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

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

Q4 2012 Earnings Call

February 7, 2013 11:00 am ET

Executives

Roy I. Lamoreaux – Director, Investor Relations

Greg L. Armstrong – Chairman and Chief Executive Officer

Harry N. Pefanis – President and Chief Operating Officer

Dean Liollio – President of PNGS GP LLC and Director of PNGS GP LLC

Al Swanson – Executive Vice President and Chief Financial Officer

Analysts

Darren Horowitz – Raymond James

Steven Sherowski – Goldman Sachs & Co.

Brian J. Zarahn – Barclays Capital

Ross Payne – Wells Fargo Securities

Becca Followill – U.S. Capital Advisors

Connie Hsu – Morningstar, Inc.

John Edwards – Credit Suisse

Michael Blum – Wells Fargo Securities

Ethan Bellamy – Robert W. Baird & Co.

Mark Reichman – Simmons & Company

Dennis P. Coleman – Bank of America Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the PAA and PNG Fourth Quarter and Full Year 2012 Results. At this time, everyone is in a listen-only mode. Later, we’ll have a question-and-answer session and the instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I’d now like to turn the conference over to our host, Director, Investor Relations, Mr. Roy Lamoreaux. Please go ahead, sir.

Roy I. Lamoreaux

Thank you. Good morning. Welcome to our fourth quarter full year 2012 results conference call. The slide presentation for today’s call is available under the Conference Call tab of the Investor Relations section of our websites at paalp.com and pnglp.com.

I would mention that throughout the call, we will refer to the company by their New York Stock Exchange ticker symbols of PAA and PNG, respectively. As a reminder, Plains All American owns a 2% general partner interest in all of the incentive distribution rights and approximately 62% of the limited partner interest in PNG, which accordingly is consolidated into PAA’s results.

In addition to reviewing recent results, we’ll provide forward-looking comments on the partnerships’ outlook for the future. In order to avail ourselves with the Safe Harbor precepts that encourage companies to provide this type of information, we direct you to the risks and warnings set forth in the partnerships’ most recent and future filings with the Securities and Exchange Commission.

Today’s presentation will also include references to certain non-GAAP financial measures such as EBITDA. The non-GAAP Reconciliations section of our websites reconcile certain non-GAAP financial measures to the most directly comparable GAAP financial measures and provide a table of selected items that impact comparability of the partnerships’ reported financial information. References to adjusted financial metrics exclude the effect of these selected items. Also for PAA, all references to net income are references to net income attributable to Plains.

Today’s call will be chaired by Greg L. Armstrong, Chairman and CEO of PAA and PNG. Also participating in the call are Harry Pefanis, President and COO of PAA; Dean Liollio, President of PNG; and Al Swanson, Executive Vice President and Chief Financial Officer of PAA and PNG. In addition to these gentlemen and myself, we will have some other members of our management team present and available for the question-and-answer session.

With that, I’ll turn the call over to Greg.

Greg L. Armstrong

Thanks, Roy. Good morning and welcome to everyone. Let me start off today’s call by briefly recapping PAA’s fourth quarter and full year financial results. Yesterday after market close, PAA reported fourth quarter adjusted EBITDA of $609 million, which marked a very strong finish to a record setting year. These results exceeded the midpoint of our guidance by $89 million or 17% and we are $64 million above the high-end of our guidance.

In comparison to last year’s fourth quarter, adjusted EBITDA, adjusted net income, and adjusted net income per diluted unit increased by 29%, 33% and 23% respectively. With regard to annual performance during 2012, we delivered year-over-year increases of 32%, 38% and 28% in adjusted EBITDA, adjusted net income, and adjusted net income per diluted unit respectively. Highlights of PAA’s fourth quarter and full year performance for 2012 are reflected on Slide 3.

2012 was a record year performance for PAA in which we achieved or exceeded each of the goals we set at the beginning of the year. A recap of our performance versus goals is set forth on Slide 4. In addition to delivering results above midpoint guidance in each quarter of the year, we closed and substantially integrated the BP Canadian NGL acquisition, which was under contract at the end of 2011. We also initiated and closed an additional $650 million of complementary acquisitions and completed our 2012 organic growth capital program materially on time and on budget.

Furthermore, we raised distributions in 2012 by just over 9% through November, which was in line with a high-end of our 2012 target range of 8% to 9% while generating distribution coverage of 160%. In January we declared an increase in our annualized distribution to be paid next week to $2.25 per common unit, which equates to 9.8% year-over-year increase over the distribution payable last February.

As a result, our continued strong results, our extended visibility for organic growth, recent acquisitions, and very solid distribution coverage, we recently increased the range of our target distribution goal for 2013 from 7% to 8% to a level of 9% to 10%.

As shown on Slide 5, PAA has increased its distribution in each of the last 14 quarters and in 33 out of the last 35 quarters delivering compound annual distribution growth of approximately 7.7% over the past 12 years. Yesterday evening we furnished financial and operating guidance for the first quarter and full year of 2013.

As a result of acquisitions that closed in the fourth quarter and ongoing refinements to our forecast, we increased the midpoint of our full year 2013 adjusted EBITDA guidance by $100 million relative to the preliminary guidance provided in November.

As reflected on Slide 6, this guidance includes a 15% year-over-year increase in adjusted segment profit performance from our fee-based segments. Coming off the year in which market conditions were extremely favorable for our Supply and Logistics segment, our guidance for this segment assumes a return to baseline tight market conditions after the first quarter of 2013 as infrastructure expansions are expected to address bottleneck situations in a couple of regions.

This assumption results in an approximate $260 million year-over-year reduction in our Supply and Logistic segment profit relative to last year and total 2013 EBITDA guidance for PAA of $2.025 billion, which is approximately $82 million less than our 2012 results.

I would point out that market conditions remain favorable beyond the first quarter of 2013, there is an upward bias to our guidance. I would also note that based on the midpoint of both our financial guidance for 2013 and our 9% to 10% target distribution growth for 2013. We expect distribution coverage to remain very robust at around 125%.

During the remainder of today’s call, we will discuss the specifics of PAAs segment performance relative to guidance, our expansion capital program, recent acquisitions and integration activities, our financial position and the major drivers and assumption supporting PAAs financial and operating guidance. We will also address similar information for PNG. At the end of the call, I will provide a brief overview of our rail activities and discuss our goals for 2013 as well as our outlook for the future.

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