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PNG > SEC Filings for PNG > Form 8-K on 5-Nov-2012All Recent SEC Filings

Show all filings for PAA NATURAL GAS STORAGE LP



Results of Operations and Financial Condition

Item 2.02 and Item 7.01. Results of Operations and Financial Condition; Regulation FD Disclosure

PAA Natural Gas Storage, L.P. (the "Partnership") today issued a press release reporting its third quarter results. We are furnishing the press release, attached as Exhibit 99.1, pursuant to Item 2.02 and Item 7.01 of Form 8-K. Pursuant to Item 7.01, we are providing updated fourth quarter and full year 2012 detailed guidance for financial performance and we are providing preliminary guidance for calendar year 2013. In accordance with General Instruction B.2. of Form 8-K, the information presented herein under Item 2.02 and Item 7.01 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor shall it be deemed incorporated by reference in any filing under the Exchange Act or Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.

Disclosure of Fourth Quarter 2012 Guidance and Full Year 2013 Preliminary Guidance

Adjusted EBITDA (as defined below in Note 1 to the "Operating and Financial Guidance" table) is a financial measure used by our chief operating decision maker to evaluate our performance. In Note 9 below, we reconcile Adjusted EBITDA to net income for the 2012 guidance periods presented. We encourage you to visit our website at (in particular the section entitled "Non-GAAP Reconciliations"), which presents a historical reconciliation of Adjusted EBITDA and certain commonly used non-GAAP financial measures. We present Adjusted EBITDA because it is a measure used by management to evaluate performance and because we believe it provides additional information with respect to both the performance of our fundamental business activities and our ability to meet our future debt service, capital expenditures and working capital requirements. We 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, as part of our presentation of Adjusted EBITDA, we have highlighted the impact of certain selected items that impact comparability between periods and affect Net Income, EBITDA and Net Income per Basic and Diluted Limited Partner Unit. These selected items include (i) equity compensation expense and
(ii) mark-to-market of open derivative positions.

The following guidance for the three-month and twelve-month periods ending December 31, 2012 includes assumptions and estimates that we believe are reasonable given our assessment of historical trends (modified for changes in market conditions), business cycles and other reasonably available information. Projections contemplate inter-period changes in future performance resulting from a variety of factors we believe to be relevant, including new expansion projects, changes in our portfolio of storage and services contracts, the seasonal and dynamic nature of our business, and other market and competitive factors influencing the demand for storage services. Our projections reflect the assumption that derivative instruments utilized are fully effective in hedging applicable risks in accordance with our risk management procedures. We do not believe that there is an accurate way to forecast any ineffectiveness in hedging relationships or unrealized gains or losses required to be recognized in net income without the offsetting impact of physical transactions for a period associated with derivative activity. Our assumptions and future performance, however, are both subject to a wide range of business risks and uncertainties, so we can provide no assurance that actual performance will fall within the guidance ranges. Please refer to information under the caption "Forward-Looking Statements and Associated Risks" below. These risks and uncertainties, as well as other unforeseeable risks and uncertainties, could cause our actual results to differ materially from those in the following table. The operating and financial guidance provided below is given as of the date hereof, based on information known to us as of November 4, 2012. We undertake no obligation to publicly update or revise any forward-looking statements.

                         PAA Natural Gas Storage, L.P.

                        Operating and Financial Guidance

                      (in millions, except per unit data)

                                       Actual                            Guidance (1)
                                   9 Months Ended         3 Months Ending           12 Months Ending
                                    Sep 30, 2012         December 31, 2012          December 31, 2012
                                                          Low          High          Low          High
Net Revenue
Firm Storage Services             $           95.7    $      34.0    $   34.8    $     129.7    $  130.5
Hub Services and Merchant
Storage                                        8.7            5.3         6.7           14.0        15.4
Other                                          3.1            0.4         1.1            3.5         4.2
Total Net Revenue                 $          107.4    $      39.7    $   42.6    $     147.1    $  150.0
Field operating costs                         (9.0 )         (3.8 )      (3.1 )        (12.8 )     (12.1 )
General and administrative
expenses                                     (14.3 )         (5.0 )      (4.6 )        (19.3 )     (18.9 )
Depreciation, depletion, and
amortization                                 (27.9 )         (9.8 )      (9.4 )        (37.7 )     (37.3 )
Operating Income                  $           56.3    $      21.1    $   25.5    $      77.4    $   81.8
Interest expense, net of
capitalized interest                          (5.3 )         (2.5 )      (2.3 )         (7.8 )      (7.6 )
Other income (expense), net                    0.0              -           -            0.0         0.0
Net Income                        $           50.9    $      18.6    $   23.2    $      69.5    $   74.1

Net Income Available to
limited partners                  $           49.0    $      18.1    $   22.6    $      67.2    $   71.7
Net Income per Basic and
Diluted Limited Partner Unit
Weighted Average Units
Outstanding                                   71.1           71.1        71.1           71.1        71.1
Net Income per Limited Partner
Unit                              $           0.69    $      0.25    $   0.32    $      0.95    $   1.01

EBITDA                            $           84.1    $      30.9    $   34.9    $     115.0    $  119.0

Selected Items Impacting
Equity compensation expense                   (3.1 )         (0.9 )      (0.9 )         (4.0 )      (4.0 )
Mark-to Market on open
derivative positions                           0.1              -           -            0.1         0.1
                                  $           (3.1 )  $      (0.9 )  $   (0.9 )  $      (3.9 )  $   (3.9 )

Excluding Selected Items
Impacting Comparability
Adjusted Net Income               $           54.0    $      19.5    $   24.1    $      73.5    $   78.1
Adjusted EBITDA                   $           87.2    $      31.8    $   35.8    $     119.0    $  123.0
Adjusted Net Income per Basic
and Diluted Limited Partner
Unit (2,3,4)                      $           0.73    $      0.27    $   0.33    $      1.00    $   1.06

(1) Amounts may not recalculate due to rounding.
(2) Our outstanding limited partner interests as of September 30, 2012 consisted of 59.2 million common units, 11.9 million Series A subordinated units and 13.5 million Series B 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 requirements at our Pine Prairie facility. As a result, the Series B subordinated units are not included in the calculation of basic net income per unit amounts.
(3) We calculate net income available to limited partners based on the distributions pertaining to the current period's net income. After adjusting for the appropriate periods distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner and limited partners in accordance with the contractual terms of the partnership agreement.
(4) The impact of diluted units outstanding as of September 30, 2012 is approximately 0.1 million additional units. We have excluded the impact of these units from our Net Income per Limited Partner Unit calculation because the impact is not material.

Notes and Significant Assumptions:

1.         Definitions.

EBITDA        Earnings before interest, taxes and depreciation, depletion and
Adjusted      EBITDA excluding selected items impacting comparability.
FASB          Financial Accounting Standards Board
Bcf           Billion cubic feet
Mcf           Thousand cubic feet
Net Revenue   Revenue less cost of sales, storage related costs and fuel expense
LTIP          Long-Term Incentive Plan
PAA           Plains All American Pipeline, L.P. (NYSE: PAA), the owner of our
              general partner, as well as a majority of our limited partner
General       As the context requires, "general partner" or "GP" refers to any
partner (GP)  or all of (i) PNGS GP LLC, the owner of our 2% general partner
              interest and incentive distribution rights and (ii) PAA, the sole
              member of PNGS GP LLC.

2. Business Overview. Our business consists of the acquisition, development, operation and commercial management of natural gas storage facilities. We provide natural gas storage services to a broad mix of customers, including local gas distribution companies (LDCs), electric utilities, pipelines, direct industrial users, electric power generators, marketers, producers and affiliates of such entities. Our storage rates are regulated under Federal Energy Regulatory Commission, (FERC) rate-making policies, which currently permit our facilities to charge market-based rates for our services. We own and operate three natural gas storage facilities located in Louisiana, Mississippi and Michigan. From time to time, we also lease storage capacity and pipeline transportation capacity from third parties in order to increase our operational flexibility and enhance the services we offer our customers. Acquisitions are an important element of our growth strategy; however, the accompanying detailed financial guidance does not include any forecasts for acquisitions, but does include certain costs we expect to incur associated with evaluating acquisition opportunities.

We generate net revenue primarily from the provision of fee-based gas storage services to our customers, and we categorize the majority of the net revenue we generate as being derived from "Firm Storage Services" or "Hub Services and Merchant Storage." We also generate a portion of our net revenues from other sources as described below in "Other revenues."

Net Revenue from Firm Storage Services. The majority of our net revenue from firm storage services is derived from contracts with initial terms that generally range from one year to ten years in length and pursuant to which customers receive the assured or "firm" right to store gas in our facilities. Under our firm storage contracts, our customers are obligated to pay us fixed monthly capacity reservation fees, which are owed to us regardless of the actual storage capacity utilized. Firm storage services revenue also includes cycling fees based on the volume of natural gas nominated for injection and/or withdrawal as well as a small portion of natural gas nominated for injection that we retain as compensation for our fuel use. Certain components of our firm storage services revenue, such as cycling fees and fuel compensation, are dependent on the injection and withdrawal activities of our individual customers, both from a timing and volume perspective. Timing differences between forecasted activity and actual activity may result in a shifting of revenues between individual quarterly periods within a given storage season. Throughput differences may result in our ultimate realization of revenues being different from our forecasted amounts.

Firm storage services revenues are shown net of applicable storage related costs. Storage related costs consist of fees incurred to lease third-party storage and pipeline capacity and fuel expense we incur at our facilities associated with managing injection and deliverability capacity and certain other costs we may incur. Also included in our storage related costs is fuel expense we incur as part of our long term activities.

Our full year revenue guidance for firm storage services includes the fixed capacity reservation fees, and an assumed amount of cycling fees and net fuel consumption, that we will earn under such contracts.

Net Revenue from Hub Services and Merchant Storage. Our guidance for net revenue from Hub Services and Merchant Storage includes revenues generated from the provision of hub services at our facilities and net revenue generated by our commercial marketing group, which captures short term market opportunities by utilizing a portion of our owned and leased storage capacity . . .

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