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PAA Natural Gas Storage Reports Second-Quarter 2012 Results

PAA Natural Gas Storage, L.P. (NYSE: PNG) today reported net income of $17.0 million, or $0.23 per diluted limited partner unit, for the second quarter of 2012, compared to respective results for the second quarter of 2011 of $15.9 million and $0.22. The Partnership reported earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”) of $28.0 million for the second quarter of 2012, compared with EBITDA of $26.3 million for the second 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 second-quarter 2012 adjusted net income, adjusted net income per diluted limited partner unit and adjusted EBITDA were $18.6 million, $0.25 and $29.7 million, respectively, as compared to second-quarter 2011 respective results of $17.1 million, $0.23 and $27.5 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 second-quarter results near the high-end of guidance, capping the eighth consecutive quarter of delivering results in line with guidance,” said Dean Liollio, President of PAA Natural Gas Storage. “PNG’s consistent performance – despite challenging market conditions – highlights the combination of our disciplined business strategy, strategically located assets, a high percentage of multi-year fee-based contracts, and continued successful execution by our commercial optimization team. We are on schedule and budget with our low-cost storage capacity additions at Southern Pines and Pine Prairie, and remain well positioned with a solid balance sheet and $187 million of committed liquidity.”

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

Three Months Ended

June 30,

Six Months Ended

June 30,

2012 2011 2012 2011
Firm storage services $ 35,475 $ 35,415 $ 69,282 $ 64,539
Hub services and merchant storage (1) 64,336 18,207 138,092 38,704
Other   330     742     1,489     1,541  
Total revenues 100,141 54,364 208,863 104,784
Storage related costs (2) (64,510 ) (20,571 ) (138,365 ) (45,072 )
Field operating costs (3,009 ) (2,915 ) (6,056 ) (6,002 )
General and administrative expenses (3) (4,616 ) (4,641 ) (9,663 ) (13,825 )
Other income / (expense), net   28     17     17     17  
EBITDA $ 28,034   $ 26,254   $ 54,796   $ 39,902  
Selected items impacting comparability   1,635     1,253     2,688     7,105  
Adjusted EBITDA $ 29,669   $ 27,507   $ 57,484   $ 47,007  
Reconciliation to net income:
Depreciation, depletion and amortization (9,318 ) (8,940 ) (18,394 ) (15,409 )
Interest expense, net of capitalized interest   (1,709 )   (1,445 )   (3,377 )   (2,279 )
Adjusted Net Income $ 18,642   $ 17,122   $ 35,713   $ 29,319  
Selected items impacting comparability   (1,635 )   (1,253 )   (2,688 )   (7,105 )
Net income $ 17,007   $ 15,869   $ 33,025   $ 22,214  
(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 six months ended June 30, 2011 include approximately $4 million of acquisition-related costs.

Second quarter 2012 adjusted EBITDA increased 7.9% over the prior-year period. This increase is primarily associated with storage capacity expansions and increased hub services activities.

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