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
 
Revenues
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.

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

June 30,
Six Months Ended

June 30,
Selected Items Impacting Comparability - Income / (Expense): 2012 2011 2012 2011
Equity compensation expense $ (1,093 ) $ (1,262 ) $ (2,132 ) $ (2,658 )
Acquisition-related expense - (55 ) - (4,050 )
Mark-to-market of open derivative positions (542 ) 64 (556 ) 103
Insurance deductible related to property damage   -     -     -     (500 )
Selected items impacting comparability $ (1,635 ) $ (1,253 ) $ (2,688 ) $ (7,105 )
 
Selected items impacting comparability $ (1,635 ) $ (1,253 ) $ (2,688 ) $ (7,105 )
Less: GP 2% portion of selected items impacting comparability   33     25     54     142  
LP 98% portion of selected items impacting comparability $ (1,602 ) $ (1,228 ) $ (2,634 ) $ (6,963 )
 
Impact to basic net income per limited partner unit (1) $ (0.02 ) $ (0.01 ) $ (0.03 ) $ (0.11 )
Impact to diluted net income per limited partner unit (1) $ (0.02 ) $ (0.01 ) $ (0.03 ) $ (0.11 )
 
(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 June 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 June 30, 2012, the Partnership had approximately $359 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 August 14, 2012 on its outstanding common units and Series A subordinated units. This distribution is equal to the quarterly distribution paid in May 2012, and represents an increase of approximately 3.6% over the quarterly distribution of $0.345 per unit ($1.38 per unit on an annualized basis) paid in August 2011.

Prior to its August 7 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 third-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

In this release, the Partnership’s adjusted EBITDA disclosure is not presented in accordance with generally accepted accounting principles and is not intended to be used in lieu of GAAP presentations of net income. Adjusted EBITDA is presented because it is a 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 all non-GAAP financial information, such as adjusted EBITDA, 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 11:00 AM (Eastern) on Tuesday, August 7, 2012 to discuss the following items:

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

2. The status of major expansion projects;

3. Capitalization and liquidity;

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

5. 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 800-288-9626. International callers should dial 612-332-1025. 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 252212. The replay will be available beginning Tuesday, August 7, 2012, at approximately 1:00 PM (Eastern) and continue until 11:59 PM (Eastern) September 7, 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 significantly 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; 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; 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; 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; 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; 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

June 30,
Six Months Ended

June 30,
2012 2011 2012 2011
 
REVENUES (1) $ 100,141 $ 54,364 $ 208,863 $ 104,784
COSTS AND EXPENSES:
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
Depreciation, depletion and amortization   9,318     8,940     18,394     15,409  
Total costs and expenses   81,453     37,067     172,478     80,308  
Operating income 18,688 17,297 36,385 24,476
OTHER INCOME / (EXPENSE):
Interest expense, net of capitalized interest: (1,709 ) (1,445 ) (3,377 ) (2,279 )
Other income / (expense), net   28     17     17     17  
Net income $ 17,007   $ 15,869   $ 33,025   $ 22,214  
 
 
CALCULATION OF LIMITED PARTNER NET INCOME:
Net Income $ 17,007 $ 15,869 $ 33,025 $ 22,214
Less: General partner interest in net income 558 399 1,096 607
Less: Amounts attributable to participating securities (4)   83     -     165     -  
Limited partner interest in net income $ 16,366 $ 15,470 $ 31,764 $ 21,607
 
Net income per limited partner unit - basic (5) $ 0.23 $ 0.22 $ 0.45 $ 0.33
Net income per limited partner unit - diluted (5) $ 0.23 $ 0.22 $ 0.45 $ 0.33
 
Weighted average limited partner units outstanding - basic (5) 71,128 71,119 71,128 65,325
Weighted average limited partner units outstanding - diluted (5) 71,252 71,137 71,245 65,344
 
 
OPERATING DATA    
(In thousands, except capacity and operating metric data)
Three Months Ended

June 30,
Six Months Ended

June 30,
2012 2011 2012 2011
 
Net revenue margin (6)(7) $ 36,173 $ 33,729 $ 71,054 $ 59,609
Field operating costs / G&A / Other   (6,504 )   (6,222 )   (13,570 )   (12,602 )
Adjusted EBITDA $ 29,669   $ 27,507   $ 57,484   $ 47,007  
 
 
Average working storage capacity (Bcf)   80     75     78     67  
 
Monthly Operating Metrics ($/Mcf):
Net revenue margin (6)(7) $ 0.15 $ 0.15 $ 0.15 $ 0.15
Field operating costs / G&A / Other   (0.03 )   (0.03 )   (0.03 )   (0.03 )
Adjusted EBITDA $ 0.12   $ 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 six months ended June 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)
June 30, December 31,
2012 2011
ASSETS
Current assets $ 77,436 $ 93,955
Property and equipment, net 1,299,511 1,280,413
Base gas 48,672 48,432
Goodwill, intangibles and other assets, net   415,812   427,199
 
Total assets $ 1,841,431 $ 1,849,999
 
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities $ 108,834 $ 110,172
Note payable to PAA 200,000 200,000
Long-term debt under credit agreements 278,635 253,508
Other long-term liabilities   776   693
 
Total liabilities 588,245 564,373
 
 
Total partners' capital   1,253,186   1,285,626
 
Total liabilities and partners' capital $ 1,841,431 $ 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 June 30,

Six Months Ended June 30,
2012 2011 2012 2011
Numerator for basic and diluted earnings per limited partner unit:
Net Income $ 17,007 $ 15,869 $ 33,025 $ 22,214
Less: General partner's incentive distribution 222 83 444 166
Less: General partner 2% ownership 336 316 652 441
Less: Amounts attributable to participating securities (1)   83   -   165   -
Net income available to limited partners $ 16,366 $ 15,470 $ 31,764 $ 21,607
 
Denominator:
Basic weighted average number of limited partner units outstanding (2) 71,128 71,119 71,128 65,325
Effect of dilutive securities:
Weighted average LTIP units   124   18   117   19
Diluted weighted average number of limited partner units outstanding (2)   71,252   71,137   71,245   65,344
 
Basic net income per limited partner unit (2) 0 0 0 0
 
Diluted net income per limited partner unit (2) $ 0.23 $ 0.22 $ 0.45 $ 0.33
 
                 
(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

June 30,
Six Months Ended

June 30,
2012 2011 2012 2011
Distributable cash flow ("DCF")
Net Income $ 17,007 $ 15,869 $ 33,025 $ 22,214
Depreciation, depletion and amortization 9,318 8,940 18,394 15,409
Equity compensation expense, net of cash payments 508 662 1,454 2,039
Maintenance capital expenditures (190 ) (109 ) (372 ) (215 )
Mark-to-market on open derivative positions 542 (64 ) 556 (103 )
Acquisition-related expense   -     55     -     4,050  
DCF $ 27,185   $ 25,353   $ 53,057   $ 43,394  
 
 
Three Months Ended

June 30,
Six Months Ended

June 30,

Net income and earnings per limited partner unit excluding selected

items impacting comparability:
2012 2011 2012 2011
Net Income $ 17,007 $ 15,869 $ 33,025 $ 22,214
Selected items impacting comparability   1,635     1,253     2,688     7,105  
Adjusted Net Income $ 18,642   $ 17,122   $ 35,713   $ 29,319  
 

Net income available to limited partners in accordance with application of

the two-class method for MLPs
$ 16,366 $ 15,470 $ 31,764 $ 21,607
Limited partners' 98% of selected items impacting comparability   1,602     1,228     2,634     6,963  
Adjusted limited partners' net income $ 17,968   $ 16,698   $ 34,398   $ 28,570  
 
Adjusted basic net income per limited partner unit $ 0.25   $ 0.23   $ 0.48   $ 0.44  
 
Adjusted diluted net income per limited partner unit $ 0.25   $ 0.23   $ 0.48   $ 0.44  
 
Basic weighted average units outstanding (1)   71,128     71,119     71,128     65,325  
 
Diluted weighted average units outstanding (1)   71,252     71,137     71,245     65,344  
                     
(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.

Copyright Business Wire 2010

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