PAA Natural Gas Storage Reports Third-Quarter 2012 Results

  PAA Natural Gas Storage Reports Third-Quarter 2012 Results

Business Wire

HOUSTON -- November 05, 2012

PAA Natural Gas Storage, L.P. (NYSE: PNG) today reported net income of $17.9
million, or $0.24 per diluted limited partner unit, for the third quarter of
2012, compared to respective results for the third quarter of 2011 of $15.4
million and $0.21. The Partnership reported earnings before interest, taxes,
depreciation, depletion and amortization (“EBITDA”) of $29.3 million for the
third quarter of 2012, compared with EBITDA of $26.3 million for the third
quarter of 2011.

The Partnership’s reported results include items that affect comparability
between reporting periods. These items are excluded from adjusted results, as
further described in the second table below. Accordingly, the Partnership’s
third-quarter 2012 adjusted net income, adjusted net income per diluted
limited partner unit and adjusted EBITDA were $18.3 million, $0.25 and $29.7
million, respectively, as compared to third-quarter 2011 respective results of
$16.0 million, $0.22 and $26.9 million. (See the section of this release
entitled “Non-GAAP and Segment Financial Measures” and the tables included
with this press release for a presentation of adjusted EBITDA and other
non-GAAP financial measures, and reconciliations of such measures to the
comparable GAAP measures.)

“PNG delivered solid third-quarter results above the high-end of our guidance
marking the ninth consecutive quarter PNG has performed in line with or ahead
of guidance. This performance was underpinned by fee-based cash flow
associated with our highly contracted storage capacity along with solid
execution from our commercial optimization team,” said Dean Liollio, President
of PAA Natural Gas Storage. “Our preliminary 2013 guidance reflects the
addition of low-cost storage capacity at Southern Pines and Pine Prairie,
which is expected to largely offset the adverse impact of lease renewals
during challenging natural gas storage market conditions. With strategically
located assets, an attractive portfolio of fee-based storage contracts, a
solid balance sheet and approximately $173 million of committed liquidity, the
Partnership remains well positioned for 2013 and to participate in the
long-term fundamental growth in storage demand.”

The following tables present certain selected financial information for the
applicable periods (amounts in thousands):

                                                            
                    Three Months Ended              Nine Months Ended

                    September 30,                   September 30,
                    2012            2011            2012             2011
                                                                     
Revenues
Firm storage        $ 36,364        $ 35,536        $ 105,646        $ 100,075
services
Hub services
and merchant          28,176          42,548          166,268          81,252
storage ^ (1)
Other                1,587         1,250         3,076          2,791   
Total revenues        66,127          79,334          274,990          184,118
                                                                     
Storage-related       (29,184 )       (45,585 )       (167,549 )       (90,657 )
costs ^ (2)
Field operating       (2,974  )       (3,070  )       (9,030   )       (9,072  )
costs
General and
administrative        (4,641  )       (4,368  )       (14,304  )       (18,193 )
expenses ^(3)
Other income /       (5      )      (7      )      12             10      
(expense), net
EBITDA              $ 29,323       $ 26,304       $ 84,119        $ 66,206  
                                                                     
Selected items
impacting            388           554           3,076          7,659   
comparability
Adjusted EBITDA     $ 29,711       $ 26,858       $ 87,195        $ 73,865  
                                                                     
Reconciliation
to net income:
Depreciation,
depletion and         (9,461  )       (9,193  )       (27,855  )       (24,602 )
amortization
Interest
expense, net of      (1,973  )      (1,666  )      (5,350   )      (3,945  )
capitalized
interest
Adjusted Net        $ 18,277       $ 15,999       $ 53,990        $ 45,318  
Income
                                                                     
Selected items
impacting            (388    )      (554    )      (3,076   )      (7,659  )
comparability
Net income          $ 17,889       $ 15,445       $ 50,914        $ 37,659  
                                                                               

^(1) Includes revenues associated with sales of natural gas through commercial
marketing activities.
^(2) Includes costs associated with natural gas sold through commercial
marketing activities.
^(3) Includes equity compensation expense for all periods presented. The nine
months ended September 30, 2011 include approximately $4 million of
acquisition-related costs.


Third-quarter 2012 adjusted EBITDA increased approximately 11% over the
prior-year period. This increase is primarily associated with additional
capacity being placed into service at Pine Prairie and Southern Pines.

The following table highlights the selected items that the Partnership
believes impact comparability of financial results between reporting periods
(amounts in thousands, except per unit amounts):

                                                           
                        Three Months Ended           Nine Months Ended

                        September 30,                September 30,
Selected Items
Impacting               2012           2011          2012           2011
Comparability -
Income / (Expense):
Equity compensation     $ (1,016 )     $ (681  )     $ (3,148 )     $ (3,339 )
expense
Acquisition-related       -              (5    )       -              (4,055 )
expense
Mark-to-market of
open derivative           628            132           72             235
positions
Insurance
deductible related       -            -           -            (500   )
to property damage
Selected items
impacting               $ (388   )     $ (554  )     $ (3,076 )     $ (7,659 )
comparability
                                                                    
Selected items
impacting               $ (388   )     $ (554  )     $ (3,076 )     $ (7,659 )
comparability
Less: GP 2% portion
of selected items        8            11          62           153    
impacting
comparability
LP 98% portion of
selected items          $ (380   )     $ (543  )     $ (3,014 )     $ (7,506 )
impacting
comparability
                                                                    
Impact to basic net
income per limited      $ (0.01  )     $ (0.01 )     $ (0.04  )     $ (0.11  )
partner unit ^ (1)
Impact to diluted
net income per          $ (0.01  )     $ (0.01 )     $ (0.04  )     $ (0.11  )
limited partner
unit ^(1)
                                                                    

^(1) Includes common units and Series A subordinated units. Series B
subordinated units are not entitled to cash distributions unless and until
they convert to Series A subordinated units or common units, which conversion
is contingent on our meeting both certain distribution levels and certain
in-service operational tests at our Pine Prairie facility. As a result, the
Series B subordinated units are not included in the calculation of basic or
diluted net income per unit amounts.


The Partnership’s common units and Series A subordinated units outstanding as
of September 30, 2012 totaled 71.1 million. An additional 13.5 million Series
B subordinated units (which are not currently entitled to receive
distributions) are outstanding and do not convert to Series A subordinated
units unless certain performance conditions are met. At September 30, 2012,
the Partnership had approximately $375 million of borrowings outstanding on
its $550 million unsecured credit facility.

The Partnership has announced a quarterly distribution of $0.3575 ($1.43 on an
annualized basis) per unit payable November 14, 2012 on its outstanding common
units and Series A subordinated units. Including the distribution payable in
November, limited partner distributions paid in 2012 represent an increase of
2.7% over limited partner distributions paid in 2011.

Prior to its November 6^th conference call, the Partnership will furnish a
current report on Form 8-K, which will include material in this press release
and financial and operational guidance for the fourth-quarter and full year
2012. A copy of the Form 8-K will be available on the Partnership’s website at
www.pnglp.com.

Non-GAAP and Segment Financial Measures

Adjusted EBITDA is presented because it is the primary measure used by
management to evaluate segment performance and because we believe it provides
additional information with respect to both the performance of our fundamental
business activities as well as our ability to meet our future debt service,
capital expenditures and working capital requirements. We also believe that
adjusted EBITDA is used to assess our operating performance compared to other
publicly traded partnerships in the midstream energy industry, without regard
to financing methods, capital structure or historical cost basis. In addition,
we present selected items that impact the comparability of our operating
results as additional information that may be helpful to your understanding of
our financial results. We consider an understanding of these selected items
impacting comparability to be material to our evaluation of our operating
results and prospects. Although we present selected items that we consider in
evaluating our performance, you should also be aware that the items presented
do not represent all items that affect comparability between the periods
presented. Variations in our operating results are also caused by changes in
volumes, prices, mechanical interruptions, acquisitions and numerous other
factors. These types of variations are not fully identified and discussed in
this release, but will be discussed, as applicable, in management’s discussion
and analysis of operating results in our Quarterly Report on Form 10-Q.

A reconciliation of adjusted EBITDA to net income for the periods presented is
included in the tables of this release. In addition, the Partnership maintains
on its website (www.pnglp.com) a reconciliation of Adjusted EBITDA and certain
commonly used non-GAAP financial information to the most comparable GAAP
measures. To access the information, investors should click on the “Investor
Relations” link on the Partnership’s home page and then the “Non-GAAP
Reconciliation” link on the Investor Relations page.

Conference Call

The Partnership will host a joint conference call with Plains All American
Pipeline, L.P. at 9:00 AM (Central) on Tuesday, November 6, 2012 to discuss
the following items:

1. The Partnership’s third-quarter 2012 performance;

2. The status of major expansion projects;

3. Capitalization and liquidity;

4. Financial and operating guidance for the fourth-quarter and full year 2012;

5. Preliminary guidance for 2013; and

6. The Partnership’s outlook for the future.

Webcast Instructions

To access the Internet webcast, please go to the Partnership’s website at
www.pnglp.com, choose “Investor Relations,” and then choose “Conference
Calls.” Following the live webcast, the call will be archived for a period of
sixty (60) days on the Partnership’s website.

Alternatively, you may access the live conference call by dialing toll free
(800) 230-1085. International callers should dial (612) 332-0226. No password
is required. You may access the slide presentation accompanying the conference
call a few minutes prior to the call under the Conference Call Summaries
portion of the Conference Calls tab of the Investor Relations section of PNG's
website at www.pnglp.com.

Telephonic Replay Instructions

To listen to a telephonic replay of the conference call, please dial (800)
475-6701, or, for international callers, (320) 365-3844, and replay access
code 260375. The replay will be available beginning Tuesday, November 6, 2012,
at approximately 11:00AM (Central) and continue until 11:59 PM (Central)
Thursday, December 6, 2012.

Forward Looking Statements

Except for the historical information contained herein, the matters discussed
in this release are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from
results anticipated in the forward looking statements. These risks and
uncertainties include, among other things, a continuation of reduced
volatility and/or lower spreads in natural gas markets for an extended period
of time; factors affecting demand for natural gas storage services and the
rates we are able to charge for such services, including the balance between
the supply of and demand for natural gas; our ability to maintain or replace
expiring storage contracts, or enter into new storage contracts, in either
case at attractive rates and on otherwise favorable terms; factors affecting
our ability to realize revenues from hub services and merchant storage
transactions involving uncontracted or unutilized capacity at our facilities;
operational, geologic or other factors that affect the timing or amount of
crude oil and other liquid hydrocarbons that we are able to produce in
conjunction with the operation of our Bluewater facility; market or other
factors that affect the prices we are able to realize for crude oil and other
liquid hydrocarbons produced in conjunction with the operation of our
Bluewater facility; our ability to obtain and/or maintain all permits,
approvals and authorizations that are necessary to conduct our business and
execute our capital projects; the impact of operational, geologic and
commercial factors that could result in an inability on our part to satisfy
our contractual commitments and obligations, including the impact of equipment
performance, cavern operating pressures and cavern temperature variances, salt
creep and subsurface conditions or events; risks related to the ownership,
development and operation of natural gas storage facilities; failure to
implement or execute planned internal growth projects on a timely basis and
within targeted cost projections; the effectiveness of our risk management
activities; the effects of competition; interruptions in service and
fluctuations in tariffs or volumes on third-party pipelines; general economic,
market or business conditions and the amplification of other risks caused by
volatile financial markets, capital constraints and pervasive liquidity
concerns; the successful integration and future performance of acquired assets
or businesses; our ability to obtain debt or equity financing on satisfactory
terms to fund additional acquisitions, expansion projects, working capital
requirements and the repayment or refinancing of indebtedness; the impact of
current and future laws, rulings, governmental regulations, accounting
standards and statements and related interpretations; shortages or cost
increases of supplies, materials or labor; weather interference with business
operations or project construction; our ability to receive open credit from
our suppliers and trade counterparties; continued creditworthiness of, and
performance by, our counterparties, including financial institutions and
trading companies with which we do business; the availability of, and our
ability to consummate, acquisition or combination opportunities; the
operations or financial performance of assets or businesses that we acquire;
environmental liabilities or events that are not covered by an indemnity,
insurance or existing reserves; increased costs or unavailability of
insurance; fluctuations in the debt and equity markets, including the price of
our units at the time of vesting under our long-term incentive plan; and other
factors and uncertainties inherent in the ownership, development and operation
of natural gas storage facilities discussed in the Partnership’s filings with
the Securities and Exchange Commission.

PAA Natural Gas Storage, L.P. is a publicly traded master limited partnership
engaged in the development, acquisition, operation and commercial management
of natural gas storage facilities. The Partnership currently owns and operates
three natural gas storage facilities located in Louisiana, Mississippi and
Michigan. The Partnership’s general partner, as well as the majority of the
Partnership’s limited partner interests, is owned by Plains All American
Pipeline, L.P. PNG is headquartered in Houston, TX.

                                                          
                                                                   
PAA NATURAL GAS
STORAGE, L.P.
AND SUBSIDIARIES
FINANCIAL
SUMMARY             
(unaudited)
                                                                   
CONSOLIDATED
STATEMENTS OF
OPERATIONS
(In thousands,
except per unit
data)
                                                                   
                     Three Months Ended            Nine Months Ended

                     September 30,                 September 30,
                     2012           2011           2012            2011
                                                                   
REVENUES ^ (1)       $ 66,127       $ 79,334       $ 274,990       $ 184,118
COSTS AND
EXPENSES:
Storage-related        29,184         45,585         167,549         90,657
costs ^(2)
Field operating        2,974          3,070          9,030           9,072
costs
General and
administrative         4,641          4,368          14,304          18,193
expenses ^(3)
Depreciation,
depletion and         9,461        9,193        27,855        24,602  
amortization
Total costs and       46,260       62,216       218,738       142,524 
expenses
Operating income       19,867         17,118         56,252          41,594
OTHER INCOME /
(EXPENSE):
Interest
expense, net of        (1,973 )       (1,666 )       (5,350  )       (3,945  )
capitalized
interest:
Other income /        (5     )      (7     )      12            10      
(expense), net
Net income           $ 17,889      $ 15,445      $ 50,914       $ 37,659  
                                                                   
                                                                   
CALCULATION OF
LIMITED PARTNER
NET INCOME:
Net Income           $ 17,889       $ 15,445       $ 50,914        $ 37,659
Less: General
partner interest       575            526            1,671           1,133
in net income
Less: Amounts
attributable to       83           -            248           -       
participating
securities ^(4)
Limited partner
interest in net      $ 17,231       $ 14,919       $ 48,995        $ 36,526
income
                                                                   
Net income per
limited partner      $ 0.24         $ 0.21         $ 0.69          $ 0.54
unit - basic
^(5)
Net income per
limited partner      $ 0.24         $ 0.21         $ 0.69          $ 0.54
unit - diluted
^(5)
                                                                   
Weighted average
limited partner
units                  71,136         71,125         71,131          67,279
outstanding -
basic ^(5)
Weighted average
limited partner
units                  71,253         71,136         71,248          67,294
outstanding -
diluted ^(5)
                                                                   
                                                                   
OPERATING DATA
(In thousands,
except capacity
and operating
metric data)
                     Three Months Ended            Nine Months Ended

                     September 30,                 September 30,
                     2012           2011           2012            2011
                                                                   
Net revenue          $ 36,315       $ 33,617       $ 107,369       $ 93,226
margin ^(6)(7)
Field operating
costs / G&A /         (6,604 )      (6,759 )      (20,174 )      (19,361 )
Other
Adjusted EBITDA      $ 29,711      $ 26,858      $ 87,195       $ 73,865  
                                                                   
                                                                   
Average working
storage capacity      89           75           82            69      
(Bcf)
                                                                   
Monthly
Operating
Metrics ($/Mcf):
Net revenue          $ 0.14         $ 0.15         $ 0.15          $ 0.15
margin ^(6)(7)
Field operating
costs / G&A /         (0.03  )      (0.03  )      (0.03   )      (0.03   )
Other
Adjusted EBITDA      $ 0.11        $ 0.12        $ 0.12         $ 0.12    
                                                                   
                                         

^(1) Includes revenues associated with sales of natural gas through commercial
marketing activities.
^(2) Includes costs associated with natural gas sold through commercial
marketing activities.
^(3) Includes equity compensation expense for all periods presented. The nine
months ended September 30, 2011 include approximately $4 million of
acquisition-related costs incurred during the first quarter of 2011.
^(4) Participating securities consist of LTIP awards containing vested
distribution equivalent rights which entitle the grantee to a cash payment
equal to the cash distribution paid on our outstanding common units.
^(5) Includes common units and Series A subordinated units. Series B
subordinated units are not entitled to cash distributions unless and until
they convert to Series A subordinated units or common units, which conversion
is contingent on our meeting both certain distribution levels and certain
in-service operational tests at our Pine Prairie facility. As a result, the
Series B subordinated units are not included in the calculation of basic or
diluted net income per unit amounts.
^(6) Net revenue margin equals revenues minus storage-related costs.
^(7) Excludes the impact of mark-to-market of open derivative positions.


                                                             
PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
FINANCIAL SUMMARY (unaudited)
                                                                  
                                                                  
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(In thousands)
                                                September 30,     December 31,
                                                2012              2011
ASSETS
Current assets                                  $  74,986         $  93,955
Property and equipment, net                        1,307,527         1,280,413
Base gas                                           51,235            48,432
Goodwill, intangibles and other assets, net       411,884          427,199
                                                                  
Total assets                                    $  1,845,632      $  1,849,999
                                                                  
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities                             $  107,473        $  110,172
Note payable to PAA                                200,000           200,000
Long-term debt under credit agreements             295,262           253,508
Other long-term liabilities                       1,306            693
                                                                  
Total liabilities                                  604,041           564,373
                                                                  
Total partners' capital                           1,241,591        1,285,626
                                                                  
Total liabilities and partners' capital         $  1,845,632      $  1,849,999
                                                                  

                                                             
PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
FINANCIAL SUMMARY (unaudited)
                                                                      
COMPUTATION OF BASIC AND DILUTED EARNINGS PER LIMITED PARTNER UNIT
(In thousands, except per
unit data)
                                                                      
                               Three Months Ended        Nine Months Ended

                               September 30,             September 30,
                               2012         2011         2012         2011
Numerator for basic and
diluted earnings per
limited partner unit:
Net Income                     $ 17,889     $ 15,445     $ 50,914     $ 37,659
Less: General partner's          222          222          666          388
incentive distribution
Less: General partner 2%         353          304          1,005        745
ownership interest
Less: Amounts attributable
to participating                83          -           248         -
securities ^(1)
Net income available to        $ 17,231     $ 14,919     $ 48,995     $ 36,526
limited partners
                                                                      
Denominator:
Basic weighted average
number of limited partner        71,136       71,125       71,131       67,279
units outstanding ^(2)
Effect of dilutive
securities:
Weighted average LTIP           117         11          117         15
units
Diluted weighted average
number of limited partner       71,253      71,136      71,248      67,294
units outstanding ^(2)
                                                                      
Basic net income per           $ 0.24       $ 0.21       $ 0.69       $ 0.54
limited partner unit ^(2)
                                                                      
Diluted net income per         $ 0.24       $ 0.21       $ 0.69       $ 0.54
limited partner unit ^(2)
                                                                      
                                               

^(1) Participating securities consist of LTIP awards containing vested
distribution equivalent rights which entitle the grantee to a cash payment
equal to the cash distribution paid on our outstanding common units.
^(2) Includes common units and Series A subordinated units. Series B
subordinated units are not entitled to cash distributions unless and until
they convert to Series A subordinated units or common units, which conversion
is contingent on our meeting both certain distribution levels and certain
in-service operational tests at our Pine Prairie facility. As a result, the
Series B subordinated units are not included in the calculation of basic or
diluted net income per unit amounts.


                                                             
PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
FINANCIAL SUMMARY                            
(unaudited)
                      
FINANCIAL DATA
RECONCILIATIONS
(In thousands,
except per unit
data)
                                                                     
                                                                     
                                                                     
                        Three Months Ended            Nine Months Ended

                        September 30,                 September 30,
                        2012           2011           2012           2011
Distributable cash
flow ("DCF")
Net Income              $ 17,889       $ 15,445       $ 50,914       $ 37,659
Depreciation,
depletion and             9,461          9,193          27,855         24,602
amortization
Equity compensation
expense, net of           1,141          683            2,595          2,722
cash payments
Maintenance capital       (84    )       (51    )       (457   )       (266   )
expenditures
Mark-to-market on
open derivative           (628   )       (132   )       (72    )       (235   )
positions
Acquisition-related      -            5            -            4,055  
expense
DCF                     $ 27,779      $ 25,143      $ 80,835      $ 68,537 
                                                                     
                                                                     
                                                                     
                                                                     
                                                                     
                        Three Months Ended            Nine Months Ended

                        September 30,                 September 30,
Net income and
earnings per
limited partner
unit excluding          2012           2011           2012           2011
selected items
impacting
comparability:
Net Income              $ 17,889       $ 15,445       $ 50,914       $ 37,659
Selected items
impacting                388          554          3,076        7,659  
comparability
Adjusted Net Income     $ 18,277      $ 15,999      $ 53,990      $ 45,318 
                                                                     
Net income
available to
limited partners in
accordance with         $ 17,231       $ 14,919       $ 48,995       $ 36,526
application of the
two-class method
for MLPs
Limited partners'
98% of selected          380          543          3,014        7,506  
items impacting
comparability
Adjusted limited
partners' net           $ 17,611      $ 15,462      $ 52,009      $ 44,032 
income
                                                                     
Adjusted basic net
income per limited      $ 0.25        $ 0.22        $ 0.73        $ 0.65   
partner unit
                                                                     
Adjusted diluted
net income per          $ 0.25        $ 0.22        $ 0.73        $ 0.65   
limited partner
unit
                                                                     
Basic weighted
average units            71,136       71,125       71,131       67,279 
outstanding ^(1)
                                                                     
Diluted weighted
average units            71,253       71,136       71,248       67,294 
outstanding ^(1)
                                                                     
                                            

^(1) Includes common units and Series A subordinated units. Series B
subordinated units are not entitled to cash distributions unless and until
they convert to Series A subordinated units or common units, which conversion
is contingent on our meeting both certain distribution levels and certain
in-service operational tests at our Pine Prairie facility. As a result, the
Series B subordinated units are not included in the calculation of basic or
diluted net income per unit amounts.

Contact:

PAA Natural Gas Storage, L.P.
Roy I. Lamoreaux, 713-646-4222 or 800-564-3036
Director, Investor Relations
Al Swanson, 800-564-3036
Executive Vice President, CFO