Plains All American Pipeline, L.P. (PAA)

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Plains All American Pipeline LP (PAA)

Q2 2010 Earnings Call

August 5, 2010 11:00 am ET

Executives

Greg Armstrong - Chairman and CEO

Dean Liollio - President of PNG

Al Swanson - CFO

Analysts

Darren Horowit - Raymond James

Brian Zarahn - Barclays Capital

Stephen Maresca - Morgan Stanley

Yves Siegel - Credit Suisse

Michael Blum - Wells Fargo

John Edwards - Morgan Keegan

Michael Cerasoli - Goldman Sachs

Adam Rothenberg - Zimmer Lucas

Presentation

Operator

Welcome to the Plains All American Pipeline's and PAA Natural Gas Storage Second Quarter 2010 Results Conference Call. During today's call, in addition to reviewing the results of the prior period, the participants will provide forward-looking comments on the partnership's outlook for the future, which may include words such as believe, estimate, expect, anticipate or other words that indicate a forward view.

The partnership intends to avail themselves of Safe Harbor precepts that encourage companies to provide this type of information and directs you to the risks and warnings set forth in Plains All American Pipeline's and PAA Natural Gas Storage most recently filed prospectus 10-K, 10-Q, 8-K, and other current and future filings with the Securities and Exchange Commission.

Throughout the call participants may reference the company's by their respective New York Stock Exchange ticker symbol of PAA or Plains All American Pipeline and PNG or PAA Natural Gas Storage.

In addition, the partnership encourages you to visit the website at www.paalp.com and www.pnglp.com, and in particular, the section entitled non-GAAP Reconciliation, which presents certain commonly used non-GAAP financial measures such as EBIT and EBITDA, which may be used here today in the prepared remarks and in the Q&A session.

This section of the website also reconciles the non-GAAP financial measures to the most directly comparable GAAP financial measures, and includes a table of selected items that impact compatibility with respect to the Partnership's reported financial information. Any reference during today's call to adjust EBITDA, adjust net income and the like, is a reference to the financial measure, excluding the effect of selected items impacting compatibility also for PAA also references to net income or references to net income attributable claims.

Today's conference call will be chaired by Greg L. Armstrong, Chairman and CEO of PAA and PNG. Also participating in the call are Dean Liollio, President of PNG, and Al Swanson, CFO of PAA and PNG.

I will now turn the call over to Mr. Greg Armstrong.

Greg Armstrong

Thank you, Wanda and good morning and welcome to everyone. Before we get started, I would mention that Harry Pefanis, President and CEO of PAA, and Vice Chairman of PNG is on vacation with his family, but he's on the call and available for questions. However to avoid potential communication challenges, I would cover the operational session of the call that Harry typically addresses but again he will be available for the question-and-answer session.

In addition to Harry, Dean and Al, we also have several other members of our management team available for the question-and-answer session including Pat Diamond, our Vice President responsible for strategic planning and Roy Lamoreaux, Director of Investor Relations. As a reminder, the slide presentation we will be referring to in this call is available on our website at www.paalp.com and www.pnglp.com.

Yesterday afternoon, Plains All American reported second quarter performance within our guidance range. Prior to diving into PAA's results, I will mention that last time we also released results or initial inaugural guidance on our 77% owned Natural Gas Storage subsidiary PNG. Beginning today, PAA and PNG will hold joint conference calls and additional members of PNG management will join us on the call to review PAA NG's operating and financial results and will also be available during the Q&A.

I will now turn to PAA's operating and financial results released yesterday afternoon. As illustrated on slide 3, for the second quarter of 2010, we reported EBITDA of $259 million and net income of $131 million or $0.65 per diluted unit. Excluding the selected items impacting comparability, which are included in the table at the bottom of the slide, our adjusted EBITDA was $248 million and adjusted net income was $120 million or roughly $0.57 per diluted unit.

In comparison to guidance, our overall results were near the top of the range and were highlighted by over performance in our fee-based transportation and facility segments and weaker performance in our supply and logistics business.

Adjusted EBITDA results for the second quarter of 2010 were up about 3% of our last year's second quarter. However, the net revenue mix changed with an 18% increased contribution from our fee-based segments.

Adjusted net income and adjusted net income per unit decreased 8% and 23% respectively due primarily to higher DD&A and interest expense, an increase in the number of units outstanding and the impact of the incentive distribution rights as they effect net income.

Slide four graphically represents this quarter's performance versus guidance, highlighting the fact that we have now delivered 34 consecutive quarters of result in line with guidance, we believe that this consistent performance, which was delivered during the period of significant volatility serves as further reinforcement of the durable and predictable nature of PAA's results.

Last month we had incurred a 4.1% year-over-year increase in our distributions to $3.77 per unit on an annualized basis. As of the distribution payable next week, PAA will have increased this distribution 23 out of last 25 quarters. We continue to target an annualize distribution rate of $3.80 per unit by year-end.

I will now review our second quarter operating results compared to the mid point of our guidance issued on May 5, 2010, discuss the operational assumptions used to generate our third quarter guidance, and discuss the progress of our expansion capital program and acquisition activities. Dean will cover the PNG specific information in a moment.

Overall our second quarter operators were favorable to the mid point of our guidance. As shown on slide 5, adjusted segment profits for the transportation segment was a $135 million or $0.48 per barrel, which totals about $9 million above the mid point of our guidance range.

Read the rest of this transcript for free on seekingalpha.com