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

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

Q2 2011 Earnings Call

August 04, 2011 11:00 am ET

Executives

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

Greg Armstrong - Chairman of Plains All American GP LLC and Chief Executive Officer of Plains All American GP LLC

Roy Lamoreaux - Director of Investor Relations

Al Swanson - Chief Financial Officer of Plains All American GP LLC and Executive Vice President of Plains All American GP LLC-GP

Harry Pefanis - Vice Chairman of PNGS GP LLC

Analysts

Brian Zarahn - Barclays Capital

John Edwards - Morgan Keegan & Company, Inc.

Stephen Maresca - Morgan Stanley

Michael Blum - Wells Fargo Securities, LLC

Darren Horowitz - Raymond James & Associates, Inc.

Presentation

Roy Lamoreaux

Good morning. My name is Roy Lamoreaux, Director of Investor Relations. We welcome you to Plains All American Pipeline and PAA Natural Gas Storage's Second Quarter Results Conference Call. The slide presentation for today's call is available under the conference call tab at the Investor Relations section of our website at www.paalp.com and www.pnglp.com.

Before we get started with our prepared comments, I would mention that throughout the call, we'll refer to the companies by their respective New York Stock Exchange ticker symbols of PAA and PNG, respectively. As a reminder, Plains All American owns the 2% general partner interest and approximately 62% of the limited partner interest in PNG, which accordingly has been consolidated into PAA's results. In addition to reviewing recent results, we'll provide forward-looking comments on the partnership's outlook for the future. In order to avail ourselves the Safe Harbor precepts that encourage companies to provide this type of information, we direct you to the risks and warnings set forth in our 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 EBIT and EBITDA. The non-GAAP Reconciliation section of our website reconciles certain non-GAAP financial measures to the most directly comparable GAAP financial measures and provides a table of selected items that impact comparability of the partnership's 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 Plain's.

Today's call will be chaired by Greg L. Armstrong, Chairman and CEO of PAA and PNG. Also participating on the call are Harry Pefanis, President and COO of PAA and Vice Chairman of PNG; Dean Liollio, President of PNG; and Al Swanson, Executive Vice President and CFO of PAA and PNG. In addition to these gentlemen and myself, we'll have several 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 Armstrong

Thanks, Roy. Good morning, and welcome to everyone. During today's call, we will discuss PAA's second quarter operating and financial results, our 2011 capital program, our financial position, our updated guidance for the third quarter and the remainder of 2011 as well as our overall outlook. We would also address similar information for PNG as well as provide an update on the natural gas storage markets.

Yesterday after market closed, Plains All American announced second quarter adjusted EBITDA of $366 million exceeding the high end of our guidance by $46 million, which is $61 million above the midpoint of the guidance range.

As shown on Slide 3, adjusted EBITDA, adjusted net income and adjusted net income per diluted unit for the second quarter of 2011 increased 48%, 87% and 96%, respectively over last year's second quarter and each were favorable compared to guidance. PAA's results were driven by solid performance in all 3 segments with the Supply and Logistics segment being the largest contributor to overperformance. Notably this overperformance includes the adverse impact of the Rainbow release which Harry and Al will discuss in their part of the call.

As shown on Slide 4, our second quarter results mark the 38th consecutive quarter of delivering results in line with or above guidance. Yesterday evening, we furnished financial and operating guidance for the third quarter and the balance of the year, increasing the midpoint of our full year 2011 guidance by $89 million. Additionally, last month, PAA declared a 4.2% year-over-year increase in our run rate distribution to $3.93 per unit on an annualized basis. As for the distribution payable next week, PAA will have increased its distribution in each of the last 8 quarters and 27 out of the last 29 quarters.

As highlighted by our strong results, the energy environment continues to be very favorable for PAA's assets and business model. PAA has executed well in this environment and we are on track to meet or exceed our 2011 goals. At the end of the day's call, I will provide some additional comments on our distribution outlook for both PAA and PNG, but for now, let me turn the call over to Harry.

Harry Pefanis

Thanks, Greg. During my portion on the call, I'll review our second quarter operating results compared to the midpoint of our guidance issued on May 4, 2011, discuss the operational assumptions used to generate our guidance for the third quarter and discuss our capital program. Dean will cover the PNG-specific information in a moment.

As shown on Slide 5, adjusted segment profit for the Transportation segment was $137 million or $0.49 per barrel which was in line with our midpoint guidance. Volumes in the segment were a little more than 3 million barrels per day and were also in line with our guidance, with stronger volumes on basin, our Line 63/2000 system and at the Permian Basin area systems partially offsetting lower volumes or lower than forecasted volumes of our refined products systems and the Rainbow Pipeline.

As noted in our press releases and our website update, we experienced a release on the Rainbow pipeline on April 29. The release site has been repaired, clean up efforts are ongoing and we're currently waiting on regulatory approval to place the line back in service. The aggregate second quarter economic impact totaled approximately $23 million net of expected insurance reimbursements. And Al will provide additional detail on this estimate and the cost during his part of the call.

Looking forward, we're cautiously optimistic that we'll receive regulatory approval to place the line back in service in the third quarter. However, for purposes of our guidance, we've modeled the restart in the fourth quarter of this year.

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