Plains All American Pipeline and PAA Natural Gas Storage Pave the Way for Profitable 2013

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Researched by Industrial Info Resources (Sugar Land, Texas)--Executives from Plains All American Pipeline LP (NTSE:PAA) (PAA) (Houston, Texas) and PAA Natural Gas Storage (NYSE:PNG) (PNG) shared full-year and fourth-quarter financial results on February 7, 2013, in a conference call. Executives also spoke about the status of major expansion projects, capitalization and liquidity, financial and operating guidance for the quarter and year, as well as the partnerships' outlook for the future. PAA is engaged in the transportation, storage, terminals and marketing of crude oil, liquefied petroleum gas, refined products and other natural gas-related petroleum products, and PNG is engaged in the development, acquisition, operation and commercial management of natural gas facilities.

PAA'S Financial Results

2012 proved to be a good year for PAA. Greg Armstrong, chairman and CEO of PAA and PNG, first discussed PAA's earnings before interest, taxes, depreciation and amortization (EBITDA), which was $609 million in the fourth quarter. According to Armstrong, this amount "marked a very strong finish to a record-setting year." He also said that this amount exceeded the midpoint of the PAA's guidance by 17%, or $89 million. PAA is currently $64 million above the high end of its guidance.

In 2012, the company also raised distributions by just more than 9% through November. Armstrong was happy with this amount, because it was right on target with his goals for the company. In fact, PAA has increased distribution in each of the last 14 quarters.

In the fourth quarter of 2012, the company had a net income of $320 million, or $0.69 per diluted partner unit. For the full-year 2012, the company's net income was $1.09 billion, or $2.40 per diluted limited partner unit. In 2011, the net income for the full year was $278 million, so the company clearly experienced a hefty increase year-over-year.

PAA's Segment Results

For the Transportation segment, the company reported an adjusted segment profit of $198 million. This amount was $5 million above the midpoint of the company's guidance. Harry Pefanis, president and chief operating officer, explained that volumes of 3.66 million barrels per day were "slightly ahead of guidance." He also said that on a per unit basis, adjusted segment profit was $0.59 per barrel. This segment's profited benefited from higher volumes, which were partially offset by expenses related to remediation costs and repairs. The segment's adjusted segment profit for the Facility segment was $141 million.

In the fourth quarter, PAA benefited from the contribution from the rail asset acquired from the U.S. Development Corporation, as well as profitability from the company's Canadian natural gas liquids (NGL) facilities. However, there were higher expenses that offset the segment's profit.

In 2013, PAA expects volumes from the Transportation segment to average about 3.7 million barrels per day, which is a 6.5% increase over 2012 volumes. The company also expects there to be a 5% increase in the adjusted segment profit per barrel in 2013. PAA expects this increase because of new projects that will be serviced throughout 2013. Pefanis also explained that the acquisition of the USD rail assets and the full-year impact of the BP NGL assets will contribute to the company's increase in profits.

This year, PAA expects the Supply and Logistics segment to have a volume of about 1.1 million barrels per day, compared with 1 million barrels per day in 2012.

PAA's Projects

In 2012, PAA invested about $1.2 billion in organic growth projects. The company's expansion capital expenditures for 2013 are projected to be about $1.1 billion. PAA is specifically expanding its existing Mississippian Lime Pipeline, which stretches from Coldwater in Comanche County, Kansas, to Byron in Alfalfa County, Oklahoma, and this project is projected to be online in the fourth quarter of 2013. When finished, the 55-mile pipeline project will allow PAA to transport approximately 75,000 barrels of oil per day.

PAA also formed a 50:50 joint venture with Enterprise Products Partners LP (NYSE:EPD) in South Texas, and the companies are consolidating portions of pipeline projects servicing the Eagle Ford shale in South Texas. The joint venture will include a 140-mile crude oil and condensate line extending from Gardendale, LaSalle County, Texas, to Three Rivers, Live Oak County, Texas, and it will continue to Corpus Christi. There also will be a 35-mile pipeline segment from Three Rivers, Texas, to Enterprise's Lyssy station in Wilson County, Texas. According to Pefanis, the company's Corpus Christi dock is expected to be in service by June 2013. In addition to this project, PAA also has a pipeline project that will connect a Mississippi/Alabama pipeline system to a Gulf Coast refiner. This $95 million project is expected to be completed in the last quarter of 2013. PAA also has projects in Canada and the Rockies that will be completed this year.

Industrial info is currently tracking 30 projects for which PAA is the plant parent owner. The total investment value for these projects is $972 million. Seven of the projects are located in Canada and 23 are located in the U.S.

PNG's Financial Results

In the recent conference call, Dean Liollio, president and director of PNG, detailed the company's financial results. In the fourth quarter of 2012, PNG's EBITDA was $35.2 million, which was a 5% increase year-over-year. Adjusted net income was $23.2 million for the same period. For full-year 2012, PNG's EBITDA was $122.4 million and adjusted net income was $77.2 million.

Liollio said that PNG "continues to be financially well positioned." The company's long-term debt to capitalization ratio was 29% as of the end of December 2012. The company had $168 million in liquidity at the end of last year.

PNG's Projects

Last year, PNG brought more than 17 billion cubic feet of incremental working gas storage capacity into service at Pine Prairie and Southern Pines. At the end of 2012, the company had an aggregate capacity of about 93 billion cubic feet, which was a 22% increase year-over-year.

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