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

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

Q4 2011 Earnings Call

February 09, 2012 11:00 am ET

Executives

Roy I. Lamoreaux - Director of Investor Relations

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

Harry N. Pefanis - Vice Chairman of PNGS GP LLC

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

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

Analysts

Brian J. Zarahn - Barclays Capital, Research Division

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Stephen J. Maresca - Morgan Stanley, Research Division

John D. Edwards - Morgan Keegan & Company, Inc., Research Division

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Elvira Scotto - RBC Capital Markets, LLC, Research Division

Unknown Analyst

Selman Akyol - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the PAA PNG Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Greg Armstrong. Please go ahead.

Roy I. 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 Fourth Quarter and Full Year 2011 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.

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

In addition to reviewing results -- recent results, we will provide forward-looking comments on the partnership's outlook for the future. In order to avail ourselves with Safe Harbor precepts that encourage companies to provide this type of information, we direct you to the risks and warnings set forth in the partnership's 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 Reconciliations section of our website reconciles certain non-GAAP financial measures to the most directly and comparable GAAP financial measures and provide 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 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 CFO of PAA and PNG. In addition to these gentlemen and myself, we have several other members of our management team present and available for the question-and-answer session.

With that, I will 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, Plains All American announced fourth quarter adjusted EBITDA of $471 million. These results exceeded the midpoint of our guidance range by $61 million or 15%, and we're $46 million above the high end of our guidance range. This performance is in line with the increased expectations we communicated in our December 1 press release.

In comparison to last year's fourth quarter, adjusted EBITDA, adjusted net income and adjusted net income for diluted unit for the fourth quarter of 2011 increased 46%, 72% and 67%, respectively. These results and additional information are summarized on Slide 3.

PAA's fourth quarter results were driven by solid performance in all 3 segments, with supply and logistics service being the largest contributor to overperformance. As shown on Slide 4, our fourth quarter results marked the 40th consecutive quarter that PAA's delivered results in line with or above guidance.

As reflected on Slide 5, these results capped off a very strong year for PAA, as we delivered year-over-year increases of 44%, 72% and 73% for adjusted EBITDA, adjusted net income and adjusted net income per unit -- diluted unit, respectively. Additionally, last month, PAA declared a 7% year-over-year increase in our annualized run rate distribution to $4.10 per common unit.

As shown on Slide 6, PAA has increased its distribution in each of the last 10 quarters and in 29 of the last 31 quarters.

As reflected on Slide 7, during the remainder of today's call, we will discuss our segment performance relative to guidance, our expansion in capital program and acquisition activities, and our financial position. Throughout the call, we will address the drivers and major assumptions supporting our financial and operating guidance for the first quarter and full year of 2012.

The financial and operating guidance for the full year of 2012 includes our estimate of the contribution from the pending acquisition of BP's Canadian-based NGL business based on an assumed closing date of April 1, 2012. We will make appropriate adjustments to our guidance, if the actual closing date varies materially from that assumption.

At that end of the call, I will provide recap of 2011, a review of our goals for 2012 and our outlook for the future. We will also address similar information for PNG, as well as discuss the highlights of the modification and PAA's ownership of PNG.

With that, I'll turn the call over to Harry.

Harry N. Pefanis

Thanks, Greg. During my section of the call, I'll review our fourth quarter operating results compared to the midpoint of our guidance issued on November 2, discuss the operational assumptions in June to generate our 2012 guidance, and I'll discuss our capital program. Following my comments, Dean and Al will cover the PNG-specific information.

Prior to discussing our results versus guidance. I want to point out that our fourth quarter results include the impact of $11 million equity-related cash compensation charge that was not included in our guidance. This charge is primarily associated with the increase in PAA's unit price and a modification in our outlook at the probability of achieving performance thresholds and outstanding equity awards. $11 million charge impacts the transportation, Facilities and Supply and Logistics segments by $6 million, $1 million and $4 million, respectively.

As shown on Slide 8, adjusted segment profit for the Transportation segment was $160 million, which was $3 million or about 2% above the midpoint of our guidance. Volumes for the segment are a little more than 3.1 million barrels per day or approximately -- for 3.1 million barrels a day and were also approximately 2% above our guidance.

On a per-unit basis, adjusted segment profit was $0.56 per barrel. Adjusted segment profit for the Facilities segment was $107 million or approximately $10 million above the midpoint of our guidance. Volumes of 86 million barrels were in line with guidance, generating adjusted segment profit per barrel of $0.41, which was above the midpoint of our guidance. Primary contributors to financial performance were strong performance at PNG, higher throughput fees and other ancillary fees at a couple of our terminals, as well as favorable performance to our gas processing assets.

Adjusted segment profit for the Supply and Logistics segment was $200 million, approximately $45 million above the midpoint of guidance. In total, our volumes were 894,000 barrels per day versus our guidance of 880,000 barrels per day. Adjusted segment profit per barrel was $2.43 or $0.52 per barrel above the midpoint of our guidance. The volume variance is due to higher-than-forecasted fleet-gathering volumes. Our financial total performance for the quarter was primarily due to improved lease gathering margins, favorable base differentials and stronger-than-forecasted isobutane margins.

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