Equity-Indexed Compensation Plans

PAGP Long-Term Incentive Plan Awards

In connection with our IPO in October 2013, our general partner adopted the PAGP LTIP, which is intended to align the interests of employees and directors with those of our shareholders by providing such employees and directors incentive compensation awards that reward achievement of targeted distribution levels and other business objectives. The PAGP LTIP provides for awards of options, restricted shares, phantom shares and share appreciation rights. Certain awards may also include distribution equivalent rights (“DERs”), which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding Class A share. The PAGP LTIP authorizes the issuance of up to approximately 3.8 million Class A shares deliverable upon vesting. In February 2014, an aggregate of 31,242 phantom Class A shares were issued to our directors. These awards vest annually in February in 25% increments and have an automatic re-grant feature such that as they vest, an equivalent amount is granted. As of December 31, 2016, December 31, 2015, and December 31, 2014, less than 0.1 million PAGP LTIP awards were outstanding at each period with weighted average grant date fair values of $59.63, $74.14 and $74.14, respectively. During the years ended December 31, 2016 and 2015, less than 0.1 million PAGP LTIP awards vested and were granted under the automatic re-grant feature for awards issued to our directors. In accordance with FASB guidance regarding share-based payments, the fair value of the PAGP LTIP awards is re-measured based on the closing market price of the underlying PAGP unit at each balance sheet date.

PAA Long-Term Incentive Plan Awards

Plains All American 2013 Long-Term Incentive Plan. In November 2013, PAA’s common unitholders approved the Plains All American 2013 Long-Term Incentive Plan (the “PAA 2013 LTIP”). The PAA 2013 LTIP authorizes the issuance of an aggregate of approximately 10.1 million PAA common units deliverable upon vesting. Although other types of awards are contemplated under the PAA 2013 LTIP, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units of PAA (or cash equivalent) upon vesting. Some awards also include DERs, which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding PAA common unit.

Plains All American PNG Successor Long-Term Incentive Plan. PAA’s general partner has adopted the Plains All American PNG Successor Long-Term Incentive Plan (the “PNG Successor LTIP”). The PNG Successor LTIP authorizes the issuance of an aggregate of 1.3 million PAA common units deliverable upon vesting. Although other types of awards are contemplated under the PNG Successor LTIP, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units of PAA (or cash equivalent) upon vesting. Some awards also include DERs, which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding PAA common unit.

Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan. PAA’s general partner has adopted the Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan (the “2006 Plan”) for non-officer employees. The 2006 Plan authorizes the grant of approximately 10.8 million “tracking units” which, upon vesting, represent the right to receive a cash payment in an amount based upon the market value of a PAA common unit at the time of vesting.

At December 31, 2016, the following LTIP awards, denominated in PAA units, were outstanding (units in millions):



PAA LTIP Units Outstanding ^(1) (2)	PAA Distribution Required ⁽³⁾	Estimated Unit Vesting Date
PAA LTIP Units Outstanding ^(1) (2)	PAA Distribution Required ⁽³⁾	2017	2018	2019	2020	Thereafter	Total
8.9	$2.20-$2.65	1.7	2.1	2.0	1.3	1.8	8.9


⁽¹⁾	Approximately 4.3 million of the 8.9 million outstanding PAA LTIP awards also include DERs, of which 1.6 million had vested as of December 31, 2016.


⁽²⁾	LTIP units outstanding do not include AAP Management Units or PAGP LTIP awards.

⁽³⁾

Certain LTIP awards vest upon the later of a certain date or the attainment of performance conditions requiring the attainment of certain annualized PAA distribution levels or upon the attainment of such levels alone. For purposes of this disclosure, vesting dates are based on an estimate of future distribution levels and assume that all grantees remain employed by us through the vesting date. As of December 31, 2016, a distribution of $2.20 per PAA common unit was deemed probable of occurring in the reasonably foreseeable future (and was initially determined to be probable in the third quarter of 2016).

PAA’s LTIP awards include both liability-classified and equity-classified awards. In accordance with FASB guidance regarding share-based payments, the fair value of liability-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit at each balance sheet date and adjusted for 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. The fair value of equity-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit on the respective grant dates and adjusted for 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 recipient. This fair value is recognized as compensation expense over the service period.

Certain PAA LTIP awards contain performance conditions based on the attainment of certain PAA annualized distribution levels and vest upon the later of a certain date or the attainment of such levels. For awards with performance conditions (such as distribution targets), expense is accrued over the service period only if the performance condition is considered probable of occurring. When awards with performance conditions that were previously considered improbable become probable, we incur additional expense in the period that the probability assessment changes. This is necessary to bring the accrued obligation associated with these awards up to the level it would be if we had been accruing for these awards since the grant date. DER awards typically contain performance conditions based on the attainment of certain PAA annualized distribution levels and become earned upon the attainment of such levels. The DERs terminate with the vesting or forfeiture of the underlying LTIP award. For liability-classified awards, we recognize DER payments in the period the payment is earned as compensation expense. For equity-classified awards, we recognize DER payments in the period they are paid as a reduction of partners’ capital.

During the third quarter of 2016 modifications were made to the vesting criteria of 2.2 million PAA LTIP units such that the awards, with performance conditions requiring the attainment of an annualized PAA distribution in excess of $2.80, no longer include a distribution performance threshold and will vest based solely on the passage of time during the years 2017 to 2020 (0.9 million of these units would have vested based on the passage of time, but will vest earlier following the modification). There are awards outstanding that were issued prior to the modification in the third quarter of 2016 which had performance conditions requiring the attainment of an annualized PAA distribution between $2.30 and $2.80 which have been satisfied and those awards will vest at the later of the date stated in each award’s respective grant letter.

Our accrued liability at December 31, 2016 related to all outstanding liability-classified PAA LTIP awards and DERs was $38 million, of which $25 million was classified as short-term and $13 million was classified as long-term. These short- and long-term accrued LTIP liabilities are reflected in “Accounts payable and accrued liabilities” and “Other long-term liabilities and deferred credits,” respectively, on our Consolidated Balance Sheets. These liabilities include accruals associated with our assessment that an annualized PAA distribution of $2.20 per unit is probable of occurring in the reasonably foreseeable future (which was initially determined to be probable in the third quarter of 2016). At December 31, 2015, the accrued liability was $33 million, of which $20 million was classified as short-term and $13 million was classified as long-term.

Activity for LTIP awards under our equity-indexed compensation plans denominated in PAA units is summarized in the following table (units in millions):



	PAA Units ^(1) (2)
	Units		Weighted Average Grant Date Fair Value per Unit
Outstanding at December 31, 2013	8.4		$	36.97
Granted	1.2		$	47.68
Vested	(1.9	)	$	25.49
Cancelled or forfeited	(0.4	)	$	40.14
Outstanding at December 31, 2014	7.3		$	41.45
Granted	2.1		$	28.76
Vested	(2.1	)	$	28.91
Cancelled or forfeited	(0.4	)	$	44.56
Outstanding at December 31, 2015	6.9		$	41.23
Granted	4.5		$	23.38
Vested	(1.9	)	$	45.91
Modified ⁽³⁾	—		$	(8.21	)
Cancelled or forfeited	(0.6	)	$	37.19
Outstanding at December 31, 2016	8.9		$	29.62


⁽¹⁾	Amounts do not include AAP Management Units or PAGP LTIP awards.

⁽²⁾

Approximately 0.5 million, 0.5 million and 0.6 million PAA common units were issued, net of tax withholding of approximately 0.3 million, 0.3 million and 0.3 million units during 2016, 2015 and 2014, respectively, in connection with the settlement of vested awards. The remaining PAA awards (approximately 1.1 million, 1.3 million and 1.0 million units) that vested during 2016, 2015 and 2014, respectively, were settled in cash.


⁽³⁾	During the third quarter of 2016 modifications were made to the vesting criteria of 2.2 million PAA LTIP units. In accordance with FASB guidance on share-based payments, the grant date fair values of these awards were adjusted as of the modification date.

AAP Management Units

In August 2007, the owners of AAP authorized the issuance of AAP Management Units (a profits interest) in order to provide additional long-term incentives and encourage retention for certain members of our senior management. In the third quarter of 2016, modifications were made to the distribution performance thresholds of the 0.8 million unearned AAP Management Units such that the awards will become earned based on the attainment of PAA distribution levels between $2.20 and $2.40 and additional performance conditions based on distributable cash flow measures determined by management. Additionally, this plan has been discontinued and there will be no new grants of AAP Management Units. As of December 31, 2016, 0.8 million AAP Management Units were unearned. Once earned, PAA will issue to AAP approximately 0.941 common units for each AAP Management Unit and each AAP Management Unit will be entitled to a distribution equal to approximately 94.1% of the distribution paid by AAP to an AAP unit on a quarterly basis. Once vested, each AAP Management Unit holder 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 and Class B shares for each AAP Management Unit. Following any such conversion, the holder will have the Exchange Right for our Class A shares and redemption right for PAA common units. See Note 11 for additional information.

The following is a summary of activity of AAP Management Units (in millions):



	Outstanding		Outstanding Units Earned		Grant Date Fair Value of Outstanding AAP Management Units ⁽¹⁾
Balance at December 31, 2014	18.4		17.9		$	64
Granted	0.6		—		24
Earned	N/A		0.3		N/A
Balance at December 31, 2015	19.0		18.2		$	88
Modified⁽²⁾	—		—		(17		)
Converted	(15.6	)	(15.6	)	(36		)
Balance at December 31, 2016	3.4		2.6		$	35


⁽¹⁾	Of the $35 million grant date fair value, $22 million had been recognized through December 31, 2016 on a cumulative basis. Of this amount, $2 million, $1 million and $7 million was recognized as expense during the years ended December 31, 2016, 2015 and 2014, respectively.


⁽²⁾	During the third quarter of 2016 modifications were made to the distribution performance thresholds of the 0.8 million unearned AAP Management Units. In accordance with FASB guidance on share-based payments, the grant date fair values of these awards were adjusted as of the modification date.

As the intent of the AAP Management Units is to provide a performance incentive and encourage retention for certain members of PAA’s senior management, we recognize the grant date fair value of the AAP Management Units as compensation expense over the service period, with a corresponding credit to partners’ capital on our Consolidated Financial Statements.

Other Consolidated Equity-Indexed Compensation Plan Information

We refer to all of the LTIPs and AAP Management Units collectively as our “equity-indexed compensation plans.” The table below summarizes the expense recognized and the value of vested LTIP awards (settled in PAA common units, PAGP shares and cash) under our equity-indexed compensation plans and includes both liability-classified and equity-classified awards (in millions):



	Year Ended December 31,
	2016		2015		2014
Equity-indexed compensation expense	$	60	$	27	$	99
LTIP unit- or share-settled vestings	$	24	$	37	$	53
LTIP cash-settled vestings	$	28	$	66	$	53
DER cash payments	$	6	$	8	$	8

Based on the December 31, 2016 fair value measurement and probability assessment regarding future distributions, we expect to recognize $135 million of additional expense over the life of outstanding awards related to the remaining unrecognized fair value. Actual amounts may differ materially as a result of a change in the market price of PAA’s units and PAGP’s shares and/or probability assessments regarding future distributions. We estimate that the remaining fair value will be recognized in expense as shown below (in millions):



Year	Equity-Indexed Compensation Plan Fair Value Amortization ^(1) (2)
2017	$	65
2018	42
2019	19
2020	7
2021	2
Total	$	135


⁽¹⁾	Amounts do not include fair value associated with awards containing performance conditions that are not considered to be probable of occurring at December 31, 2016.


⁽²⁾	Includes unamortized fair value associated with AAP Management Units and PAGP LTIP awards.