. Additionally, PAA’s capital attributable to AAP was adjusted, in accordance with ASC 810, to reflect the dilution of its interest in PAA as a result of the issuance of additional common units to the public unitholders. Such adjustments are recognized by PAGP in proportion to PAGP’s ownership interest in AAP, which resulted in a net increase in partners’ capital attributable to PAGP. See Note 13 for additional information regarding the associated impact to the deferred tax asset.

PAA Preferred Unit Issuance. On January 28, 2016 (the “Issuance Date”), PAA completed the private placement of approximately 61.0 million Series A preferred units representing limited partner interests in PAA for a cash purchase price of $26.25 per unit (the “Issue Price”), resulting in total net proceeds, after deducting offering expenses and the 2% transaction fee due to the purchasers, of approximately $1.6 billion. Certain of the purchasers or their affiliates are related parties. See Note 15 for additional information.

The PAA Series A preferred units are a new class of equity security in PAA that ranks senior to all classes or series of equity securities in PAA with respect to distribution rights and rights upon liquidation. The holders of the PAA Series A preferred units receive cumulative quarterly distributions, subject to customary antidilution adjustments, equal to $0.525 per unit ($2.10 per unit annualized). With respect to any quarter ending on or prior to December 31, 2017 (the “Initial Distribution Period”), PAA may elect to pay distributions on the PAA Series A preferred units in additional preferred units, in cash or a combination of both. With respect to any quarter ending after the Initial Distribution Period, PAA must pay distributions on the PAA Series A preferred units in cash.

After two years, the Series A preferred units are convertible at the purchasers’ option into common units on a one-for-one basis, subject to certain conditions, and are convertible at PAA’s option in certain circumstances after three years. For a period of 30 days following (a) the fifth anniversary of the Issuance Date of the PAA Series A preferred units and (b) each subsequent anniversary of the Issuance Date, the holders of the PAA Series A preferred units, acting by majority vote, may make a one-time election to reset the distribution rate to equal the then applicable rate of the ten-year U.S. Treasury plus 5.85% (the “Preferred Distribution Rate Reset Option”). The Preferred Distribution Rate Reset Option is accounted for as an embedded derivative. See Note 12 for additional information.