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

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

Q1 2010 Earnings Call Transcript

May 6, 2010 11:00 am ET


Greg Armstrong – Chairman and CEO

Harry Pefanis – President and COO

Al Swanson – SVP and CFO


Darren Horowitz – Raymond James

John Tysseland – Citigroup

Jeremy Tonet – UBS

Brian Zarahn – Barclays Capital

Ross Payne – Wells Fargo



Welcome to Plains All American Pipeline first 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 outlook for the future, which may include words such as believes, estimates, expects, anticipates or other words that indicate a forward view.

The Partnership intends to avail itself 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 most recently filed 10-K, 10-Q, 8-K, and other current and future filings with the Securities and Exchange Commission.

In addition, the Partnership encourages you to visit the website at And in particular, the section entitled Non-GAAP Reconciliation, which represents certain commonly used non-GAAP financial measures such as EBIT and EBITDA, which may be used here today in the prepared remarks or in the Q&A session.

And 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 comparability with respect to the Partnership’s reported financial information. Any reference during today’s call to adjusted EBITDA, adjusted net income, and the like is a reference to the financial measures, excluding the effects of selected items impacting comparability.

Today’s conference will be chaired by Greg L. Armstrong, Chairman and CEO of Plains All American Pipeline. Also participating in the call are Harry Pefanis, Plains All American’s President and COO; and Al Swanson, Plains All American’s Senior Vice President and CFO.

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

Greg Armstrong

Thank you, Natalie. Good morning and welcome to everyone. In addition to Harry 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; Roy Lamoreaux, Director of Investor Relations; and Dean Liollio, President of PAA Natural Gas Storage.

As a reminder, the slide presentation we will be referring to in this call is available on our website at Yesterday afternoon Plains All American reported first quarter performance that met or exceeded the high end of our guidance range. In addition to delivering solid operating and financial results, we recently completed the IPO of PAA Natural Gas Storage. The offering price on April 29th began trading under the symbol PNG on the New York Stock Exchange on April 30th and closing, including the exercise of the underwriters’ over-allotment option, occurred yesterday.

As outlined on slide three, by adding PNG as a separate public traded entity, we intend to accomplish several purposes, including the ability to highlight an otherwise under-appreciated aspect of PAA and enhance our ability to make acquisitions in the natural gas storage sector. In that regard, we believe PNG possesses several characteristics that will provide it with a lower cost of capital and enable PAA and PNG to more efficiently expand through acquisitions.

These characteristics include low-risk, largely fee-based cash flow underpinned by multi-year contracts; non-depleting, long-lived assets with low maintenance capital requirements; solid visibility for attractive organic growth opportunities; a smaller MLP entity with a lower incentive distribution burden that should translate into a higher growth profile; and a proven, supportive, financially-strong and long-term-oriented sponsor.

These attractive characteristics combined with our belief that the natural gas storage business is poised for consolidation, underpins our conviction that having separate publicly traded MLP focused on the natural gas storage sector is a solid value-creating proposition for PAA. Although PNG is a separate trading entity, PAA unit holders will continue to participate in a significant way in the growth of the natural gas storage business that PAA will continue to own approximately 77% of PNG’s equity interest, including the GP interest, incentive distribution right in Series A and Series B subordinated units.

The Series A units represent 31% of PAA’s retained ownership, our conventional structure, and currently participate in distributions. The Series B units represent 26% of our ownership will begin participating in distributions as we expand our storage capacity at Pine Prairie and increase distributions to PNG unit holders. Taken as a whole, we believe this structure provides downside protection for PNG’s common unit holders while at the same time appropriately compensating PAA unit holders for our substantial upfront investment in the long-term assets that enable the future growth of the entity at attractive rates.

Overall, this structure provides substantial performance based alignment of interest between PAA and PNG unit holders. As a result of all these factors, PAA remains motivate to continue to grow this business both organically and through acquisitions. I would also note that we have included a number of distinctive mechanisms in PNG’s partnership agreement that enabled PAA to assist PNG in its early stage growth. Additionally, we have recruited a topnotch management team that will devote substantially all of their focus to executing PNG’s business strategies and its organic growth and acquisition activities.

From a financial reporting perspective, PNG’s financial results will continue to be included in PAA’s consolidated financial results. Effective with the second quarter results, we will coordinate the release of PAA’s and PNG’s results and devote a portion of PAA’s conference call to addressing PNG’s standalone performance and financial position. Later in today’s call, Al Swanson will address the impact of the IPO on PAA’s financial position and liquidity and also comment on PNG’s estimated first quarter results.

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