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PAA Natural Gas Storage L.P. announced fourth-quarter 2012 operating earnings of 31 cents per unit, 10.7% higher than the Zacks Consensus Estimate of 28 cents. The results of the partnership were in line with the year-ago earnings.

The partnership’s 2012 operating earnings were $1.04 per unit, beating the year-ago figure of 97 cents by 7.2%. With this the partnership also surpassed the Zacks Consensus Estimate by 3 cents.

The improvement in earnings was attributable to the partnership’s disciplined business strategy, strategic location of assets and a high percentage of contracted fee-based storage revenue.

PAA Natural Gas Storage’s GAAP earnings in 2012 were 99 cents per unit versus 85 cents per unit in the year-ago quarter. The difference between GAAP and operating earnings was due to charges of 5 cents related to equity compensation expenses.

Total Revenue

Total revenues at the end of the fourth quarter were $112.6 million, $36 million higher than the Zacks Consensus Estimate. However, revenues were 29.1% lower than comparable prior-quarter results.

The partnership generated total revenue of $387.7 million in 2012, surpassing the Zacks Consensus Estimate by 6.2% and the year-ago figure by 13.1%.

The top-line results for the full year benefited from an 11.2% increase in revenue from Firm storage services and an 18.2% increase in Hub services and merchant storage from the previous year.

Highlights of the Release

The partnership’s total costs and expenses during the quarter were $87.9 million, down 35% from the comparable prior-year period. This was primarily due to a 41.3% decline in storage related costs.

The cost savings had a positive effect on the operating income of the partnership. Operating income in the fourth quarter increased 5.5% year over year to $24.8 million.

The interest expenses of the partnership in the quarter increased 66.8% year over year to $2.35 million mainly due to higher debt levels.

Other Releases

AGL Resources Inc. (GAS - Analyst Report) reported earnings of 91 cents per share in the fourth quarter, lagging the Zacks Consensus Estimate by a dime. Atmos Energy Corporation (ATO - Snapshot Report) reported earnings of 74 cents per share in the first quarter fiscal 2013, lower than the Zacks Consensus Estimate of 78 cents for the quarter.

Our View

PAA Natural Gas Storage continues to post earnings surprises, thanks to the strategic locations of its storage assets. The low-cost storage capacity expansions at Southern Pines and Pine Prairie will also benefit the partnership.The partnership currently retains a Zacks Rank #3 (Hold).

Based in Houston, Texas, PAA Natural Gas Storage, L.P. primarily deals with natural gas storage facility. The partnership operates as a subsidiary of Plains All American Pipeline, LP (PAA - Analyst Report). The partnership provides services to customers from its three natural gas storage facilities located in Louisiana, Mississippi and Michigan.

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