On February 14, 2013, the board of directors of PNGS GP LLC (the "Company"), the general partner of PAA Natural Gas Storage, L.P. (the "Registrant" or "PNG") approved, among other things, the following grants of phantom units under PNG's long-term incentive plan to the following Named Executive Officers of the Registrant:

Name and Title                                         No. of Phantom Units Granted
Dean Liollio, President                                                      125,000
Don O'Shea, Controller and Chief Accounting Officer                           25,000

The phantom units granted under PNG's long-term incentive plan will vest (become payable 1-for-1 in our common units) in one-third tranches on the dates we pay annualized distributions of $1.45, $1.50 and $1.55. The phantom units include tandem distribution equivalent rights ("DERs") that vest (i.e., commence receiving cash distributions as if the underlying common units were owned) in one-third increments on the August 2014, 2015 and 2016 distribution dates, provided that PNG's quarterly distribution remains at least $1.43 (annualized) per unit. The DERs expire when the associated phantom units vest. Fifty percent of any unvested phantom units in a particular tranche that remain outstanding as of the August 2016, 2017 and 2018 distribution dates will vest on such date and the remaining portion (and all associated DERs) will be forfeited as of the August 2019 distribution date if the applicable performance conditions for such tranche have not been met by such date.

Also in February 2013, our general partner determined that the Class B units issued to certain PNG officers were not serving their intended purpose of creating additional long-term incentives for, and encouraging the retention of, such officers due to the extended deterioration in market conditions for natural gas storage operators and the resulting low likelihood of achieving the distribution performance benchmarks required for vesting, which ranged from $2.00 to $2.70 per common unit. As a result, all of the Class B units previously awarded to Mr. Liollio were canceled. In order to encourage retention and provide a long term performance incentive that takes into account our current outlook for the natural gas storage market, it is expected that Mr. Liollio will receive awards under the long term incentive plan of Plains All American Pipeline, L.P., owner of 100% of the membership interests of the Company.

For more information regarding our equity compensation plans, please see our 2011 Annual Report on Form 10-K filed with the SEC on February 28, 2012.