PAA Natural Gas Storage, L.P. : PAA Natural Gas Storage Reports First-Quarter 2013 Results

May 06, 2013 at 04:15 pm

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PAA Natural Gas Storage, L.P. (NYSE: PNG) reported first-quarter 2013 results as summarized below:


Summary Financial Information⁽¹⁾
(in millions, except per unit data)	Three Months Ended March 31,
	2013		2012		% Change
Net income	$	18.0	$	16.0	12.2	%
Net income per diluted limited partner unit⁽²⁾	$	0.24	$	0.22	9.1	%
EBITDA	$	30.0	$	26.8	12.1	%

	Three Months Ended March 31,
	2013		2012		% Change
Adjusted net income	$	19.5	$	17.1	14.3	%
Adjusted net income per diluted limited partner unit ⁽²⁾	$	0.26	$	0.23	13.0	%
Adjusted EBITDA	$	31.6	$	27.8	13.4	%
Distribution declared for the period ⁽²⁾	$	0.3575	$	0.3575	-

⁽¹⁾		^{The Partnership's reported results include the impact of items that affect comparability between reporting periods. The impact of these items is excluded from adjusted results. See the section of this release entitled "Non-GAAP Financial Measures, Segment Financial Measures and Selected Items Impacting Comparability" and the tables attached hereto for information regarding selected items that the Partnership believes impact comparability of financial results between reporting periods, as well as for information regarding non-GAAP financial measures and segment financial measures (such as adjusted EBITDA) and their reconciliation to the most directly comparable GAAP measures.}

⁽²⁾		^{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.}

"PNG reported first-quarter earnings above the midpoint of guidance, marking the 11^th consecutive quarter that the Partnership has delivered results in line with or above guidance. First-quarter performance was underpinned by our fee-based firm storage contracts combined with higher than forecast oil revenues associated with our liquids removal activities at our Bluewater facility," said Dean Liollio, President of PAA Natural Gas Storage.

"PNG continues to deliver steady performance while capitalizing on attractive, low-cost capacity expansion opportunities with $43 million of organic investment planned for 2013. Additionally, PNG remains well positioned from a financial perspective, ending the quarter within our targeted credit metrics and with $131 million of committed liquidity."

The following table summarizes selected financial data for the first quarter of 2013:


Summary of Selected Financial Data:
(in thousands)
	Three Months Ended March 31,
	2013			2012

Revenues
Firm storage services	$	36,461		$	33,807
Hub services and merchant storage⁽¹⁾		90,344			73,756
Other		2,128			1,159
Total revenues		128,933			108,722

Storage-related costs⁽²⁾		(89,811	)		(73,855	)
Field operating costs		(3,390	)		(3,047	)
General and administrative expenses		(5,720	)		(5,047	)
Other income / (expense), net		(6	)		(11	)
EBITDA	$	30,006		$	26,762

Selected items impacting comparability		1,547			1,053
Adjusted EBITDA	$	31,553		$	27,815

⁽¹⁾		^{Includes revenues associated with sales of natural gas through commercial marketing activities.}
⁽²⁾		^{Includes costs associated with sales of natural gas through commercial marketing activities.}

First-quarter 2013 adjusted EBITDA increased 13.4% over comparable 2012 results. This increase was primarily related to the benefit of low-cost storage capacity expansions at Southern Pines and Pine Prairie. Additional revenue from these expansions largely offset the impact of recontracting capacity originally contracted at higher rates. As mentioned above, first-quarter 2013 adjusted EBITDA also benefited from higher revenues associated with liquids removal activities at Bluewater.

The Partnership's common units and Series A subordinated units outstanding as of March 31, 2013 totaled 71.2 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.

The Partnership will hold a joint conference call with Plains All American Pipeline, L.P. ("PAA") on May 7, 2013 (see details below). Prior to this conference call, the Partnership will furnish a current report on Form 8-K, which will include material in this news release as well as financial and operational guidance for the second quarter and full year of 2013. A copy of the Form 8-K will be available on the Partnership's website at www.pnglp.com, where PNG routinely posts important information about the Partnership.

Conference Call

The Partnership's joint conference call with PAA will be held at 11 a.m. EDT on Tuesday, May 7, 2013 to discuss the following items:

1. The Partnership's first-quarter 2013 performance;

2. An overview of and status report regarding the Partnership's expansion projects;

3. Capitalization and liquidity;

4. Financial and operating guidance for the second quarter and full year of 2013; and

5. The Partnership's outlook for the future.

Conference Call Access Instructions

To access the Internet webcast of the conference call, 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, access to the live conference call is available by dialing toll free (800) 230-1059. International callers should dial (612) 234-9959. No password is required. The slide presentation accompanying the conference call will be available a few minutes prior to the call under the "Conference Call Summaries" portion of the "Conference Calls" tab of the "Investor Relations" section of the PNG 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 enter replay access code 285955. The replay will be available beginning Tuesday, May 7, 2013, at approximately 1:00 p.m. EDT and will continue until 12:59 a.m. EDT on June 8, 2013.

Non-GAAP Financial Measures, Segment Financial Measures and Selected Items Impacting Comparability

To supplement our financial information presented in accordance with GAAP, management uses adjusted EBITDA and distributable cash flow in its evaluation of past performance and prospects for the future. Management believes that the presentation of such additional financial measures provides useful information to investors regarding our financial condition and results of operations because these measures, when used in conjunction with related GAAP financial measures, (i) provide additional information about our core operations and ability to generate and distribute cash flow, (ii) provide investors with the financial analytical framework upon which management bases financial, operational, compensation and planning decisions and (iii) present measurements that investors, rating agencies and debt holders have indicated are useful in assessing us and our results of operations. Adjusted EBITDA and/or distributable cash flow may exclude, for example, the impact of unique and infrequent items, items outside of management's control and/or items that are not indicative of our core operating results and business outlook, which we define as "selected items impacting comparability." 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.

Adjusted EBITDA and distributable cash flow are reconciled to net income, the most directly comparable GAAP measure, for the periods presented in the tables attached to this release, and should be viewed in addition to, and not in lieu of, our condensed consolidated financial statements and notes thereto. 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 Reconciliations" link on the Investor Relations page.

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, 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, the number of customers competing to acquire such services and the availability of alternatives to the services we offer; 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; a continuation of reduced volatility and/or lower spreads in natural gas markets for an extended period of time; 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; the occurrence of a natural disaster, catastrophe, terrorist attack or other event, including attacks on our electronic and computer systems; 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, including the risk of explosions at our 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)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
	Three Months Ended March 31,
	2013			2012

REVENUES⁽¹⁾	$	128,933		$	108,722
COSTS AND EXPENSES:
Storage-related costs ⁽²⁾		89,811			73,855
Field operating costs		3,390			3,047
General and administrative expenses		5,720			5,047
Depreciation, depletion and amortization		9,639			9,076
Total costs and expenses		108,560			91,025
Operating income		20,373			17,697
OTHER INCOME / (EXPENSE):
Interest expense, net of capitalized interest:		(2,398	)		(1,668	)
Other income / (expense), net		(6	)		(11	)
Net income	$	17,969		$	16,018

CALCULATION OF LIMITED PARTNER NET INCOME:
Net Income	$	17,969		$	16,018
Less: General partner's incentive distribution		222			222
Less: General partner 2% ownership interest		355			316
Less: Amounts attributable to participating securities ⁽³⁾		166			-
Limited partner interest in net income	$	17,226		$	15,480

Basic weighted average number of limited partner units outstanding ⁽⁴⁾		71,143			71,128
Effect of dilutive securities:
Weighted average LTIP units		244			110
Weighted average number of diluted limited partner units outstanding ⁽⁴⁾		71,387			71,238

Net income per basic limited partner unit ⁽⁴⁾	$	0.24		$	0.22
Net income per diluted limited partner unit ⁽⁴⁾	$	0.24		$	0.22

ADJUSTED RESULTS
(In thousands, except per unit data)
	Three Months Ended March 31,
	2013			2012

Adjusted net income	$	19,516		$	17,071
Adjusted net income per diluted limited partner unit⁽⁴⁾	$	0.26		$	0.23
Adjusted EBITDA	$	31,553		$	27,815


⁽¹⁾		^{Includes revenues associated with sales of natural gas through commercial marketing activities.}
⁽²⁾		^{Includes costs associated with sales of natural gas through commercial marketing activities.}
⁽³⁾		^{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.}
₍₄₎		^{The calculation 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)

OPERATING DATA
(in thousands, except capacity and operating metric data)

	Three Months Ended March 31,
	2013			2012

Net revenue margin ⁽¹⁾⁽²⁾	$	39,310		$	34,881
Field operating costs / G&A / Other		(7,757	)		(7,066	)
Adjusted EBITDA	$	31,553		$	27,815


Average working storage capacity (Bcf)		93			76

Monthly Operating Metrics ($/Mcf):
Net revenue margin ⁽¹⁾⁽²⁾	$	0.14		$	0.15
Field operating costs / G&A / Other		(0.03	)		(0.03	)
Adjusted EBITDA	$	0.11		$	0.12

^{(1) Net revenue margin equals revenues minus storage-related costs.}
^{(2) Excludes the impact of mark-to-market of open derivative positions.}


PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)

CONDENSED BALANCE SHEET DATA
(in thousands)
	March 31,			December 31,
	2013			2012
ASSETS
Current assets	$	125,981		$	94,393
Property and equipment, net		1,318,625			1,313,918
Base gas		54,091			54,091
Goodwill, intangibles and other assets, net		402,014			406,667

Total assets	$	1,900,711		$	1,869,069

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities	$	139,393		$	104,336
Note payable to PAA		200,000			200,000
Long-term debt under credit agreements		315,718			305,385
Other long-term liabilities		8,679			8,406
Total liabilities		663,790			618,127


Total partners' capital		1,236,921			1,250,942

Total liabilities and partners' capital	$	1,900,711		$	1,869,069



CREDIT RATIO
Long-term debt / Total long-term book capitalization⁽¹⁾		29	%		29	%

⁽¹⁾

^{Total long-term book capitalization is the sum of PNG's
long-term debt and total partner's capital.}


PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES FINANCIAL SUMMARY (unaudited)

SELECTED ITEMS IMPACTING COMPARABILITY
(in thousands, except per unit data)


	Three Months Ended March 31,
Selected Items Impacting Comparability - Income / (Expense):	2013			2012
Equity compensation expense	$	(1,359	)	$	(1,039	)
Mark-to-market of open derivative positions		(188	)		(14	)
Selected items impacting comparability	$	(1,547	)	$	(1,053	)

Selected items impacting comparability	$	(1,547	)	$	(1,053	)
Less: GP 2% share of selected items impacting comparability		31			21
LP 98% share of selected items impacting comparability	$	(1,516	)	$	(1,032	)

Impact to net income per basic limited partner unit⁽¹⁾	$	(0.02	)	$	(0.01	)
Impact to net income per diluted limited partner unit ⁽¹⁾	$	(0.02	)	$	(0.01	)

⁽¹⁾

^{The calculation 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 March 31,
	2013			2012
Distributable cash flow ("DCF")
Net Income	$	17,969		$	16,018
Depreciation, depletion and amortization		9,639			9,076
Equity compensation expense, net of cash payments		1,498			947
Maintenance capital expenditures		(150	)		(182	)
Income tax expense		-			-
Mark-to-market on open derivative positions		188			14
DCF	$	29,144		$	25,873

	Three Months Ended March 31,
Net income and earnings per limited partner unit excluding selected items impacting comparability:	2013			2012
Net Income	$	17,969		$	16,018
Selected items impacting comparability		1,547			1,053
Adjusted Net Income	$	19,516		$	17,071

Depreciation, depletion and amortization	$	9,639		$	9,076
Interest expense, net of capitalized interest		2,398			1,668
Adjusted EBITDA	$	31,553		$	27,815

Selected items impacting comparability		(1,547	)		(1,053	)
EBITDA	$	30,006		$	26,762

Net income available to limited partners in accordance with application of the two-class method for MLPs	$	17,226		$	15,480
Limited partners' 98% of selected items impacting comparability		1,516			1,032
Adjusted limited partners' net income	$	18,742		$	16,512

Adjusted net income per basic limited partner unit⁽¹⁾	$	0.26		$	0.23

Adjusted net income per diluted limited partner unit ⁽¹⁾	$	0.26		$	0.23

Basic weighted average units outstanding ⁽¹⁾		71,143			71,128

Diluted weighted average units outstanding ⁽¹⁾		71,387			71,238

⁽¹⁾

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

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PAA Natural Gas Storage, L.P.

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PAA Natural Gas Storage, L.P. : PAA Natural Gas Storage Reports First-Quarter 2013 Results

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