##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 1-34722
 PAA Natural Gas Storage, L.P.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    27-1679071
(I.R.S. Employer
Identification No.)333 Clay Street, Suite 1500, Houston, Texas
(Address of principal executive offices)
    
    77002
(Zip Code)
 (713) 646-4100
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Units Representing Limited Partner Interests
    
    New York Stock Exchange
 None
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
NONE




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##### 



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
FORM 10-K2010 ANNUAL REPORT
 Table of Contents
 PagePART IItems 1 and 2.
    
    Business and Properties
    
    
    4Item 1A.
    
    Risk Factors
    
    
    21Item 1B.
    
    Unresolved Staff Comments
    
    
    40Item 3.
    
    Legal Proceedings
    
    
    40Item 4.
    
    (Removed and Reserved)
    
    
    40PART IIItem 5.
    
    Market for Registrants Common Units, Related Unitholder Matters and Issuer Purchases of Equity Securities
    
    
    41Item 6.
    
    Selected Financial Data
    
    
    43Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    45Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    57Item 8.
    
    Financial Statements and Supplementary Data
    
    
    58Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    58Item 9A.
    
    Controls and Procedures
    
    
    58Item 9B.
    
    Other Information
    
    
    59PART IIIItem 10.
    
    Directors and Executive Officers of Our General Partner and Corporate Governance
    
    
    60Item 11.
    
    Executive Compensation
    
    
    66Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
    
    
    83Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    85Item 14.
    
    Principal Accountant Fees and Services
    
    
    89PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    90EX-10.15EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32.1EX-32.2
  1




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FORWARD-LOOKING STATEMENTS
  
    
    the impact of operational and commercial factors that could result in an inability on our
part to satisfy our contractual commitments and obligations, including the impact of
equipment performance, cavern operating pressures and cavern temperature variances;
    
    risks related to the development and operation of natural gas storage facilities;
    
    failure to implement or execute planned internal growth projects on a timely basis and
within targeted cost projections;
    
    interruptions in service and fluctuations in tariffs or volumes on third party pipelines;
    
    general economic, market or business conditions and the amplification of other risks
caused by volatile financial markets, capital constraints and pervasive liquidity concerns;
    
    the successful integration and future performance of acquired assets or businesses;
    
    our ability to obtain debt or equity financing on satisfactory terms to fund additional
acquisitions, expansion projects, working capital requirements and the repayment or
refinancing of indebtedness;
    
    the impact of current and future laws, rulings, governmental regulations, accounting
standards and statements and related interpretations;
    
    significantly reduced volatility in natural gas markets for an extended period of time;
    
    factors affecting demand for natural gas and natural gas storage services and the rates
we are able to charge for such services;
    
    our ability to maintain or replace expiring storage contracts at attractive rates and on
other favorable terms;
    
    the effects of competition;
    
    shortages or cost increases of supplies, materials or labor;
    
    weather interference with business operations or project construction;
    
    our ability to receive open credit from our suppliers and trade counterparties;
    
    continued creditworthiness of, and performance by, our counterparties, including
financial institutions and trading companies with which we do business;
    
    the effectiveness of our risk management activities;
    
    the availability of, and our ability to consummate, acquisition or combination
opportunities;
    
    environmental liabilities or events that are not covered by an indemnity, insurance or
existing reserves;
    
    increased costs or unavailability of insurance;
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
    
    fluctuations in the debt and equity markets, including the price of our units at the time
of vesting under our long-term incentive plan;
    
    future developments and circumstances at the time distributions are declared; and
    
    other factors and uncertainties inherent in the development and operation of natural gas
storage facilities.
  3




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PART I
 
 Items 1 and 2. Business and Properties
 General
    Organizational History
  Partnership Structure and Management
   
 4




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Our Business Strategy
  
    
    Optimizing our existing natural gas storage facilities.Our primary commercial
objective is to generate a significant portion of our revenues by committing a high
percentage of our storage capacity under firm multi-year storage contracts. We also provide
our customers with a variety of hub services that are designed to accommodate customer
needs, maximize the utilization of our assets and optimize our earnings and cash flow.
Commercially and operationally, we routinely seek to optimize our profitability by
executing various initiatives that increase our efficiency, reliability and flexibility.
    
    Organically expanding our existing natural gas storage facilities.Our existing assets
enable us to expand our storage capacity on what we believe to be attractive economic
terms. We currently have permitted expansion activities underway at each of our three
facilities. Including the acquisition of Southern Pines in February 2011 and expansions
that are currently permitted and under construction, we have the potential to increase our
capacity from approximately 50 billion cubic feet (Bcf) of working capacity at December 31,
2010 to an aggregate of over 110 Bcf of working capacity at these three facilities.
    
    Pursuing strategic and accretive acquisition or development projects.We continually
evaluate opportunities to acquire or develop new natural gas storage facilities in our
existing and new markets. In general, we are seeking acquisition or development
opportunities that will be accretive (or result in an increase in distributable cash flow
on a per unit basis) and that will add natural gas storage assets or facilities that either
complement our existing assets or strategically enhance our overall business by
facilitating our entry into a desirable new market, diversifying our customer base or
positioning us for future growth.
    
    Leasing storage capacity and transportation services from third parties to enhance
operational flexibility.In order to supplement our owned storage capacity, increase our
operating flexibility, enhance the services that we are capable of offering to our
customers and optimize the commercial performance of our assets, we periodically lease
storage and/or transportation capacity from third parties.
    
    Utilizing a portion of our owned and leased storage capacity to enhance our commercial
management activities.Similar to the business model successfully employed by PAA, and
without altering our basic commercial strategy of committing a high percentage of our
storage capacity under firm multi-year storage contracts at attractive rates, during 2010
we established a dedicated commercial marketing group that will capture market
opportunities by leasing storage capacity for our own account and engaging in related
commercial marketing activities.
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Our Financial Strategy
  Targeted Credit Profile.
 
    
    a long-term debt-to-total capitalization ratio of 40% or less;
    
    an average long-term debt-to-Adjusted EBITDA multiple of approximately 3.5x to 4.0x
(Adjusted EBITDA is earnings before interest expense, taxes, depreciation, depletion
and amortization, equity compensation plan expense, gains and losses from derivative
activities and selected items that are generally unusual or non-recurring); and
    
    an average Adjusted EBITDA-to-interest coverage multiple of approximately 3.3x or
better.
   Credit Rating.
 Our Competitive Strengths
  
    
    Our natural gas storage assets are strategically located and operationally flexible.
Our Pine Prairie, Southern Pines and Bluewater storage facilities are strategically
positioned relative to several major market hubs and have extensive pipeline header systems
that are interconnected directly or indirectly with multiple large-diameter interstate and
intrastate pipelines. These facilities enable us to serve a variety of major producing
regions and LNG importers as well as the primary consumer and industrial markets in the
Gulf Coast, Midwest, Northeast and Southeast. After giving effect to the Southern Pines
Acquisition (see  Recent Developments), our three facilities have permitted aggregate
peak injection and withdrawal capacity of 2.9 Bcf per day and 5.6 Bcf per day,
respectively. Upon the completion of current expansion activities, these capacities will
increase to 4.1 Bcf per day of peak rate injection capacity and 6.4 Bcf per day of peak
rate withdrawal capacity. Utilization of a portion of our existing and planned capacity is
subject to market demand and receipt of appropriate governmental approvals.
    
    Our business generates relatively stable and predictable cash flow.Given the high
percentage of our cash flow that is derived from fixed-capacity reservation fees under
multi-year contracts with a diverse portfolio of customers, our baseline cash flow profile
is relatively stable and predictable, which we believe significantly mitigates the risk to
us of negative cash
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flow fluctuations caused by changing supply and demand conditions and other market factors.
In addition, we do not take title to the natural gas that we store for our customers and,
accordingly, are not exposed to commodity price fluctuations on the gas that is stored in our
facilities by our customers.
    
    Our storage facilities have the ability to be significantly expanded at competitive
costs and with a relatively high degree of schedule certainty.Subject to market demand,
project execution, sufficient pipeline capacity, available financing and receipt of future
permits, we have the property rights and operational capacity to expand our facilities
significantly beyond their current size. In addition, because the existing infrastructure
at two of our facilities has been specifically designed to facilitate future expansion, as
we expand these facilities we expect to both reduce our overall capital costs per
additional Bcf of storage capacity and shorten the length, and enhance the predictability
of, our development cycle.
    
    We have the evaluation, integration and engineering skill sets in-house that are
necessary to successfully pursue acquisition and expansion opportunities.We possess the
in-house capabilities and expertise necessary to develop, construct, own, acquire and
operate both depleted reservoir and salt-cavern storage capacity. We and our predecessor
have been involved in substantially all aspects of the natural gas storage business since
2005 and our operational and management teams have extensive energy industry and
acquisition experience.
    
    We have the financial flexibility to pursue acquisition and expansion opportunities.
We believe our borrowing capacity and our ability to access private and public debt and
equity capital should provide us with the financial flexibility necessary to execute our
growth and expansion strategy. Additionally, PAA may elect, but is not obligated, to
provide us with financial support in connection with acquisitions or expansion capital
projects in certain circumstances.
    
    Our general partner has an experienced management team with specialized knowledge of
natural gas storage and markets and whose interests are aligned with those of our
unitholders.Our general partner has an executive management team that has extensive
experience managing, operating, building, acquiring and integrating energy assets,
including natural gas storage assets and other midstream energy assets. Through their
indirect and direct interests in us, our general partner and PAA, our general partners
executive and senior management team has a significant, vested interest in our continued
success.
  Our Relationship with PAA
    7




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Recent Developments
 Acquisition of SG Resources Mississippi, L.L.C.
     Bluewater Incident
  8




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Natural Gas Market Overview
  Natural Gas Demand.
 9




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Natural Gas Supply. 1
  Market Balance and Volatility.
  
 1
    
    Reported production per EIA was used through
October 2010. For November and December 2010, reported production volume from
November and December 2009, respectively, were used as proxies for the final
two months of 2010. 10




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Supply of Storage Capacity.
  Non Coincident Peak
    
    Max Inventory inCapacity (Tcf)
    
    Storage (Tcf)
    
    Peak Utilization2005
    
    
    3.600
    
    
    
    3.282
    
    
    
    91
    %2006
    
    
    3.609
    
    
    
    3.461
    
    
    
    96
    %2007
    
    
    3.703
    
    
    
    3.545
    
    
    
    96
    %2008
    
    
    3.789
    
    
    
    3.488
    
    
    
    92
    %2009
    
    
    3.889
    
    
    
    3.837
    
    
    
    99
    %2010
    
    
    4.049
    
    
    
    3.840
    
    
    
    95
    %
  Our Assets
  11




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PeakWorking Gas
    
    
    Peak Injection
    
    
    Withdrawal
    
    
    CompressionFacility Name and Type
    
    Capacity (Bcf)
    
    
    Rate (Bcf/d)
    
    
    Rate (Bcf/d)
    
    
    (Horsepower)Pine Prairie (salt-cavern)Existing facility
    
    
    24
    
    
    
    1.2
    
    
    
    2.4
    
    
    
    48,000Planned & permitted expansion
    
    
    21
    (1)
    
    
    1.2
    (2)
    
    
    0.8
    (2)
    
    
    50,500
    (3)Subtotal
    
    
    45
    
    
    
    2.4
    
    
    
    3.2
    
    
    
    98,500Bluewater (depleted reservoir)
(5)Existing facility
    
    
    26
    
    
    
    0.5
    
    
    
    0.8
    
    
    
    13,350Planned expansion
    
    
    2
    (4)
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    28
    
    
    
    0.5
    
    
    
    0.8
    
    
    
    13,350Total (both facilities) (5) (6)
    
    
    73
    
    
    
    2.9
    
    
    
    4.0
    
    
    
    111,850
 
 (1)
    
    We expect to place 7.0 to 7.5 Bcf into service in the second
quarter of 2011 and an additional 10 Bcf by mid-2012 and the final 3 Bcf will be
added ratably through 2016.(2)
    
    We expect to complete these expansions of peak injection and
withdrawal capabilities by mid-2011.(3)
    
    Of this incremental permitted capacity, we expect the installation
of 23,000 horsepower to be completed by mid-2011, and up to an additional 17,250
horsepower to be in place by mid-2012.(4)
    
    We expect to place this expansion in working gas capacity into
service ratably over a 9 to 10-year period in connection with our ongoing liquids
removal project.(5)
    
    See  Recent Developments for discussion of an incident in January
2011 that is expected to have a temporary limitation on Bluewaters ability to
withdraw or inject natural gas at the indicated peak rates.(6)
    
    See  Recent Acquisition below for discussion of the acquisition of
the Southern Pines facility, which was acquired on February 9, 2011 and is not
included in the table above. Pine Prairie.
 
    
    the Henry Hub, which is the delivery point for New York Mercantile Exchange (NYMEX) natural gas
futures contracts and is located approximately 50 miles southeast of Pine Prairie;
    
    the Carthage Hub in east Texas, which is located approximately 150 miles northwest of Pine Prairie; and
    
    the Perryville Hub in north Louisiana, which is located approximately 130 miles north of Pine Prairie.
   12




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Bluewater.
  Recent Acquisition
  Southern Pines.
  Our Operations
  13




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
    
    Firm Storage Services.Firm storage services include (i)
storage services pursuant to which customers receive the
assured or firm right to store gas in our facilities over
a multi-year period and (ii) seasonal park and loan
services pursuant to which customers receive the firm
right to store gas in (park), or borrow gas from (loan),
our facilities on a seasonal basis. Under our firm storage
contracts, our customers are obligated to pay us fixed
monthly capacity reservation fees, which are owed to us
regardless of the actual storage capacity utilized. At Pine
Prairie, our firm storage contracts typically have terms of
3 to 5 years, while at Bluewater terms generally range from
1 to 3 years. As of December 31, 2010, the weighted average
remaining tenor of our existing portfolio of firm storage
contracts is approximately 3.0 years at Pine Prairie and
approximately 2.1 years at Bluewater. At Southern Pines,
acquired in February 2011, existing contracts have a
remaining weighted average term of approximately 5.5 years
as of January 1, 2011. Under our firm storage contracts, we
also typically collect a cycling fee based on the volume
of natural gas nominated for injection and/or withdrawal
and retain a small portion of natural gas nominated for
injection as compensation for our fuel use. For the year
ended December 31, 2010, approximately 91% of our total
revenue was derived from firm storage services.
    
    Hub Services.We also generate revenue from the provision
of hub services at our facilities. Hub services include
(i) interruptible storage services pursuant to which
customers receive only limited assurances regarding the
availability of capacity in our storage facilities and pay
fees based on their actual utilization of our assets, (ii)
non-seasonal park and loan services and (iii) wheeling
and balancing services pursuant to which customers pay
fees for the right to move a volume of gas through our
facilities from one interconnection point to another and
true up their deliveries of gas to, or takeaways of gas
from, our facilities. For the year ended December 31, 2010,
approximately 6% of our total revenue was derived from hub
services.
   Customers
   Contracts
  14




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Competition
   Regulation
    Natural Gas Storage Regulation
 Interstate Regulation.
  Standards of Conduct for Transmission Providers.
  15




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Natural Gas Price Transparency.
  Energy Policy Act of 2005.
 Other Proposed Regulation.
 Environmental Matters
 General.
  Waste Management.
 16




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Site Remediation.
 Air Emissions.
 Water Discharges.
 Safe Drinking Water Act.
 Climate Change.
 17




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Pipeline Safety
  Occupational Safety and Health
  Title to Properties and Rights-of-Way
  18




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Insurance
    Employees
  Summary of U.S. Income Tax Considerations
 The following is a brief summary of material tax considerations of owning and disposing of
common units, however, the tax consequences of ownership of common units depends in part on the
owners individual tax circumstances. It is the responsibility of each unitholder, either
individually or through a tax advisor, to investigate the legal and tax consequences, under the
laws of pertinent U.S. federal, states and localities, of the unitholders investment in us.
Further, it is the responsibility of each unitholder to file all U.S. federal, state, provincial
and local tax returns that may be required of the unitholder.
 Partnership Status; Cash Distributions
  19




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Partnership Allocations
  Basis of Common Units
  Limitations on Deductibility of Partnership Losses
   Section 754 Election
  20




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Disposition of Common Units
  State, Local and Other Tax Considerations
  Ownership of Common Units by Tax-Exempt Organizations and Certain Other Investors
  Available Information
  
 Item 1A. Risk Factors
 Risks Related to Our Business
 We may not have sufficient cash following the establishment of reserves and payment of fees
and expenses, including cost reimbursements to our general partner, to enable us to pay the minimum
quarterly distribution to holders of our common units and Series A subordinated units.
  
    
    the rates we charge for storage services and the amount of natural gas storage services our customers purchase from us;
    
    the overall balance between the supply of and demand for natural gas, on a seasonal and long-term basis, which impacts
the
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level of demand for the natural gas storage services we provide and the rates we are able to charge for such
services;
    
    regulatory action affecting the rates we can charge for the services we provide, the demand for natural gas, the
supply of natural gas, how we contract for services, our existing contracts, our operating and capital costs and our
operating flexibility;
    
    the creditworthiness of our customers;
    
    the level of competition from other providers of natural gas storage services;
    
    the level of our operating and maintenance and general and administrative costs; and
    
    prevailing economic conditions.
  
    
    the level of capital expenditures we make;
    
    the cost of acquisitions;
    
    our debt service requirements and other liabilities;
    
    fluctuations in our working capital needs;
    
    our ability to borrow funds and access capital markets;
    
    restrictions contained in debt agreements to which we are a party; and
    
    the amount of cash reserves established by our general partner.
  The amount of cash we have available for distribution to holders of our common
units and Series A subordinated units depends primarily on our cash flow rather than on our
profitability, which may prevent us from making distributions, even during periods in which we
record net income.
  Increased competition from other companies that provide natural gas storage services or
services that can substitute for storage services could have a negative impact on the demand for
our services, which could adversely affect our financial results.
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Our natural gas storage operations are subject to regulation by federal, state and local
regulatory authorities; regulatory measures adopted by such authorities could have a material
adverse effect on our business, financial condition, results of operations and ability to make
distributions.
      Our authorizations to charge market-based rates are subject to the continued existence of
certain conditions related to the competitive position of our facilities in their respective
markets and, if those conditions change, the right to charge market-based rates could be
terminated.
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Any significant and prolonged change in or stabilization of natural gas prices could have a
negative impact on our business.
   We may not be able to maintain or replace expiring storage contracts.
   Our storage business depends on third-party pipelines connected to our storage facilities, and
we could be negatively impacted by circumstances beyond our control that temporarily or permanently
interrupt the operation of such pipelines.
  24




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We may not be able to achieve our current expansion plans at our facilities on economically
viable terms.
  
    
    unexpected operational events;
    
    adverse weather conditions;
    
    facility or equipment malfunctions or breakdowns;
    
    unusual or unexpected geological formations;
    
    drill bit or drill pipe difficulties;
    
    collapses of wellbore, casing or other tubulars or other loss of drilling hole;
    
    unexpected problems associated with filling the caverns with base gas and conducting
pressure and mechanical integrity tests;
    
    unexpected problems associated with leaching the caverns, filtration of extracted water
and offsite disposal of water; and
    
    risks associated with subcontractors services, supplies, cost escalation and personnel.
  We may not be able to increase the capacity of our Pine Prairie or Southern Pines facilities
beyond our current expansion plans.
  25




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We are exposed to the credit risk of our customers in the ordinary course of our business.
   For various operating and commercial reasons, we may not be able to perform all of our
obligations under our contracts, which could lead to increased costs and negatively impact our
financial results.
  
    
    a failure on the part of our storage facilities to perform as we expect them to, whether
due to malfunction of equipment or facilities or realization of other operational risks;
    
    a failure on our part to create incremental storage capacity at our facilities due to
reduced leaching rates, operational or other factors;
    
    the operating pressure of our storage facilities (affected in varying degree, depending
on the type of storage cavern, by total volume of working and base gas, and temperature);
    
    a variety of commercial decisions we make from time to time in connection with the
management and operation of our storage facilities. Examples include, without limitation,
decisions with respect to matters such as (i) the aggregate amount of commitments we are
willing to make with respect to wheeling, injection, and withdrawal services, which could
exceed our capabilities at any given time for various reasons, (ii) the timing of scheduled
and unplanned maintenance or repairs, which can impact equipment availability and capacity,
(iii) the schedule for and rate at which we conduct leaching activities at our facilities
in connection with the creation of new salt caverns or the expansion of existing caverns,
which can impact the amount of storage capacity we have available to satisfy our customers
requests, (iv) the timing and aggregate volume of any base gas park and/or loan
transactions we consummate, which can directly affect the operating pressure of our storage
facilities and (v) the amount of compression capacity and other gas handling equipment that
we install at our facilities to support gas wheeling, injection and withdrawal activities;
and
    
    adverse operating conditions due to hurricanes, extreme weather events or
conditions, and operational problems or issues with third party pipelines, storage or
production facilities.
  26




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Our marketing activities could result in financial losses.
  We are subject to environmental laws and regulations that may expose us to significant costs
and liabilities.
   If we do not complete expansion projects or make and integrate acquisitions, our future growth
may be limited.
  
    
    we are unable to identify attractive expansion projects or acquisition candidates
that satisfy our economic and other criteria, or we are outbid for such opportunities by
our competitors;
    
    we are unable to raise financing for such expansion projects or acquisitions on
economically acceptable terms;
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
    
    we are unable to secure adequate customer commitments to use the facilities to be
expanded or acquired; or
    
    we are unable to obtain governmental approvals or other rights, licenses or consents
needed to complete such expansion projects or acquisitions.
 Acquisitions or expansion projects that we complete may not perform as anticipated and could result
in a reduction of our distributable cash flow on a per unit basis.
  
    
    mistaken assumptions about storage capacity, deliverability, base gas needs, geological
integrity, revenues, synergies, costs (including operating and general and administrative,
capital, debt and equity costs), customer demand, growth potential, assumed liabilities and
other factors;
    
    an inability to complete expansion projects on schedule and within applicable budgets
due to various factors, including cost overruns, schedule delays, and the inability to
obtain necessary permits or approvals;
    
    the failure to receive cash flows from an expansion project or newly acquired asset due
to delays in the commencement of operations for any reason;
    
    unforeseen operational issues or the realization of liabilities that were not known to
us at the time the acquisition or expansion project was completed;
    
    the inability to attract new customers or retain acquired customers to the extent
assumed in connection with the expansion or acquisition project;
    
    the failure to successfully integrate expansion projects or acquired assets or
businesses into our operations and/or the loss of key employees; or
    
    the impact of regulatory, environmental, political and legal uncertainties that are
beyond our control.
  Our
natural gas storage facilities are new and have limited operating history. The facilities may not be able to deliver as anticipated, which could prevent us from meeting our contractual
obligations and cause us to incur significant costs.
  Our business involves many hazards and operational risks, some of which may not be fully
covered by insurance. If a significant accident or event occurs for which we are not fully insured,
our operations and financial results could be adversely affected.
  
    
    reduction of our available storage capacity at our salt caverns over time due to
(i) unexpected increases in the temperature of our caverns, which reduces capacity as a
result of the expansion of the stored natural gas, (ii) the long-term effect of
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pressure differentials between the caverns and the surrounding salt formations (known as
salt creep) or (iii) problems with the structural integrity of our salt caverns;
    
    subsidence of the geological structures where we store natural gas;
    
    risks and hazards inherent in drilling operations associated with the development of
new caverns and/or the drilling of raw water wells or salt water disposal wells;
    
    problems maintaining the wellbores and related equipment and facilities that form a
part of the infrastructure that is critical to the operation of our storage facilities;
    
    impacts to our operations due to the unavailability of raw water for any reason or the
inability to dispose of salt water through our salt water disposal wells for any reason;
    
    damage to our storage facilities, related equipment and connecting pipelines and
surrounding properties caused by hurricanes, tornadoes, floods, fires and other natural
disasters and acts of terrorism;
    
    inadvertent damage from third parties, including construction, farm and utility
equipment;
    
    leaks of natural gas and other hydrocarbons or losses of natural gas as a result of the
malfunction of equipment or facilities;
    
    collapse of storage caverns;
    
    operator error;
    
    environmental pollution or other environmental issues, including drinking water
contamination, associated with our raw water or water disposal wells or our water
treatment facilities;
    
    damage associated with equipment or material failures, pipeline or vessel ruptures or
corrosion, explosions, fires and other incidents; and
    
    other hazards that could result in personal injury and loss of life, pollution and
suspension of operations.
   If leakage or migration of natural gas or other hydrocarbons occurs from any of our storage
facilities, our operations and financial results could be adversely affected.
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Restrictions in our credit facility could adversely affect our business, financial condition,
results of operations, ability to make distributions to unitholders and value of our units.
  
    
    make distributions of available cash to unitholders if any default or event of
default (as defined in the credit agreement) exists or would result therefrom;
    
    incur additional indebtedness;
    
    grant or permit to exist liens or enter into certain restricted contracts;
    
    engage in transactions with affiliates;
    
    make any material change to the nature of our business;
    
    make a disposition of all or substantially all of our assets; or
    
    enter into a merger, consolidate, liquidate, wind up or dissolve.
   Debt we incur in the future may limit our flexibility to obtain financing and to pursue other
business opportunities.
  
    
    our ability to obtain additional financing, if necessary, for working capital, capital expenditures,
acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;
    
    our funds available for operations, future business opportunities and distributions to unitholders will be
reduced by that portion of our cash flow required to make interest payments on our debt;
    
    we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
    
    our flexibility in responding to changing business and economic conditions may be limited.
  30




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We are considered a subsidiary of PAA under its debt instruments and, as such, we may be directly
or indirectly subject to and impacted by certain restrictions in PAAs existing and future credit
facilities and indentures. These restrictions may limit our access to credit, prevent us from
engaging in beneficial activities, and in certain circumstances, require us to guarantee PAAs
indebtedness.
  
    
    We will be restricted from entering into any future sale/leaseback transactions.
    
    PAA is subject to a limit of 10% of PAAs consolidated net tangible assets with
respect to the amount of debt that can be secured by liens on facilities owned
by its subsidiaries, including us. We cannot control the incurrence of secured
debt by PAAs other subsidiaries.
    
    We cannot give intercompany guaranties of debt for borrowed money for the
benefit of PAA or any subsidiary of PAA (including any of our subsidiaries)
unless we agree to guarantee PAAs outstanding debt. The same restriction would
apply to a guaranty of our debt by one of our subsidiaries.
   The credit and risk profile of our general partner and its owner, PAA, could adversely affect
our credit and risk profile, which could increase our borrowing costs or hinder our ability to
raise capital.
   Increases in interest rates could adversely impact our unit price, our ability to issue equity
or incur debt for acquisitions or other purposes, and our ability to make cash distributions at our
intended levels.
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An impairment of goodwill could reduce our earnings.
  Risks Inherent in an Investment in Us
 Our partnership agreement requires that we distribute all of our available cash, which could
limit our ability to grow and make acquisitions.
   Cost reimbursements due to PAAs general partner and our general partner for services provided
to us or on our behalf will be substantial and will reduce our cash available for distribution to
our unitholders. The amount and timing of such reimbursements will be determined by PAAs general
partner.
  Our general partner may elect to cause us to issue common units to it in connection with a
resetting of the target distribution levels related to its incentive distribution rights, without
the approval of the conflicts committee of its board of directors or the holders of our common
units. This could result in lower distributions to holders of our common units.
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Unitholders may have liability to repay distributions that were wrongfully distributed to
them.
  Unitholder liability may not be limited if a court finds that unitholder action constitutes
control of our business.
    Holders of our common units have limited voting rights and are not entitled to elect the
directors of our general partner.
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Even if holders of our common units are dissatisfied, they cannot remove our general partner
without its consent.
  Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our
common units.
  Our general partner interest or the control of our general partner may be transferred to a
third party without unitholder consent.
  We may issue additional units without our unitholders approval, which would dilute our
unitholders existing ownership interest.
  
    
    our existing unitholders proportionate ownership interest in us will decrease;
    
    the amount of cash available for distribution on each unit may decrease;
    
    because a lower percentage of total outstanding units will be Series A subordinated
units, the risk that a shortfall in the payment of the minimum quarterly distribution
will be borne by our common unitholders will increase;
    
    the ratio of taxable income to distributions may increase;
    
    the relative voting strength of each previously outstanding unit may be diminished; and
    
    the market price of the common units may decline.
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PAA may sell units in the public or private markets, and such sales could have an adverse
impact on the trading price of the common units.
  Risks Related to Conflicts of Interest
 PAA owns and controls our general partner, which has sole responsibility for conducting our
business and managing our operations. PAA and our general partner have conflicts of interest and
may favor PAAs interests to a unitholders detriment.
  PAA may engage in competition with us.
  Our partnership agreement defines and modifies the duties of our general partner and restricts
the remedies available to holders of our common and subordinated units for actions taken by our
general partner.
  
    
    permits our general partner to make a number of decisions in its
individual capacity, as opposed to in its capacity as our general
partner. This entitles our general partner to consider only the
interests and factors that it desires, and it has no duty or
obligation to give any consideration to any interest of, or factors
affecting, us, our affiliates or any limited partner. Examples of
decisions that our general partner may make in its individual capacity
include:
 (a)
    
    how to allocate corporate opportunities among us and our general partners affiliates;(b)
    
    whether to exercise its limited call right;(c)
    
    how to exercise its voting rights with respect to the units it owns;(d)
    
    whether to exercise its registration rights;(e)
    
    whether to elect to reset target distribution levels; and
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(f)
    
    whether or not to consent to any merger or consolidation of
the partnership or amendment to the partnership agreement.
 
    
    provides that whenever our general partner makes a
determination, including any determination with respect to
distributable cash flow or any components thereof, or
takes, or declines to take, any other action in its
capacity as our general partner, our general partner is
required to make such determination, or take or decline to
take such other action, in good faith, and will not be
subject to any other or different standard imposed by our
partnership agreement, Delaware law, or any other law, rule
or regulation, or at equity;
    
    provides that our general partner will not have any
liability to us or our unitholders for decisions made in
its capacity as a general partner so long as such decisions
are made in good faith, meaning that it subjectively
believed that the decision was (i) with respect to matters
involving us, in, or not opposed to, the best interests of
our partnership and (ii) with respect to matters involving
the relative rights and privileges of holders of our equity
interests, consistent with the intent of the provisions of
our partnership agreement;
    
    provides that our general partner and its officers and
directors will not be liable for monetary damages to us,
our limited partners or their assignees resulting from any
act or omission unless there has been a final and
non-appealable judgment entered by a court of competent
jurisdiction determining that our general partner or its
officers and directors, as the case may be, acted in bad
faith or engaged in fraud or willful misconduct or, in the
case of a criminal matter, acted with knowledge that the
conduct was criminal;
    
    generally provides that any resolution or course of action
adopted by our general partner and its affiliates in
respect of a conflict of interest will be permitted and
deemed approved by all of our partners, and will not
constitute a breach of our partnership agreement or any
duty stated or implied by law or equity if the resolution
or course of action in respect of such conflict of interest
is:
 (a)
    
    approved by the conflicts committee of our general partner after due inquiry,
based on a subjective belief that the course of action or determination that is the subject
of such approval is fair and reasonable to us;
 (b)
    
    approved by the vote of a majority of the outstanding common units, excluding
any common units owned by our general partner and its affiliates, directors and executive
officers;
 (c)
    
    determined by our general partner (after due inquiry) to be on terms no less
favorable to us than those generally being provided to or available from unrelated third
parties; or
 (d)
    
    approved by our general partner (after due inquiry) based on a subjective
belief that the course of action or determination that is the subject of such approval is
fair and reasonable to us, which may include taking into account the totality of the
circumstances and relationships involved (our short-term or long-term interests and other
arrangements or relationships that could be considered favorable or advantageous to us); and
 
    
    provides that, to the fullest extent permitted by law, in connection
with any action or inaction of, or determination made by, our general
partners board of directors or its conflicts committee with respect
to any matter relating to us, it shall be presumed that our general
partners board of directors or its conflicts committee acted in a
manner that satisfied the contractual standards set forth in our
partnership agreement, and in any proceeding brought by any limited
partner or by or on behalf of such limited partner or any other
limited partner or our partnership challenging any such action or
inaction of, or determination made by, our general partner, the person
bringing or prosecuting such proceeding shall have the burden of
overcoming such presumption.
 Our general partner intends to limit its liability regarding our obligations.
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Our general partner has a limited call right that may require unitholders to sell their units
at an undesirable time or price.
  Tax Risks to Common Unitholders
 Our tax treatment depends on our status as a partnership for federal income tax purposes, as
well as our not being subject to a material amount of additional entity-level taxation by
individual states. If the IRS were to treat us as a corporation for federal income tax purposes or
we were to become subject to material additional amounts of entity-level taxation for state tax
purposes, then our cash available for distribution to our unitholders could be substantially
reduced.
     The tax treatment of (i) publicly traded partnerships or (ii) an investment in our units could
be subject to potential legislative, judicial or administrative changes and differing
interpretations, possibly on a retroactive basis.
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Our unitholders will be required to pay taxes on their share of our income even if they do not
receive any cash distributions from us.
  The sale or exchange of 50% or more of our capital and profits interests during any
twelve-month period will result in the termination of our partnership for federal income tax
purposes.
  Tax gain or loss on the disposition of our common units could be more or less than expected.
  Tax-exempt entities and non-U.S. persons face unique tax issues from owning common units that
may result in adverse tax consequences to them.
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If the IRS contests the federal income tax positions we take, the market for our common units
may be adversely impacted and the cost of any IRS contest will reduce our cash available for
distribution or debt service.
  We treat each purchaser of our common units as having the same tax benefits without regard to the
actual common units purchased. The IRS may challenge this treatment, which could adversely affect
the value of the common units.
  We have adopted certain valuation methodologies that may result in a shift of income, gain, loss
and deduction between our general partner and the unitholders. The IRS may challenge this
treatment, which could adversely affect the value of the common units.
   We prorate our items of income, gain, loss and deduction between transferors and transferees of
our units each month based upon the ownership of our units on the first day of each month, instead
of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment,
which could change the allocation of items of income, gain, loss and deduction among our
unitholders.
  A unitholder whose common units are loaned to a short seller to cover a short sale of common
units may be considered as having disposed of those common units. If so, he would no longer be
treated for tax purposes as a partner with respect to those common units during the period of the
loan and may recognize gain or loss from the disposition.
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Our unitholders will likely be subject to state and local taxes and return filing requirements in
states where our unitholders do not live as a result of investing in our common units.
  
 Item 1B. Unresolved Staff Comments
  
 Item 3. Legal Proceedings
  
 Item 4. (Removed and Reserved)
 40




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##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Units, Related Unitholder Matters and Issuer Purchases of
Equity Securities
   Common Unit Price Range
    
    Cash2010
    
    High
    
    Low
    

Distributions (1)4th Quarter
    
    $
    25.75
    
    
    $
    22.61
    
    
    $
    0.34503rd Quarter
    
    $
    26.65
    
    
    $
    22.61
    
    
    $
    0.33752nd Quarter
(2)(3)
    
    $
    26.00
    
    
    $
    22.25
    
    
    $
    0.21141st Quarter
(3)
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Cash distributions for a quarter are declared and paid in the following
calendar quarter. See  Cash Distribution Policy below for a discussion of our policy
regarding distribution payments.(2)
    
    The distribution paid for the second quarter of 2010 represents our minimum
quarterly distribution prorated for the period from May 5, 2010 (the date of closing of our
initial public offering) through June 30, 2010.(3)
    
    Our common units did not commence trading on the NYSE until April 2010.  Cash Distribution Policy
  
    
    provide for the proper conduct of our business;
    
    comply with applicable law or any partnership debt instrument
or other agreement; or
    
    provide funds for distributions to unitholders and the general partner in respect
of any one or more of the next four quarters.
  
    
    first,98.0% to the holders of common units and 2.0% to our general partner, until each
common unit has received the minimum quarterly distribution of $0.3375, plus any arrearages
from prior quarters; and
    
    second, 98.0% to the holders of Series A subordinated units and 2.0% to our general
partner, until each Series A subordinated unit has received the minimum quarterly
distribution of $0.3375.
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##### Table of Contents



Marginal PercentageTotal Quarterly Distributions
    
    Interest in Distributionsper Common Unit and
    
    
    
    
    
    GeneralSeries A Subordinated Unit
    
    Unitholders
    
    PartnerMinimum quarterly distribution
    
    
    $0.3375
    
    
    98.0
    %
    
    
    2.0
    %First target distribution
    
    above $0.3375 up to $0.37125
    
    
    85.0
    %
    
    
    15.0
    %Second target distribution
    
    above $0.37125 up to $0.50625
    
    
    75.0
    %
    
    
    25.0
    %Thereafter
    
    above $0.50625
    
    
    50.0
    %
    
    
    50.0
    %
   Distributions PaidSeries A
    
    
    
    
    
    
    
    
    
    
    
    
    
    DistributionsCommon
    
    Subordinated
    
    General Partner
    
    
    
    
    
    per limitedDate Declared
    
    Date Paid or To Be Paid
    
    Units
    
    Units
    
    Incentive
    
    2%
    
    Total
    
    partner unitJanuary 12, 2011
    
    February 14, 2011 (1)
    
    $
    10.9
    
    
    $
    4.1
    
    
    $
    0.1
    
    
    $
    0.3
    
    
    $
    15.4
    
    
    $
    0.3450October 12, 2010
    
    November 12, 2010
    
    $
    10.7
    
    
    $
    4.0
    
    
    $
    
    
    
    $
    0.3
    
    
    $
    15.0
    
    
    $
    0.3375July 13, 2010
    
    August 13, 2010 (2)
    
    $
    6.7
    
    
    $
    2.9
    
    
    $
    
    
    
    $
    0.2
    
    
    $
    9.8
    
    
    $
    0.2114
 
 (1)
    
    Payable to unitholders of record on February 4, 2011, for the period October 1,
2010 through December 31, 2010.(2)
    
    Amount represents a quarterly
distribution of $0.3375 per unit prorated from the May 5, 2010 closing date of the IPO through June
30, 2010.   Issuer Purchases of Equity Securities
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Item 6. Selected Financial Data
 Predecessor
    
    
    
    Successor
    
    

Pro Forma (1)
    
    
    SuccessorJanuary 1,
    
    
    
    September 3,2009
    
    
    
    2009Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    through
    
    
    
    through
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    September 2,
    
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    
    2009
    
    
    2009
    
    
    2010(in thousands, except for per unit data and monthly operating metrics)Statement of operations data:Total revenues
    
    $
    30,831
    
    
    $
    36,945
    
    
    $
    49,177
    
    
    $
    46,929
    
    
    
    $
    25,251
    
    
    $
    72,180
    
    
    $
    100,287Storage related costs
    
    
    100
    
    
    
    3,847
    
    
    
    8,934
    
    
    
    8,792
    
    
    
    
    7,003
    
    
    
    15,795
    
    
    
    23,465Operating costs (except those shown below)
    
    
    3,658
    
    
    
    3,947
    
    
    
    4,059
    
    
    
    4,820
    
    
    
    
    3,257
    
    
    
    8,077
    
    
    
    7,242Fuel expense
    
    
    613
    
    
    
    1,140
    
    
    
    2,320
    
    
    
    1,816
    
    
    
    
    578
    
    
    
    2,394
    
    
    
    2,368General and administrative expenses
    
    
    3,402
    
    
    
    3,755
    
    
    
    3,874
    
    
    
    3,562
    
    
    
    
    4,083
    
    
    
    8,885
    
    
    
    15,965Depreciation, depletion and amortization
    
    
    3,986
    
    
    
    4,520
    
    
    
    6,245
    
    
    
    8,054
    
    
    
    
    3,578
    
    
    
    11,341
    
    
    
    14,119Total costs and expenses
    
    
    11,759
    
    
    
    17,209
    
    
    
    25,432
    
    
    
    27,044
    
    
    
    
    18,499
    
    
    
    46,492
    
    
    
    63,159Operating income
    
    
    19,072
    
    
    
    19,736
    
    
    
    23,745
    
    
    
    19,885
    
    
    
    
    6,752
    
    
    
    25,688
    
    
    
    37,128Interest expense
    
    
    (8,389
    )
    
    
    (7,108
    )
    
    
    (4,941
    )
    
    
    (4,352
    )
    
    
    
    (4,262
    )
    
    
    (11,676
    )
    
    
    (7,323
    )Interest income and other income (expense), net
    
    
    2,030
    
    
    
    5,378
    
    
    
    1,669
    
    
    
    458
    
    
    
    
    (2
    )
    
    
    456
    
    
    
    (18
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (887
    )
    
    
    (473
    )
    
    
    
    
    
    
    
    (473
    )
    
    
    Net income
    
    $
    12,713
    
    
    $
    18,006
    
    
    $
    19,586
    
    
    $
    15,518
    
    
    
    $
    2,488
    
    
    $
    13,995
    
    
    $
    29,787Calculation of Limited Partner Interest inNet Income:(2)Net income
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    24,359Less general partner interest in net income
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    537Limited partner interest in net income
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    23,822Per unit data:Basic net income per limited partner unit(2)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    0.54Diluted net income per limited partner unit(2)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    0.54Declared distribution per limited partner unit(3)
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    0.345Balance sheet data (at end of period):Total assets
    
    $
    518,092
    
    
    $
    674,765
    
    
    $
    811,436
    
    
    
    
    
    
    
    $
    900,407
    
    
    
    
    
    
    $
    998,728Long-term debt
    
    $
    227,300
    
    
    $
    352,713
    
    
    $
    415,263
    
    
    
    
    
    
    
    $
    450,523
    
    
    
    
    
    
    $
    259,900Total debt
    
    $
    227,300
    
    
    $
    355,163
    
    
    $
    417,713
    
    
    
    
    
    
    
    $
    450,523
    
    
    
    
    
    
    $
    259,900Members/partners capital
    
    $
    264,109
    
    
    $
    294,717
    
    
    $
    363,229
    
    
    
    
    
    
    
    $
    432,744
    
    
    
    
    
    
    $
    723,390Other financial data:Adjusted
EBITDA(4)
    
    $
    27,395
    
    
    $
    29,663
    
    
    $
    31,001
    
    
    $
    28,701
    
    
    
    $
    12,165

(5)
    
    $
    39,626
    
    
    $
    53,857Distributable cash flow(4)
    
    $
    19,006
    
    
    $
    22,156
    
    
    $
    25,577
    
    
    $
    23,965
    
    
    
    $
    7,200
    
    
    $
    26,863
    
    
    $
    44,962Maintenance capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    377
    
    
    $
    384
    
    
    
    $
    320
    
    
    $
    704
    
    
    $
    438Net cash provided by (used in) operating activities
    
    $
    13,973
    
    
    $
    22,343
    
    
    $
    21,818
    
    
    $
    22,603
    
    
    
    $
    15,265
    
    
    
    
    
    
    $
    44,361Net cash provided by (used in) investing activities
    
    $
    (206,612
    )
    
    $
    (177,280
    )
    
    $
    (118,890
    )
    
    $
    (58,561
    )
    
    
    $
    (9,656
    )
    
    
    
    
    
    $
    (103,580
    )Net cash provided by (used in) financing activities
    
    $
    158,771
    
    
    $
    145,743
    
    
    $
    122,344
    
    
    $
    23,636
    
    
    
    $
    (22,813
    )
    
    
    
    
    
    $
    56,441Operating data:Net revenue
margin(6)
    
    $
    30,731
    
    
    $
    33,098
    
    
    $
    40,243
    
    
    $
    38,137
    
    
    
    $
    18,248
    
    
    $
    56,385
    
    
    $
    76,822Other operating expenses / G&A / Other
    
    
    (3,336
    )
    
    
    (3,435
    )
    
    
    (9,242
    )
    
    
    (9,436
    )
    
    
    
    (6,083
    )
    
    
    (16,759
    )
    
    
    (22,965
    )Adjusted EBITDA
    
    $
    27,395
    
    
    $
    29,663
    
    
    $
    31,001
    
    
    $
    28,701
    
    
    
    $
    12,165
    
    
    $
    39,626
    
    
    $
    53,857Average
working storage capacity (Bcf)(7)
    
    
    24
    
    
    
    26
    
    
    
    27
    
    
    
    36
    
    
    
    
    40
    
    
    
    38
    
    
    
    47Monthly Operating Metrics ($/Mcf)Net revenue margin
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.13
    
    
    
    $
    0.11
    
    
    $
    0.12
    
    
    $
    0.14Operating expenses / G&A / Other
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.04
    )Adjusted EBITDA
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.10
    
    
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    0.10
 43




---



##### Table of Contents



(1)
    
    In September 2009, Plains All American Pipeline, L.P. became the sole owner of a predecessor of
PNG by acquiring an additional 50% interest in that predecessor. Application of push-down
accounting in conjunction with this transaction resulted in financial information for periods prior
to and subsequent to this transaction being prepared under a different basis of accounting. For
comparison purposes, the pro-forma presentation places the 2009 period on the same basis of
accounting as the most recent period. The following items were impacted by the adjustment: General
and administrative expenses, Depreciation, depletion and amortization, and Interest expense. The
net impact of the pro-forma adjustments was a $4.0 million decrease to Net income and Adjusted Net
Income and a $1.2 million decrease in EBITDA and Adjusted EBITDA for the year ended December 31,
2009. These pro-forma adjustments are not attributable to the Partnerships May 2010 initial public
offering.(2)
    
    Reflective of general and limited partner interest in net income since closing of the
Partnerships initial public offering. See Note 2 to our consolidated financial statements.(3)
    
    Excludes Series B subordinated units. See Note 2 to our consolidated financial statements.(4)
    
    For further discussion, see  Non-GAAP and Segment Financial Measures.(5)
    
    The successor period includes total expenses of approximately $1 million associated with
increased personnel costs, including added staffing, and accelerated audit and other costs related
to our increased acquisition activities and our efforts to become a publicly traded entity as well
as increased overhead allocations from PAA.(6)
    
    Net revenue margin equals total revenues minus storage related costs.(7)
    
    Calculated as the sum of total owned capacity at the end of each month divided by the number of
months in the period. Non-GAAP and Segment Financial Measures
    44




---



##### Table of Contents



Predecessor
    
    
    
    Successor
    
    
    Pro Forma (1)
    
    
    SuccessorYear Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    January 1 
    
    
    
    September 3 
    
    
    Year Ended
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    September 2,
    
    
    
    December 31,
    
    
    December
    
    
    December31, 2006
    
    
    31, 2007
    
    
    31, 2008
    
    
    2009
    
    
    
    2009
    
    
    31, 2009
    
    
    31, 2010(in thousands)Adjusted EBITDA reconciliationNet income
    
    $
    12,713
    
    
    $
    18,006
    
    
    $
    19,586
    
    
    $
    15,518
    
    
    
    $
    2,488
    
    
    $
    13,995
    
    
    $
    29,787Income tax expense
    
    
    
    
    
    
    
    
    
    
    887
    
    
    
    473
    
    
    
    
    
    
    
    
    473
    
    
    
    Interest expense, net of amounts capitalized
    
    
    8,389
    
    
    
    7,108
    
    
    
    4,941
    
    
    
    4,352
    
    
    
    
    4,262
    
    
    
    11,676
    
    
    
    7,323Depreciation, depletion and amortization
    
    
    3,986
    
    
    
    4,520
    
    
    
    6,245
    
    
    
    8,054
    
    
    
    
    3,578
    
    
    
    11,341
    
    
    
    14,119Selected items impacting Adjusted EBITDAEquity compensation expense
    
    
    515
    
    
    
    553
    
    
    
    (110
    )
    
    
    304
    
    
    
    
    1,467
    
    
    
    1,771
    
    
    
    2,747Acquisition related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251Mark-to-market on open derivative positions
    
    
    1,792
    
    
    
    (524
    )
    
    
    (548
    )
    
    
    
    
    
    
    
    370
    
    
    
    370
    
    
    
    (370
    )Adjusted EBITDA
    
    $
    27,395
    
    
    $
    29,663
    
    
    $
    31,001
    
    
    $
    28,701
    
    
    
    $
    12,165
    
    
    $
    39,626
    
    
    $
    53,857Distributable cash flow reconciliationNet income
    
    $
    12,713
    
    
    $
    18,006
    
    
    $
    19,586
    
    
    $
    15,518
    
    
    
    $
    2,488
    
    
    $
    13,995
    
    
    $
    29,787Depreciation, depletion and amortization
    
    
    3,986
    
    
    
    4,520
    
    
    
    6,245
    
    
    
    8,054
    
    
    
    
    3,578
    
    
    
    11,341
    
    
    
    14,119Income tax expense
    
    
    
    
    
    
    
    
    
    
    887
    
    
    
    473
    
    
    
    
    
    
    
    
    473
    
    
    
    Acquisition related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251Maintenance capital expenditures
    
    
    
    
    
    
    
    
    
    
    (377
    )
    
    
    (384
    )
    
    
    
    (320
    )
    
    
    (704
    )
    
    
    (438
    )Other non cash items:Net, non cash equity compensation
    
    
    515
    
    
    
    154
    
    
    
    (216
    )
    
    
    304
    
    
    
    
    1,084
    
    
    
    1,388
    
    
    
    1,613Mark-to-market on open derivative positions
    
    
    1,792
    
    
    
    (524
    )
    
    
    (548
    )
    
    
    
    
    
    
    
    370
    
    
    
    370
    
    
    
    (370
    )Distributable cash flow
    
    $
    19,006
    
    
    $
    22,156
    
    
    $
    25,577
    
    
    $
    23,965
    
    
    
    $
    7,200
    
    
    $
    26,863
    
    
    $
    44,962
 
 (1)
    
    In September 2009, Plains All American Pipeline, L.P. became the sole owner of a predecessor of
PNG by acquiring an additional 50% interest in that predecessor. Application of push-down
accounting in conjunction with this transaction resulted in financial information for periods prior
to and subsequent to this transaction being prepared under a different basis of accounting. For
comparison purposes, the pro-forma presentation places the 2009 period on the same basis of
accounting as the most recent period. The following items were impacted by the adjustment: General
and administrative expenses, Depreciation, depletion and amortization, and Interest expense. The
net impact of the pro-forma adjustments was a $4.0 million decrease to Net income and Adjusted Net
Income and a $1.2 million decrease in EBITDA and Adjusted EBITDA for the year ended December 31,
2009. These pro-forma adjustments are not attributable to the Partnerships May 2010 initial public
offering. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations   Introduction
  45




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##### Table of Contents




    
    Executive Summary
 
    
    Company Overview
    
    Overview of Operating Results, Capital Spending and Significant Activities
 
    
    Critical Accounting Policies and Estimates
    
    Recent Accounting Pronouncements
    
    Results of Operations
    
    Outlook
    
    Liquidity and Capital Resources
 Executive Summary
 Company Overview
   46




---



##### Table of Contents



Overview of Operating Results, Capital Spending and Significant Activities
     Critical Accounting Policies and Estimates
 Critical Accounting Policies
  Critical Accounting Estimates
  Fair Value of Assets and Liabilities Acquired and Identification of Associated Goodwill and
Intangible Assets.
  47




---



##### Table of Contents



Property, Plant and Equipment and Depreciation Expense.
  
    
    whether there is an indication of impairment;
    
    the grouping of assets;
    
    the intention of holding versus selling an asset;
    
    the forecast of undiscounted expected future cash flow over the assets estimated useful life; and
    
    if an impairment exists, the fair value of the asset or asset group.
  Accruals and Contingent Liabilities.
 Equity Compensation Plan Accruals.
 Mark-to-Market Accrual.
 48




---



##### Table of Contents



Recent Accounting Pronouncements
  Results of Operations
 PAA Ownership Transaction and Basis of Presentation
    49




---



##### Table of Contents



Successor
    
    
    Pro Forma
    
    
    Successor
    
    
    
    Predecessor
    
    
    Favorable/(Unfavorable) VarianceSeptember
    
    
    
    January 1,Year
    
    
    Year
    
    
    3, 2009
    
    
    
    2009
    
    
    YearEnded
    
    
    Ended
    
    
    through
    
    
    
    through
    
    
    Ended
    
    
    2010  Pro
    
    
    Pro forma 2009December
    
    
    December
    
    
    December
    
    
    
    September
    
    
    December
    
    
    Forma 2009
    
    
     200831, 2010
    
    
    31, 2009
    
    
    31, 2009
    
    
    
    2, 2009
    
    
    31, 2008
    
    
    $
    
    
    %
    
    
    $
    
    
    %(in thousands, except monthly operating metrics)RevenuesFirm Storage ServicesReservation fees
    
    $
    85,651
    
    
    $
    62,535
    
    
    $
    22,919
    
    
    
    $
    39,616
    
    
    $
    37,674
    
    
    $
    23,116
    
    
    
    37
    %
    
    $
    24,861
    
    
    
    63
    %Cycling fees and fuel-in-kind
    
    
    5,314
    
    
    
    4,086
    
    
    
    1,053
    
    
    
    
    3,033
    
    
    
    5,197
    
    
    
    1,228
    
    
    
    30
    %
    
    
    (1,111
    )
    
    
    -37
    %Hub Services
    
    
    6,190
    
    
    
    4,625
    
    
    
    1,637
    
    
    
    
    2,988
    
    
    
    1,417
    
    
    
    1,565
    
    
    
    34
    %
    
    
    3,208
    
    
    
    107
    %Other
    
    
    3,132
    
    
    
    934
    
    
    
    (358
    )
    
    
    
    1,292
    
    
    
    4,889
    
    
    
    2,198
    
    
    
    235
    %
    
    
    (3 ,955
    )
    
    
    -306
    %Total revenue
    
    
    100,287
    
    
    
    72,180
    
    
    
    25,251
    
    
    
    
    46,929
    
    
    
    49,177
    
    
    
    28,107
    
    
    
    39
    %
    
    
    23,003
    
    
    
    49
    %Storage related costs
    
    
    (23,465
    )
    
    
    (15,795
    )
    
    
    (7,003
    )
    
    
    
    (8,792
    )
    
    
    (8,934
    )
    
    
    (7,670
    )
    
    
    -4 9
    %
    
    
    (6 ,86 1
    )
    
    
    -78
    %Other operating costs (except those shown below)
    
    
    (7,242
    )
    
    
    (8,077
    )
    
    
    (3,257
    )
    
    
    
    (4,820
    )
    
    
    (4,059
    )
    
    
    835
    
    
    
    10
    %
    
    
    (4 ,018
    )
    
    
    -83
    %Fuel expense
    
    
    (2,368
    )
    
    
    (2,394
    )
    
    
    (578
    )
    
    
    
    (1,816
    )
    
    
    (2,320
    )
    
    
    26
    
    
    
    1
    %
    
    
    (74
    )
    
    
    -4
    %General and administrative expenses
    
    
    (15,965
    )
    
    
    (8,885
    )
    
    
    (4,083
    )
    
    
    
    (3,562
    )
    
    
    (3,874
    )
    
    
    (7,080
    )
    
    
    -80
    %
    
    
    (5,011
    )
    
    
    -141
    %Interest income and other income (expense), net
    
    
    (18
    )
    
    
    456
    
    
    
    (2
    )
    
    
    
    458
    
    
    
    1,669
    
    
    
    (474
    )
    
    
    -104
    %
    
    
    (1,213
    )
    
    
    -265
    %Equity compensation expense
    
    
    2,747
    
    
    
    1,771
    
    
    
    1,467
    
    
    
    
    304
    
    
    
    (110
    )Acquisition related costs
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark-to-market of open derivative positions
    
    
    (370
    )
    
    
    370
    
    
    
    370
    
    
    
    
    
    
    
    
    (548
    )Adjusted EBITDA
    
    $
    53,857
    
    
    $
    39,626
    
    
    $
    12,165
    
    
    
    $
    28,701
    
    
    $
    31,001
    
    
    $
    14,231
    
    
    
    36
    %
    
    $
    8,625
    
    
    
    30
    %Reconciliation to net incomeAdjusted EBITDA
    
    $
    53,857
    
    
    $
    39,626
    
    
    $
    12,165
    
    
    
    $
    28,701
    
    
    $
    31,001
    
    
    $
    14,231
    
    
    
    36
    %
    
    $
    8,625
    
    
    
    30
    %Depreciation, depletion and amortization
    
    
    (14,119
    )
    
    
    (11,341
    )
    
    
    (3,578
    )
    
    
    
    (8,054
    )
    
    
    (6,245
    )
    
    
    (2,778
    )
    
    
    -24
    %
    
    
    (5,096
    )
    
    
    -63
    %Interest expense, net of capitalized interest
    
    
    (7,323
    )
    
    
    (11,676
    )
    
    
    (4,262
    )
    
    
    
    (4,352
    )
    
    
    (4,941
    )
    
    
    4,353
    
    
    
    37
    %
    
    
    (6 ,735
    )
    
    
    -155
    %Income tax expense
    
    
    
    
    
    
    (473
    )
    
    
    
    
    
    
    
    (473
    )
    
    
    (887
    )
    
    
    473
    
    
    
    100
    %
    
    
    414
    
    
    
    88
    %Equity compensation expense
    
    
    (2,747
    )
    
    
    (1,771
    )
    
    
    (1,467
    )
    
    
    
    (304
    )
    
    
    110Acquisition related costs
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark-to-market of open derivative positions
    
    
    370
    
    
    
    (370
    )
    
    
    (370
    )
    
    
    
    
    
    
    
    548Net income
    
    $
    29,787
    
    
    $
    13,995
    
    
    $
    2,488
    
    
    
    $
    15,518
    
    
    $
    19,586
    
    
    $
    15,792
    
    
    
    113
    %
    
    $
    (5,591
    )
    
    
    -36
    %Operating Data:Net revenue margin (1)
    
    $
    76,822
    
    
    $
    56,385
    
    
    $
    18,248
    
    
    
    $
    38,137
    
    
    $
    40,243
    
    
    $
    20,437
    
    
    
    36
    %
    
    $
    16,142
    
    
    
    42
    %Other operating expenses/G&A/Other
    
    
    (22,965
    )
    
    
    (16,759
    )
    
    
    (6,083
    )
    
    
    
    (9,436
    )
    
    
    (9,242
    )
    
    
    (6,206
    )
    
    
    -37
    %
    
    
    (7,517
    )
    
    
    -80
    %Adjusted EBITDA
    
    $
    53,857
    
    
    $
    39,626
    
    
    $
    12,165
    
    
    
    $
    28,701
    
    
    $
    31,001
    
    
    $
    14,231
    
    
    
    36
    %
    
    $
    8,625
    
    
    
    30
    %Average working storage capacity(Bcf)
    
    
    47.0
    
    
    
    38.0
    
    
    
    40.0
    
    
    
    
    36.0
    
    
    
    27.0
    
    
    
    9.0
    
    
    
    24
    %
    
    
    11.0
    
    
    
    31
    %Monthly Operating Metrics($/Mcf)Net Revenue Margin
    
    $
    0.14
    
    
    $
    0.12
    
    
    $
    0.11
    
    
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.02
    
    
    
    17
    %
    
    $
    
    
    
    
    
    %Operating expenses / G&A / Other
    
    
    (0.04
    )
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.01
    )
    
    
    33
    %
    
    
    
    
    
    
    
    %Adjusted EBITDA
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.08
    
    
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.01
    
    
    
    11
    %
    
    $
    
    
    
    
    
    %
 
 (1)
    
    Net revenue margin equals total revenues minus storage related costs Pro Forma Adjustments
  
    
    An increase in general and administrative expenses of approximately $1.2 million for the pro
forma year ended December 31, 2009, to reflect an increase in personnel costs allocated to us from
PAA as a result of an increase in services provided on our behalf.
    
    A net increase in interest expense, net of capitalized interest of approximately $3.1 million
for the pro forma year ended December 31, 2009. In conjunction with the PAA Ownership Transaction
amounts outstanding under our credit facilities were extinguished and replaced with a related
party note payable to PAA which accrued interest at a rate of 6.5%, which was higher than
historical rates of interest on our predecessors extinguished credit facilities. The increase in
interest rate results in incremental interest expense in the 2009 period on a pro forma basis.
This increase was partially offset by an increase in capitalized interest.
 50




---



##### Table of Contents




    
    A net decrease in depreciation, depletion and amortization expense of approximately $0.3 million
for the pro forma year ended December 31, 2009. Depreciation expense increased by $0.6 million in
the pro forma year ended December 31, 2009 due to fair value adjustments recorded in conjunction
with the PAA Ownership Transaction, partially offset by a revision in estimates of useful lives.
Amortization expense decreased by $0.9 million in the pro forma year ended December 31, 2009 due
to changes in the composition of our intangible assets, including debt issuance costs, and their
associated estimated useful lives.
 Year ended December 31, 2010 and pro forma year ended December 31, 2009
 Revenues, Volumes and Storage Related Costs.
 
    
    Firm storage reservation fees Firm storage reservation fee revenues increased
for the 2010 period as compared to the 2009 pro forma period, primarily due to the
placement into service of an additional 8 Bcf and 10 Bcf of working gas capacity at our
Pine Prairie facility in April 2009 and April 2010, respectively, which resulted in
approximately $20 million in incremental revenues generated by our Pine Prairie facility
during the 2010 period. Revenues from firm storage reservation fees were also positively
impacted by loan activities and additional revenue generating activities associated with
increased amounts of leased storage and transportation capacity. See  Storage related
costs below.
 
    
    Firm storage cycling fees and fuel-in-kind Firm storage cycling fees and
fuel-in-kind revenues increased in the 2010 period as compared to the 2009 pro forma
period. The increase was primarily driven by an increase in the period-over-period
average natural gas price of approximately 10% in the 2010 period as compared to the
2009 pro forma period, which increased our fuel-in-kind revenues. Such increase was
partially offset by a reduction in volume of cycling activities as a result of a robust
market supply of natural gas.
 
    
    Hub services Hub services increased in the 2010 period as compared to the 2009
pro forma period. This increase primarily related to increased wheeling and balancing
services as a result of utilizing leased transportation capacity during the 2010 period
to augment the service capabilities of our owned assets. See  Storage related costs
below. Our hub services activities are generally short-term in nature and their timing
and extent of activity are influenced by weather, operating disruptions, import
activities and other conditions that result in temporary disruptions in supply, demand
and working gas capacity.
 
    
    Other Other revenue for each of the periods consists primarily of crude oil
sales and activities associated with natural gas storage-related futures derivative
positions. Crude oil sales increased in the 2010 period as compared to the 2009 pro
forma period by approximately $1.6 million. The increase reflected higher average
realized prices in 2010 versus the prior year period, combined with an increase in
production in 2010. The 2010 increase in production was primarily due to our completion
of a new well drilled as part of our ongoing liquids removal efforts at our Bluewater
facility. The 2010 period and the 2009 pro forma period each include losses of
approximately $0.4 million associated with a natural gas storage-related futures
derivative position which was closed out during the second quarter of 2010 at a realized
loss of approximately $0.8 million. The 2010 period also reflects a gain of
approximately $0.6 million associated with sales of excess fuel inventory and natural
gas acquired for operational purposes in the fourth quarter of 2010.
 
    
    Storage related costs Storage related costs increased in the 2010 period as
compared to the 2009 pro forma period due to an increase in the amount of storage and
transportation capacity leased from third parties. In addition, we experienced higher
costs as a result of increased loan transactions in 2010 as compared to 2009. Further,
during the 2010 period we released a portion of our leased transportation capacity to
third parties through August 2011. The 2010 period reflects a loss of approximately $0.4
million representing the portion of the reservation charges that we do not anticipate
recovering over the remaining period of the capacity release. See  Firm storage
reservation fees above.
 Other Costs and Expenses.
 51




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##### Table of Contents




    
    Operating costs Field operating costs decreased in the 2010 period as compared
to the 2009 pro forma period. The decrease is primarily related to a decrease in
property tax expense attributable to revisions of estimated property tax obligations.
 
    
    Fuel expense Fuel expense did not change significantly in the 2010 period as
compared to the 2009 pro forma period. An increase in fuel volumes
used was approximately offset by lower average fuel prices. Our decrease in fuel volumes used
was primarily driven by operational improvements in managing customer movements.
 
    
    General and administrative expenses General and administrative expenses
increased in the 2010 period as compared to the 2009 pro forma period. The increase
resulted from the continued expansion of our business and growth in personnel costs,
including equity compensation expense and the establishment of our commercial
optimization group, along with additional administrative costs associated with being a
public company. General and administrative expense for the 2010 period reflects
approximately $2.4 million associated with acquisition evaluation expenses, the start-up
of our commercial optimization group and internal general and administrative expenses
associated with our initial public offering efforts. Additionally, during the 2010
period we recognized approximately
$1.5 million of equity compensation expense associated with awards granted by PAA to
certain officers of PAA that will be settled in PNG common units owned by PAA upon
vesting. Although the entire economic burden of these agreements will be borne solely by
PAA, since these individuals also serve as officers of PNG and PNG benefits as a result
of the services they provide, we are required to reflect the compensation expense
associated with these awards in our financial statements.
 
    
    Interest income and other income (expense), net Interest income and other
income (expense), net for the 2009 pro forma period was comprised primarily of interest
income and ineffectiveness associated with an interest rate swap agreement. The
reduction of interest income and other income (expense), net for the 2010 period was
driven by the termination of the swap agreement in conjunction with the PAA Ownership
Transaction and, following the PAA Ownership Transaction, a significant reduction in the
amount of cash balances carried by us, which resulted in a decrease in interest income.
 
    
    Depreciation, depletion and amortization Depreciation, depletion and
amortization expense increased in the 2010 period as compared to the 2009 pro forma
period. Depreciation increased by approximately $2.8 million, primarily as a result of
an increased amount of depreciable assets resulting from our internal growth projects
including the additional 8 Bcf and 10 Bcf of storage capacity placed into service in
April 2009 and April 2010, respectively. Depreciation, depletion and amortization
expense includes amortization of debt issue costs and intangibles of $2.3 million and
$2.6 million in the 2010 period and 2009 pro forma period, respectively.
 
    
    Interest expense, net of capitalized interest Interest expense decreased in
the 2010 period when compared to the 2009 pro forma period. The decrease principally
resulted from decreases in both average debt balances outstanding and average interest
rates in the 2010 period as compared to the 2009 pro forma period. Capitalized interest
was approximately $7.6 million and $15.6 million in the 2010 period and the 2009 pro
forma period, respectively, with decreases in both average debt balances outstanding and
average interest rates as well as an increase in in-service capacity at our Pine Prairie
facility period over period.
 
    
    Income tax expense As a partnership we are not subject to U.S. federal income
taxes, rather, the tax effect of our operations is passed through to our partners and
now our unitholders. Our income tax expense consists principally of state income taxes
calculated on an apportionment basis. The income tax expense is lower in the 2010 period
when compared to the 2009 pro forma period due to the combined impact of the expansion
in our areas of operations outside of the applicable state, and ownership changes that
resulted in our inclusion as a consolidated subsidiary of PAA.
 Pro forma year ended December 31, 2009 and year ended December 31, 2008
 Revenues, Volumes and Storage Related Costs.
 52




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##### Table of Contents




    
    Firm storage reservation fees Firm storage reservation
fee revenues increased for the 2009 pro forma period as
compared to the 2008 period, primarily due to an additional
8 Bcf of capacity being placed into service at Pine Prairie
during 2009, along with a full year of operations for our
initial 5 Bcf of capacity at Pine Prairie. Our Pine Prairie
facility generated approximately $19.4 million of
incremental firm storage services revenues during the 2009
pro forma period. Revenues from firm storage reservation
fees were also positively impacted by loan transactions and
third-party transportation activities together with
increases in storage leased from third parties for the 2009
pro forma period when compared to the 2008 period. See 
Storage related costs below.
    
    Firm storage cycling fees and fuel-in-kind Firm storage
cycling fees and fuel-in-kind revenues decreased in the
2009 pro forma period as compared to the 2008 period
primarily due to a decrease in the period over period
average natural gas price of approximately 53% in the 2009
pro forma period, which was partially offset by increased
volumes collected primarily due to an additional 8 Bcf of
capacity being placed into service at our Pine Prairie
facility.
    
    Hub services Hub services increased approximately $3.2
million in the 2009 pro forma period as compared to the
2008 period. This increase was primarily related to
increased wheeling and balancing services through the
utilization of transportation capacity during the 2009 pro
forma period. See  Storage related costs below.
    
    Other Other revenue for each of the periods was
comprised primarily of crude oil sales. The decrease in the
2009 pro forma period as compared to the 2008 period was
primarily related to lower average prices realized in the
2009 pro forma period. Additionally, other revenue during
the 2008 period reflects a realized gain of approximately
$1.1 million on a natural gas storage-related futures
derivative position. Other revenue for the 2009 pro forma
period includes an unrealized loss of approximately $0.4
million on a natural gas storage related futures derivative
position.
    
    Storage related costs We increased the amount of storage
and transportation capacity leased from third parties in
the 2009 pro forma period compared to the 2008 period. In
addition, we experienced higher costs as a result of
increased loan transactions in the 2009 pro forma period
compared to the 2008 period. See  Firm storage
reservation fees above.Other Costs and Expenses.The significant variances are discussed further below:
 
    
    Operating costs Field operating costs increased in the
2009 pro forma period compared to the 2008 period. This
increase is primarily related to our continued expansion of
the Pine Prairie facility and related growth in personnel
costs.
    
    Fuel expense Fuel expense was relatively flat in the
2009 pro forma period compared to the 2008 period as an
increase in volumes used was largely offset by a decrease
in the average price of natural gas.
    
    General and administrative expenses General and
administrative expenses increased in the 2009 pro forma
period compared to the 2008 period. This increase was
driven by increased costs primarily related to the
continued expansion of our business and growth in personnel
costs, including an increase in costs allocated to us from
PAA as a result of PAA personnel devoting additional time
and effort to our operations.
    
    Depreciation, depletion and amortization Depreciation,
depletion and amortization expense increased in the 2009
pro forma period compared to the 2008 period. This increase
was driven primarily by an increased amount of depreciable
assets resulting from our internal growth projects
(including our second Pine Prairie facility cavern) along
with an increase in the basis of property and equipment as
a result of fair value adjustments recorded in connection
with the PAA Ownership Transaction. These increases were
partially offset by adjustments to the estimated useful
lives of our property and equipment in conjunction with the
PAA Ownership Transaction which lengthened the estimated
useful lives of most of our more significant components of
property and equipment. Depreciation, depletion and
amortization expense includes amortization of debt issue
costs and intangibles of $2.6 million and $1.4 million in
the 2009 pro forma period and 2008 period, respectively.
    
    Interest expense, net of capitalized interest Interest expense
increased in the 2009 pro forma period as compared to the 2008 period.
This increase was principally due to an increase in our outstanding
debt balance as a result of the intercompany note entered into with
PAA in conjunction with the PAA Ownership Transaction, which bore
interest at a higher rate than debt previously outstanding under our
predecessors credit facilities.
 53




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
    
    Income tax expense As a partnership we are not subject
to U.S. federal income taxes, rather, the tax effect of our
operations is passed through to our partners and now our
unitholders. Our income tax expense consists principally of
state income taxes calculated on an apportionment basis.
The income tax expense is lower in the 2009 pro forma
period when compared to the 2008 period due to the combined
impact of the expansion in our areas of operations outside
of the applicable state, and ownership changes that
resulted in our inclusion as a consolidated subsidiary of
PAA.
    
    Interest Income and Other Income (Expense), Net Interest
income and other income (expense), net is comprised
primarily of interest income and decreased for the 2009 pro
forma period compared to the 2008 period primarily due to a
decrease in our average cash balances. The year over year
decreases in interest income was also impacted by lower
average interest rates for the 2009 pro forma period as
compared to the 2008 period.
 Outlook
    Liquidity and Capital Resources
 Overview
   54




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##### Table of Contents




    
    cash generated from operations;
    
    borrowings under our credit facility;
    
    issuances of additional partnership units; and
    
    debt offerings.
    Working Capital.
 55




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##### Table of Contents



Historical cash flow information.
 Successor
    
    
    
    PredecessorSeptember 3,
    
    
    
    January 1,Year Ended
    
    
    2009 through
    
    
    
    2009 through
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    September 2,
    
    
    December 31,2010
    
    
    2009
    
    
    
    2009
    
    
    2008Net cash provided by
(used in):Operating activities
    
    $
    44,361
    
    
    $
    15,265
    
    
    
    $
    22,603
    
    
    $
    21,818Investing activities
    
    
    (103,580
    )
    
    
    (9,656
    )
    
    
    
    (58,561
    )
    
    
    (118,890
    )Financing activities
    
    
    56,441
    
    
    
    (22,813
    )
    
    
    
    23,636
    
    
    
    122,344Net
increase/(decrease) in
cash
    
    $
    (2,778
    )
    
    $
    (17,204
    )
    
    
    $
    (12,322
    )
    
    $
    25,272Adjusted EBITDA
    
    $
    53,857
    
    
    $
    12,165
    
    
    
    $
    28,701
    
    
    $
    31,001
 Operating Activities.
 Investing Activities.
 Financing Activities.
 Distributions to our unitholders and general partner.
 Capital Requirements.
 Acquisitions.
 Borrowings and Equity Offerings.
  Contingencies
  56




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Commitments
 Contractual Obligations.
  Total
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    ThereafterLong-term debt, interest and fees(1)
    
    $
    280.8
    
    
    $
    8.9
    
    
    $
    8.9
    
    
    $
    263.0
    
    
    $
    
    
    
    $
    
    
    
    $
    Leases  storage, transportation, other
    
    
    37.7
    
    
    
    14.2
    
    
    
    10.7
    
    
    
    6.2
    
    
    
    4.5
    
    
    
    2.0
    
    
    
    0.1Purchase obligations
    
    
    35.3
    
    
    
    18.1
    
    
    
    1.9
    
    
    
    1.9
    
    
    
    1.8
    
    
    
    1.8
    
    
    
    9.8Other long-term liabilities
    
    
    1.2
    
    
    
    0.7
    
    
    
    0.3
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    Total
    
    $
    355.0
    
    
    $
    41.9
    
    
    $
    21.8
    
    
    $
    271.1
    
    
    $
    6.4
    
    
    $
    3.9
    
    
    $
    9.9
 
 (1)
    
    Includes interest payments and commitment fees on our senior unsecured revolving credit
facility. Letters of Credit.
 Off-balance Sheet Arrangements
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Price Risk
 Storage Activities.
  57




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##### Table of Contents



Crude Oil Sales.
 Commercial Activities.
   Interest Rate Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Disclosure
Controls and Procedures
   58




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Internal
Control over Financial Reporting
   Certifications
  
 Item 9B. Other Information
  59




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PART III
 
 Item 10. Directors and Executive Officers of Our General Partner and Corporate Governance
 Partnership Management and Governance
     Board Leadership Structure and Role in Risk Oversight
   Non-Management Executive Sessions and Shareholder Communications
  60




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##### Table of Contents



Independence Determination and Audit Committee
     Victor Burk
 Bobby
S. Shackouls
 Arthur
L. Smith
  Other Committees
  61




---



##### Table of Contents



Meetings and Other Information
   http://www.pnglp.com
 Audit Committee Report
     62




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##### Table of Contents



Victor Burk, ChairmanBobby S. ShackoulsArthur L. Smith
 Directors, Executive Officers and Other Officers of Our General Partner
  Age (as ofName
    
    12/31/2010)
    
    Position with Our General PartnerGreg L. Armstrong*
    
    
    52
    
    
    Chairman of the Board, Chief Executive Officer and DirectorHarry N. Pefanis*
    
    
    53
    
    
    Vice Chairman and DirectorDean Liollio*
    
    
    52
    
    
    President and DirectorAl Swanson*
    
    
    46
    
    
    Senior Vice President, Chief Financial Officer and DirectorBenjamin J. Reese
    
    
    54
    
    
    Senior Vice President  CommercialTodd Brown
    
    
    45
    
    
    Vice President  OptimizationRichard K. McGee*
    
    
    49
    
    
    Vice President  Legal and Business Development and SecretaryDan Noack
    
    
    40
    
    
    Vice President  OperationsDonald C. OShea*
    
    
    40
    
    
    Controller and Chief Accounting OfficerVictor Burk
    
    
    61
    
    
    Director and Member of Audit** CommitteeBobby S. Shackouls
    
    
    60
    
    
    Director and Member of Audit CommitteeArthur L. Smith
    
    
    58
    
    
    Director and Member of Audit Committee
 
 *
    
    Indicates an executive officer for purposes of Item 401(b) of Regulation S-K.**
    
    Indicates chairman of committee. Greg L. Armstrong
 Harry N. Pefanis
 63




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##### Table of Contents



Dean Liollio
 Al Swanson
 Benjamin J. Reese
 Todd Brown
 Richard K. McGee
 Dan Noack
 64




---



##### Table of Contents



Donald C. OShea
 Victor Burk
 Bobby S. Shackouls
 Arthur L. Smith
 Section 16(a) Beneficial Ownership Reporting Compliance
 http://www.pnglp.com.
  65




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##### Table of Contents



Item 11. Executive Compensation
 Compensation Committee Report
  Greg L. ArmstrongHarry N. PefanisDean LiollioAl SwansonVictor BurkBobby S. ShackoulsArthur L. Smith
 Compensation Committee Interlocks and Insider Participation
  Compensation Discussion and Analysis
 Background
    66




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##### Table of Contents



Objectives
  Elements of Compensation
 Salary.
 Cash Bonuses.
 Long-Term Incentive Awards.
    67




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##### Table of Contents



Transaction/Transition Grants.
 Relation of Compensation Elements to Compensation Objectives
   Application of Compensation Elements
 Salary.
 Annual Discretionary Bonuses.
  68




---



##### Table of Contents



Quarterly Bonus Program.
 Long-Term Incentive Awards.
  69




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##### Table of Contents



Application in 2010
  1.
    
    Achieve or exceed plan;2.
    
    Evaluate and implement the optimal structure for PAAs natural gas storage
business;3.
    
    Crystallize and implement a strategy for merchant activities in the natural gas
storage business;4.
    
    Deliver expansion projects on time and on budget; and5.
    
    Selectively pursue strategic and accretive acquisitions.
  
    
    Based on PAAs long-term growth plans for the natural gas storage platform and the
cost of capital benefits, we concluded that the optimal structure was to place all of
PAAs natural gas storage assets into a separate MLP controlled and majority owned by
PAA. PNGs initial public offering (IPO) was completed in May 2010.
    
    During 2010, we expanded our commercial management team and formed a commercial
optimization group and significant actions were taken to establish appropriate
risk-management controls, formulate and document key strategies and fill out the
remaining infrastructure requirements.
    
    We executed our 2010 capital program on schedule and under cost forecasts, with
creation of working gas capacity in line with 2010 guidance.
    
    We performed detailed acquisition analyses and submitted proposals on several
potential transactions. In late December, we executed a definitive agreement to acquire
100% of the equity interests in SG Resources Mississippi, L.L.C., which entity owns the
Southern Pines Energy Center natural gas storage facility, for
approximately $750 million. This acquisition closed in
February 2011.
    
    We fell short of our goal to meet or exceed 2010 Plan forecast primarily due to
challenging market conditions and delayed recognition of the deterioration of such
market conditions. Following the IPO, our forecast was adjusted for incremental public
company costs and changing market conditions. Actual results were within 3% of such
adjusted forecast and we met or exceeded our public guidance for the third and fourth
quarters of 2010.
   Salary.
 Cash Bonuses.
 70




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##### Table of Contents



Long-Term Incentive Awards.
     Transaction/Transition Grants.
  Other Compensation Related Matters
 Equity Ownership in PNG.
 71




---



##### Table of Contents



Recovery of Prior Awards.
 Section 162(m) .
 Change in Control Triggers.
 Relation of Compensation Policies and Practices to Risk Management
     72




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##### Table of Contents



Summary Compensation Table
   All OtherName and Principal
    
    
    
    
    
    Salary
    
    Bonus
    
    Stock Awards
    
    Compensation
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)
    
    ($)(1)
    
    ($)(2)
    
    ($)Greg L. Armstrong (3)
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    3,182,469
    
    
    
    
    
    
    
    3,182,469
    (1)Chairman and CEOHarry N. Pefanis (3)
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    2,155,866
    
    
    
    
    
    
    
    2,155,866
    (1)Vice ChairmanAl Swanson (3)
    
    
    2010
    
    
    
    
    
    
    
    
    
    
    
    1,077,933
    
    
    
    
    
    
    
    1,077,933
    (1)Senior Vice
President and Chief
Financial OfficerDean Liollio
    
    
    2010
    
    
    
    250,000
    
    
    
    580,000
    (4)(6)
    
    
    409,095
    
    
    
    15,900
    
    
    
    1,254,995PresidentRichard K. McGee
    
    
    2010
    
    
    
    200,000
    
    
    
    350,000
    (5)(6)
    
    
    214,288
    
    
    
    15,660
    
    
    
    779,948Vice
PresidentLegal and 
Business Development
 
 (1)
    
    Grant date fair values are presented for (i) transaction/transition grants awarded
to Messrs. Armstrong, Pefanis and Swanson, and (ii) LTIP phantom unit grants and Class B
restricted units granted to Messrs. Liollio and McGee. Dollar amounts represent the aggregate
grant date fair value of transaction/transition grants, phantom units and Class B units
granted during the year based on the probable outcome of underlying performance conditions
pursuant to FASB ASC Topic 718. For transaction/transition grants awarded in 2010, vesting of
100% of the phantom common units and phantom series A subordinated units, and vesting of 20%
of the phantom series B subordinated units, was deemed probable of occurrence on the grant
date. For phantom units granted in 2010, none of the performance thresholds for vesting of
the first tranche phantom units was deemed probable of occurrence as of the grant date, and
20% of the performance thresholds for vesting of the second tranche phantom units was deemed
probable of occurrence as of the grant date. None of the performance thresholds for vesting
of the Class B units was deemed probable of occurrence as of the grant date. The maximum
grant date fair values of stock awards assuming that the highest level of performance
conditions will be met are as follows: Name
    
    Year
    
    Maximum Grant Date Fair Value ($)Greg L. Armstrong
    
    
    2010
    
    
    
    4,172,027Harry N. Pefanis
    
    
    2010
    
    
    
    2,826,212Al Swanson
    
    
    2010
    
    
    
    1,413,106Dean Liollio
    
    
    2010
    
    
    
    4,389,057Richard McGee
    
    
    2010
    
    
    
    2,283,570
 73




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##### Table of Contents



(2)
    
    Plains All American GP LLC matches 100% of employees contributions to its 401(k) plan in
cash, subject to certain limitations in the plan. All Other Compensation for each of Messrs.
Liollio and McGee includes $14,700 in such contributions for 2010. The remaining amount for
each represents premium payments on behalf of such Named Executive Officer for group term life
insurance.(3)
    
    Messrs. Armstrong, Pefanis and Swanson are also
executive officers of and are compensated by PAA, with a portion of the costs
associated with such overhead being allocated to us under the omnibus agreement. Total
compensation for each of Messrs. Armstrong, Pefanis and Swanson, as reported in PAAs Annual
Report on Form 10-K for the year ended December 31, 2010, was
$9,509,336, $7,362,411 and $3,339,155,
respectively. These amounts include duplicative values for transaction/transition grants.
PAAs 2010 Annual Report on Form 10-K is available on its
website at www.paalp.com.(4)
    
    Includes quarterly bonuses aggregating
$330,000, and an annual bonus of $250,000.
The amount in the table does not reflect (i) a
$325,000 annual bonus awarded in the second quarter of 2010 for the
2009/2010 storage season, and (ii) a special bonus of $800,000
awarded in January 2010 (generally attributable to 2009) for Mr. Liollios efforts in
 connection with our preparation for the  IPO.(5)
    
    For his efforts in connection with our IPO, $200,000 of Mr.
McGees annual bonus is being paid by PAA. The amount in the
table does not reflect a $175,000 annual bonus awarded in
the second quarter of 2010 for the 2009/2010 storage season, which
amount was prorated
from his date of employment.(6)
    
    The annual bonuses for Messrs. Liollio and McGee have been prorated to reflect a shift at the end
of 2010 from a compensation cycle tied to the natural gas storage season (April 1 through March
31), to a calendar year cycle. As a result, the annual bonus amounts included in the table are for
the period from April 1, 2010 to December 31, 2010. Annual bonuses are payable 60% at the time of award and 20% in each of the two succeeding
years. Grants of Plan-Based Awards Table
  All OtherStockAwards:Number Of
    
    Grant DateShares Of
    
    Fair Value OfStock or
    
    Stock andGrant
    
    Units
    
    Option AwardsName
    
    Date
    
    (#)
    
    ($)(7)Greg L.
Armstrong
    
    
    9/9/2010
    
    
    
    62,000
    (1)
    
    
    1,467,5409/9/2010
    
    
    
    62,000
    (2)
    
    
    1,467,5409/9/2010
    
    
    
    62,000
    (3)
    
    
    247,389Harry N.
Pefanis
    
    
    9/9/2010
    
    
    
    42,000
    (1)
    
    
    994,1409/9/2010
    
    
    
    42,000
    (2)
    
    
    994,1409/9/2010
    
    
    
    42,000
    (3)
    
    
    167,586Al Swanson
    
    
    9/9/2010
    
    
    
    21,000
    (1)
    
    
    497,0709/9/2010
    
    
    
    21,000
    (2)
    
    
    497,0709/9/2010
    
    
    
    21,000
    (3)
    
    
    83,793Dean Liollio
    
    
    5/24/2010
    
    
    
    105,000
    (4)
    
    
    5/24/2010
    
    
    
    105,000
    (5)
    
    
    409,0957/1/2010
    
    
    
    34,375
    (6)
    
    
    Richard K. McGee
    
    
    5/24/2010
    
    
    
    55,000
    (4)
    
    
    5/24/2010
    
    
    
    55,000
    (5)
    
    
    214,2887/1/2010
    
    
    
    16,500
    (6)
    
    
    
 
 (1)
    
    These phantom common units will vest 50% on May 5, 2011 and 50% on May 5, 2012, and
be payable one-for-one by PAA in Common Units of PNG.(2)
    
    These phantom series A subordinated units will vest in connection with the
conversion of the Series A Subordinated Units into Common Units, and be payable one-for-one
by PAA in Common Units of PNG. Any of these phantom series A subordinated units that have not
vested as of December 31, 2018 will be automatically cancelled on such date. 74




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##### Table of Contents



(3)
    
    These phantom series B subordinated units will vest in increments of 20%, 21%, 15%,
22% and 22%, respectively, in connection with the conversion of the First through Fifth
Tranches of Series B Subordinated Units. Upon vesting, the phantom series B subordinated
units will be payable one-for-one by PAA in Series A Subordinated Units or Common Units of
PNG it receives upon conversion of the Series B Subordinated Units. Any of these phantom
series B subordinated units that have not vested as of December 31, 2018 will be
automatically cancelled on such date.(4)
    
    These first tranche phantom units will vest (become payable 1-for-1 of our common
units) as follows: (i) one-third will vest upon the later of the May 2012 distribution date
and the date we pay a quarterly distribution of at least $0.3875 ($1.55 annualized), (ii) one
third will vest upon the later of the May 2013 distribution date and the date we pay a
quarterly distribution of at least $0.45 ($1.80 annualized), and (iii) one-third will vest
upon the later of the May 2014 distribution date and the date we pay a quarterly distribution
of at least $0.475 ($1.90 annualized). The phantom units include tandem distribution
equivalent rights that vest (distributions become payable as if the underlying common unit
were owned) in 25% increments on the dates we pay a quarterly distribution of $0.37 ($1.48
annualized), $0.39 ($1.56 annualized), $0.44 ($1.76 annualized), and $0.475 ($1.90
annualized), respectively. Any of these phantom units (and all associated DERs) that have not
vested as of the May 2015 distribution date will be forfeited.(5)
    
    These second tranche phantom units will vest (become payable 1-for-1 of our common
units) as follows: 20% will vest as of the date on which our Series A Subordinated Units
convert into Common Units; 20% will vest as of the date on which the first tranche of our
Series B Subordinated Units convert into Series A Subordinated Units or Common Units; 20%
will vest as of the date on which the second tranche of our Series B Subordinated Units
convert into Series A Subordinated Units or Common Units; 20% will vest as of the date on
which the third tranche of our Series B Subordinated Units convert into Series A Subordinated
Units or Common Units; and 20% will vest as of the date on which the fourth tranche of our
Series B Subordinated Units convert into Series A Subordinated Units or Common Units.
Conversion of the Series A Subordinated Units and Series B Subordinated Units is subject to
certain performance conditions set forth in our partnership agreement. Any of these phantom
units that remain outstanding as of January 1, 2018 shall expire without vesting on such
date.(6)
    
    These Class B units of PNGS GP LLC were authorized by the board of directors of our
general partner to create long-term incentives for our management. Each Class B unit
represents a profits interest in PNGS GP LLC, which entitles the holder to participate in
future profits and losses from operations, current distributions from operations, and an
interest in future appreciation or depreciation in PNGS GP LLCs asset values, but does not
represent an interest in the capital of PNGS GP LLC on the applicable grant date of the Class
B units. Class B units become earned in 25% increments 180 days after we pay annualized
quarterly distributions on our common units of $2.00, $2.30, $2.50 and $2.70. Earned Class B
units will be entitled to their proportionate share of all quarterly cash distributions made
by our general partner in excess of $2.5 million per quarter. Fifty percent of earned units
will vest immediately upon becoming earned and 50% will vest on the fifth anniversary of the
date of grant. Any Class B units that are earned after the fifth anniversary of the date of
grant will fully vest upon becoming earned. Assuming all authorized Class B units are
issued, the maximum participation would be 6% of the amount in excess of $2.5 million per
quarter. To encourage retention, Class B units remain forfeitable (whether or not earned) if
the holder terminates his employment prior to May 5, 2015. Additionally, the participation
amount is capped to the maximum amount paid at the time of termination of employment, such
that the holder does not benefit from growth in cash distributions experienced after the
holders employment terminates. Upon the occurrence of a change of control (as defined), (i)
all earned units will vest, and (ii) to the extent any of the units are unearned at the time,
an incremental 25% of the units originally awarded will vest. All earned Class B units will
also vest if they remain outstanding as of May 5, 2015.(7)
    
    Represents the grant date fair value of transaction/transition grants, phantom
units and Class B units based on the probable outcome of underlying performance conditions
pursuant to FASB ASC Topic 718. For transaction/transition grants awarded in 2010, vesting
of 100% of the phantom common units and phantom series A subordinated units, and vesting of
20% of the phantom series B subordinated units, was deemed probable of occurrence on the
grant date. For phantom units granted in 2010, none of the performance thresholds for
vesting of the first tranche phantom units was deemed probable of occurrence as of the grant
date, and 20% of the performance thresholds for vesting of the second tranche phantom units
was deemed probable of occurrence as of the grant date. None of the performance thresholds
for Class B units granted in 2010 was
deemed probable of occurrence on the date of grant. The maximum grant date fair value of
plan-based awards granted in 2010 is set forth below: 75




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##### Table of Contents



Maximum GrantName
    
    Grant Date
    
    Quantity
    
    Date Fair Value ($)Armstrong
    
    
    9/9/10
    
    
    
    62,000
    
    
    
    1,467,5409/9/10
    
    
    
    62,000
    
    
    
    1,467,5409/9/10
    
    
    
    62,000
    
    
    
    1,236,947Pefanis
    
    
    9/9/10
    
    
    
    42,000
    
    
    
    994,1409/9/10
    
    
    
    42,000
    
    
    
    994,1409/9/10
    
    
    
    42,000
    
    
    
    837,932Swanson
    
    
    9/9/10
    
    
    
    21,000
    
    
    
    497,0709/9/10
    
    
    
    21,000
    
    
    
    497,0709/9/10
    
    
    
    21,000
    
    
    
    418,966Liollio
    
    
    5/24/10
    
    
    
    105,000
    
    
    
    1,990,6975/24/10
    
    
    
    105,000
    
    
    
    2,045,4747/1/10
    
    
    
    34,375
    
    
    
    352,886McGee
    
    
    5/24/10
    
    
    
    55,000
    
    
    
    1,042,7465/24/10
    
    
    
    55,000
    
    
    
    1,071,4397/1/10
    
    
    
    16,500
    
    
    
    169,385
 Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
  Salary
 Grants of Plan-Based Awards
 Transaction/Transition Grants
 76




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##### Table of Contents



Employment Agreements
    Outstanding Equity Awards at Fiscal Year-End
  Unit AwardsEquityEquity
    
    Incentive PlanIncentive Plan
    
    Awards:Awards:
    
    Market orMarket
    
    Number of
    
    Payout ValueNumber of
    
    Value of
    
    Unearned
    
    of UnearnedShares or
    
    Shares or
    
    Shares, Units
    
    Shares, UnitsUnits of Stock
    
    Units of
    
    or Other
    
    or OtherThat Have
    
    Stock That
    
    Rights That
    
    Rights ThatNot
    
    Have Not
    
    Have Not
    
    Have NotName
    
    Vested (#)
    
    Vested ($)(1)
    
    Vested (#)
    
    Vested ($)(1)Greg L. Armstrong
    
    
    62,000
    (2)
    
    
    1,545,660
    
    
    
    62,000
    (3)
    
    
    1,545,66062,000
    (4)
    
    
    1,545,660Harry N.
Pefanis
    
    
    42,000
    (2)
    
    
    1,047,060
    
    
    
    42,000
    (3)
    
    
    1,047,06042,000
    (4)
    
    
    1,047,060Al Swanson
    
    
    21,000
    (2)
    
    
    523,530
    
    
    
    21,000
    (3)
    
    
    523,53021,000
    (4)
    
    
    523,530Dean Liollio
    
    
    
    
    
    
    
    
    
    
    105,000
    (5)
    
    
    2,617,650105,000
    (6)
    
    
    2,617,65034,375
    (7)
    
    
    352,886Richard K. McGee
    
    
    
    
    
    
    
    
    
    
    55,000
    (5)
    
    
    1,371,15055,000
    (6)
    
    
    1,371,15016,500
    (7)
    
    
    169,385
 77




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##### Table of Contents



(1)
    
    Market value of phantom units and transaction/transition grants reported in these
columns is calculated by multiplying the closing market price ($24.93) of our common units
at December 31, 2010 (the last trading day of the fiscal year) by the number of units. No
discount is applied for remaining performance threshold or service period requirements. The
Class B units are valued based on the grant date fair value computed in accordance with
FASB ASC Topic 718 assuming that the highest level of performance conditions will be met.(2)
    
    These phantom common units will vest 50% on May 5, 2011 and 50% on May 5, 2012,
and be payable one-for-one by PAA in Common Units of PNG.(3)
    
    These phantom series A subordinated units will vest in connection with the
conversion of the Series A Subordinated Units into Common Units, and be payable one-for-one
by PAA in Common Units of PNG. Any of these phantom series A subordinated units that have
not vested as of December 31, 2018 will be automatically cancelled on such date.(4)
    
    These phantom series B subordinated units will vest in increments of 20%, 21%,
15%, 22% and 22%, respectively, in connection with the conversion of the First through
Fifth Tranches of Series B Subordinated Units. Upon vesting, the phantom series B
subordinated units will be payable one-for-one by PAA in Series A Subordinated Units or
Common Units of PNG it receives upon conversion of the Series B Subordinated Units. Any of
these phantom series B subordinated units that have not vested as of December 31, 2018 will
be automatically cancelled on such date.(5)
    
    These first tranche phantom units will vest in one-third increments as follows:
one-third will vest upon the later of the May 2012 distribution date and the date on which
we pay a quarterly distribution of at least $0.3875; one-third will vest upon the later of
the May 2013 distribution date and the date on which we pay a quarterly distribution of at
least $0.45; and one-third will vest upon the later of the May 2014 distribution date and
the date we pay a quarterly distribution of at least $0.475. The phantom units include
tandem distribution equivalent rights that vest (distributions become payable as if the
underlying common unit were owned) in 25% increments on the dates we pay a quarterly
distribution of $0.37, $0.39, $0.44, and $0.475, respectively. Any phantom units that have
not vested (and all associated DERs) as of the May 2015 distribution date will expire.(6)
    
    These second tranche phantom units will vest in equal 20% increments as follows:
20% will vest as of the date on which our Series A Subordinated Units convert into Common
Units; 20% will vest as of the date on which the first tranche of our Series B Subordinated
Units convert into Series A Subordinated Units or Common Units; 20% will vest as of the
date on which the second tranche of our Series B Subordinated Units convert into Series A
Subordinated Units or Common Units; 20% will vest as of the date on which the third tranche
of our Series B Subordinated Units convert into Series A Subordinated Units or Common
Units; and 20% will vest as of the date on which the fourth tranche of our Series B
Subordinated Units convert into Series A Subordinated Units or Common Units. Conversion of
the Series A Subordinated Units and Series B Subordinated Units is subject to certain
performance conditions set forth in our partnership agreement. Any of these phantom units
that remain outstanding as of January 1, 2018 shall expire without vesting on such date.(7)
    
    Each Class B unit represents a profits interest in PNGS GP LLC, which entitles
the holder to participate in future profits and losses from operations, current
distributions from operations, and an interest in future appreciation or depreciation in
PNGS GP LLCs asset values, but does not represent an interest in the capital of PNGS GP
LLC on the applicable grant date of the Class B units. As of December 31, 2010, none of the
Class B units held by Messrs. Liollio and McGee had been earned or vested. For additional
information regarding the Class B units, see Item 13. Certain Relationships and Related
Transactions, and Director IndependenceOur General PartnerClass B Units of Our General
Partner. Pension Benefits
  78




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Nonqualified Deferred Compensation and Other Nonqualified Deferred Compensation Plans
  Potential Payments upon Termination or Change-in-Control
  By Executive
    
    In ConnectionBy Reason of
    
    By Reason of
    
    By Company
    
    with Good
    
    with a ChangeDeath
    
    Disability
    
    without Cause
    
    Reason
    
    In Control($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Dean LiollioSalary and Bonus (1)(2)
    
    
    N/A
    
    
    
    N/A
    
    
    
    250,000
    
    
    
    N/A
    
    
    
    1,500,000Equity Compensation (3)(4)(5)
    
    
    1,047,060
    
    
    
    1,047,060
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    5,235,300Class B Units (6)
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    162,856Total
    
    
    1,047,060
    
    
    
    1,047,060
    
    
    
    250,000
    
    
    
    N/A
    
    
    
    6,898,156Richard
K. McGeeEquity Compensation (3)(4)(5)
    
    
    548,460
    
    
    
    548,460
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    2,742,300Class B Units (6)
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    78,169Total
    
    
    548,460
    
    
    
    548,460
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    2,820,469
 
 (1)
    
    Mr. Liollios employment agreement provides that if his employment is terminated without
cause (as defined below), he is entitled to a lump-sum amount equal to the product of (1) his
monthly base salary and (2) twelve. The amount provided in the table assumes a termination
date of December 31, 2010, and also assumes a monthly base salary of $20,833.33.Mr. Liollios employment agreement defines cause as (i) gross negligence or willful
misconduct by Mr. Liollio, (ii) a breach of his confidentiality agreement, or (iii) a
misrepresentation of background information and professional credentials. If Mr. Liollio was
terminated for cause, Plains All American GP LLC would be obligated to pay his monthly base
salary through the date of termination, with no other payment obligations triggered by the
termination under the employment agreement or other employment arrangement.(2)
    
    Pursuant to his employment agreement, if Mr. Liollios employment is terminated within six
months of a change in control (as defined below), he is entitled to a lump-sum payment of
$1,500,000.For this purpose, a change in control is deemed to have occurred on the date when (i) any
person (other than PAA or Vulcan Gas Storage or any of their affiliates) becomes the owner,
directly or indirectly, of 50.1% or more of the membership interest in PVGS (or its successor
or assignee), or (ii) the persons who owned the membership interests in PVGS (or its successor
or assignee) on November 1, 2008 cease to beneficially own, directly or indirectly, more than
25% of the membership interest in PVGS in the aggregate.(3)
    
    The letters evidencing phantom unit grants to Messrs. Liollio and McGee provide that in the
event of their death or disability (as defined below), all of their then outstanding phantom
units and any associated DERs will be deemed nonforfeitable, and (i) any unvested phantom
units that had satisfied all of the vesting criteria as of the date of their termination but
for the passage of time would vest on the next following distribution date and (ii) the
remaining unvested outstanding phantom units will vest on the distribution date on which the
vesting criteria is met. For this purpose
disability means a physical or mental infirmity that impairs the ability substantially to
perform duties for a period of eighteen (18) months or that the general partner otherwise
determines constitutes a disability.The dollar value amount provided assumes the death or disability occurred on December 31,
2010. As a result, all phantom units and the associated DERs held by Messrs. Liollio and
McGee would have become nonforfeitable effective as of 79




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##### Table of Contents



December 31, 2010, and vested at the
time(s) described in the footnotes to the Outstanding Equity Awards at Fiscal Year-End table.
Any units not vested by May 2015 (or January 2018 for the second tranche phantom units)
would expire. The dollar value given assumes that all performance thresholds will be timely
achieved if deemed probable of occurrence as of December 31, 2010, and is based on the market
value of PNGs common units on December 31, 2010 ($24.93 per unit) without discount for service period. If the
performance thresholds were not deemed probable of occurrence as of December 31, 2010, the
units are assumed to expire unvested in May 2015 (or January 2018 for the second tranche
phantom units). At December 31, 2010, an annualized distribution level of $1.45, conversion
of the series A subordinated units and conversion of the first tranche of series B
subordinated units were deemed probable of occurrence. As a result, none of the first
tranche phantom unit grants were assumed to eventually vest, and 40% of the second tranche
phantom unit grants were assumed to eventually vest.(4)
    
    Pursuant to the phantom unit grants to Messrs. Liollio and McGee, in the event their
employment is terminated other than in connection with a change in control (as defined in
Footnote 5 below) or by reason of death, disability (as defined in Footnote 3 above), all of
the phantom units and any associated DERs (regardless of vesting) then outstanding under such
phantom unit grants would automatically be forfeited as of the date of termination; provided,
however, that if their employment is terminated other than for cause
(as defined in footnote 5 below), any
unvested phantom units that had satisfied all of the vesting criteria as of the date of their
termination but for the passage of time would be deemed nonforfeitable and would vest on the
next following distribution date. Assuming that Messrs. Liollio and McGee were terminated
without cause on December 31, 2010, all of their phantom units would be forfeited.(5)
    
    The letters evidencing the phantom unit grants to Messrs. Liollio and McGee provide that in
the event of a change of status (as defined below), all of the then outstanding phantom units
and associated DERs will be deemed nonforfeitable, and such phantom units will vest in full
(i.e., the phantom units will become payable in the form of one common unit per phantom unit)
upon the next following distribution date. Assuming the change in status occurred on December
31, 2010, all outstanding phantom units and the associated DERs would become nonforfeitable as
of such date, and such phantom units would vest on the February 2011 distribution date.

The dollar value given is based on the market value of PNGs
common units on December 31, 2010 ($24.93 per unit) without discount
for service period.The phrase change in status means, with respect to Messrs. Liollio and McGee, the
occurrence, during the period beginning two and a half months prior to and ending one year
following a change of control (as defined below), of any of the following: (A) the
termination of employment by the general partner other than a termination for cause (as
defined below), or (B) the termination of employment by such officer due to the occurrence,
without his written consent, of (i) any material diminution in such officers authority,
duties or responsibilities, (ii) any material reduction in such officers base salary or
(iii) any other action or inaction that would constitute a material breach of the agreement
by Plains All American GP LLC.The phrase change of control means, and is deemed to have occurred upon the occurrence of,
one or more of the following events: (i) PAA ceasing to retain direct or indirect control of
our general partner; (ii) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of PNG or PNGS GP
LLC to any person and/or its affiliates, other than to us, PNGS GP LLC or PAA, including any
employee benefit plan thereof; (iii) the consolidation, reorganization, merger, or any other
similar transaction involving (A) a person other than us, PNGS GP LLC or PAA and (B) us, PNGS
GP LLC or both; or (iv) any person, including any partnership, limited partnership, syndicate
or other group deemed a person for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended, becoming the beneficial owner, directly or indirectly, of
more than 49.9% of the membership interest in PNGS GP LLC. Notwithstanding the definition of
change of control, no change of control is deemed to have occurred in connection with a
restructuring or reorganization related to the securitization and sale to the public of
direct or indirect equity interests in our general partner if PAA continues to have the power
to elect, directly or indirectly, the majority of the board of directors of our general
partner.The term cause means (i) the failure to perform a job function in accordance with standards
described in writing, or (ii) the violation of the general partners Code of Business Conduct
(unless waived in accordance with the terms thereof), in each case, with the specific failure
or violation described in writing.(6)
    
    Pursuant to the Class B Restricted Units Agreements, upon the occurrence of a Change in
Control (defined below), any earned Class B units (and any Class B units that will become earned in less than
180 days) become vested units and, to the extent any Class B units remain unearned, an
incremental 25% of the number of Class B units originally granted becomes vested. As 80




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##### Table of Contents



of December 31, 2010, none of the Class B units held by Messrs. Liollio or McGee had been earned
or will become earned in less than 180 days. Assuming a Change in Control on December 31,
2010, 25% of the Class B units held by Messrs. Liollio and McGee would become vested. The
value of such Class B units as reflected in the table is derived in accordance with FASB ASC
Topic 718. Change in Control means the determination by the Board that one of the following
events has occurred: (i) PNGS GP LLC ceases to retain direct or indirect control over the
Partnership; (ii) PAA and its affiliates (the Owner Affiliates) cease to own directly or
indirectly at least 50% of the member interests of PNGS GP LLC; (iii) a person or group
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes after the
Grant Date the beneficial owner (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange
Act), directly or indirectly, of more than 50% of the member interest of PNGS GP LLC; or (iv)
a transfer, sale, exchange or other disposition in a single transaction or series of
transactions (whether by merger or otherwise) of all or substantially all of the assets of
PNGS GP LLC or the Partnership to one or more persons who are not Affiliates of PNGS GP LLC,
other than a transaction in which the Owner Affiliates become the beneficial owners,
directly or indirectly, of more than 50% of the voting power of such person or persons
immediately following such transaction. Confidentiality, Non-Compete and Non-Solicitation Arrangements
  81




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Compensation of Directors
  FeesEarned
    
    Stockor Paid in
    
    AwardsName
    
    Cash ($)
    
    ($) (1)
    
    Total ($)Victor Burk
    
    
    32,500
    (2)
    
    
    369,416
    
    
    
    401,916Bobby S. Shackouls
    
    
    27,500
    (2)
    
    
    369,416
    
    
    
    396,916Arthur L. Smith
    
    
    
    (3)
    
    
    
    
    
    
    
 
 (1)
    
    The dollar value of LTIPs granted during 2010 is based on the grant date fair value
computed in accordance with FASB ASC Topic 718. In connection with the August 2010 vesting of
director LTIP awards, Messrs. Burk and Shackouls each were granted 938 units by virtue of the
automatic re-grant feature of the vested awards. In addition to the automatic re-grant in
August, Messrs. Burk and Shackouls each also received an initial grant of 15,000 LTIPs in May
2010.(2)
    
    Messrs. Burk and Shackouls joined the board in April 2010 in connection with our initial
public offering. Fees earned or paid reflect a partial year of service.(3)
    
    Mr. Smith joined the board in December 2010. He was not paid any compensation in 2010.     82




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Unitholder Matters
  PercentageofTotalPercentage
    
    
    
    
    
    
    
    
    
    
    
    
    
    Percentage of
    
    Commonof
    
    Series A
    
    Percentage of
    
    Series B
    
    Series B
    
    andName of Beneficial
    
    Common
    
    Common
    
    Subordinated
    
    Series A
    
    Subordinated
    
    Subordinated
    
    SubordinatedOwner
    
    Units
    
    Units
    
    Units
    
    Subordinated Units
    
    Units
    
    Units
    
    UnitsPlains All American Pipeline, L.P. 
333 Clay Street, Suite 1600
Houston, TX 77002
    
    
    28,272,870
    
    
    
    47.8
    %
    
    
    11,934,351
    
    
    
    100
    %
    
    
    13,500,000
    
    
    
    100
    %
    
    
    63.5
    %Richard A. Kayne/Kayne Anderson
Capital Advisors, L.P. 
1800 Avenue of the Stars 
Second Floor 
Los Angeles, CA 90067
    
    
    5,207,497
    (1)
    
    
    8.8
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.2
    %Greg L. Armstrong
    
    
    100,000
    (2)(3)
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Harry N. Pefanis
    
    
    65,000
    (2)
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Al Swanson
    
    
    37,500
    (2)
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Dean Liollio
    
    
    26,700
    (4)
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Richard K. McGee
    
    
    20,000
    (4)
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Victor Burk
    
    
    1,938
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Bobby S. Shackouls
    
    
    938
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Arthur L. Smith
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All directors and executive 
officers as a group (9 persons)
    
    
    252,076
    (5)
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *
 
 *
    
    Less than 1%(1)
    
    This information has been derived from a Schedule 13G filed with the SEC on February 14,
2011. Based on the information contained in the filing, Kayne Anderson Capital Advisors, L.P.
and Richard A. Kayne have shared voting power and dispositive power with respect to, and
beneficially own, an aggregate of 5,196,497 common units. Mr. Kayne has sole voting power and
dispositive power with respect to, and beneficially owns, 11,000 common units.(2)
    
    Does not include unvested phantom units under transaction/transition grants, none of which
will vest within 60 days of the date hereof. See Item 11. Executive
Compensation  Outstanding Equity Awards at Fiscal Year-End. 83




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##### Table of Contents



(3)
    
    Does not include common and subordinated units owned by Plains All American Pipeline, L.P.
Mr. Armstrong is Chairman of the Board, Chief Executive Officer and a Director of PAAs
general partner. He disclaims any beneficial ownership of PAAs interest in PNG.(4)
    
    Does not include unvested phantom units granted under our Long-Term Incentive Plan, none of
which will vest within 60 days of the date hereof. See Item 11. Executive
CompensationOutstanding Equity Awards at Fiscal Year-End.(5)
    
    As of February 28, 2011, no units were pledged by directors or Named Executive Officers.
Certain of the directors and Named Executive Officers hold units in marginable brokers
accounts, but none of the units were margined as of February 28, 2011. Equity Compensation Plan Information
  Number of Units to
    
    
    
    
    
    Number of Unitsbe Issued upon
    
    Weighted Average
    
    Remaining AvailableExercise/Vesting of
    
    Exercise Price of
    
    for Future IssuanceOutstanding Options,
    
    Outstanding Options,
    
    under EquityPlan
    
    Warrants and Rights
    
    Warrants and Rights
    
    Compensation PlansCategory
    
    (a)
    
    (b)
    
    (c)Equity compensation plans approved by unitholders:Long Term Incentive Plan
    
    
    610,000
    (1)
    
    
    N/A
    (2)
    
    
    2,388,124
    (1)(3)Equity compensation plans not approved by
unitholders:N/A
 
 (1)
    
    The Long Term Incentive Plan was approved by our unitholders in April 2010. The LTIP
contemplates the issuance or delivery of up to 3,000,000 units to satisfy awards under the
plan. The number of units presented in column (a) assumes that all outstanding grants will be
satisfied by the issuance of new units upon vesting unless such LTIPs are by their terms
payable only in cash. In fact, some portion of the phantom units may be settled in cash and
some portion will be withheld for taxes. Any units not issued upon vesting will become
available for future issuance under column (c).(2)
    
    Phantom unit awards under the LTIP vest without payment by recipients.(3)
    
    In accordance with Item 201(d) of Regulation S-K, column (c) excludes the securities
disclosed in column (a). However, as discussed in footnote (1), any phantom units represented
in column (a) that are not satisfied by the issuance of units become available for future
issuance. 84




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##### Table of Contents



Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  Our General Partner
    Distribution
    
    
    
    
    
    
    
    
    
    GP %Annual LP Distribution Per
    
    to LP
    
    Distribution
    
    Total
    
    of TotalUnit
    

Unitholders(1)
    
    to GP(1)(2)
    
    Distribution(1)(2)
    
    Distribution$1.35
    
    $
    96,010
    
    
    $
    1,959
    
    
    $
    97,969
    
    
    
    2.0
    %$1.40
    
    $
    99,566
    
    
    $
    2,587
    
    
    $
    102,153
    
    
    
    2.5
    %$1.45
    
    $
    103,122
    
    
    $
    3,214
    
    
    $
    106,336
    
    
    
    3.0
    %$1.50
    
    $
    106,678
    
    
    $
    4,009
    
    
    $
    110,687
    
    
    
    3.6
    %$1.55
    
    $
    110,234
    
    
    $
    5,195
    
    
    $
    115,429
    
    
    
    4.5
    %$1.60
    
    $
    113,790
    
    
    $
    6,380
    
    
    $
    120,170
    
    
    
    5.3
    %$1.65
    
    $
    117,346
    
    
    $
    7,565
    
    
    $
    124,911
    
    
    
    6.1
    %
 
 (1)
    
    Based on 71,118,801 Common Units and Series A Subordinated Units outstanding at February
28, 2011. Does not include Series B Subordinated Units. An increase in the number of units
outstanding would increase both the distribution to unitholders and the distribution to the
general partner for any given level of distribution per unit.(2)
    
    Includes distributions attributable to the 2% general partner interest and the incentive
distribution rights. Equity-Based Long-Term Incentive Plan
  85




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##### Table of Contents



Administration.
 Phantom Units.
   Other Awards.
 Deferred Awards.
 Class B
Units of Our General Partner
    86




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##### Table of Contents



Related Party Transactions
 Omnibus Agreement
  Tax Sharing Agreement
  Potential PAA Financial Support
  Private Placement
  87




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##### Table of Contents



Intercompany Notes with PAA
   Contracts with Affiliates
  Sale of Land for PAA Natural Gas Processing Plant
  Review, Approval or Ratification of Transactions with Related Persons
     88




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##### Table of Contents



Item 14.
    
    Principal Accountant Fees and Services
  Year EndedDecember 31,2010Audit
fees(1)
    
    $
    0.5Audit-related fees
    
    
    0.0Tax
fees(2)
    
    
    0.1All other fees
    
    
    0.0Total
    
    $
    0.6
 
 (1)
    
    Audit fees include those related
to our annual audit (including internal control evaluation and reporting) and work
performed on our initial public offering.(2)
    
    Tax fees are for tax processing as
well as the preparation of Forms K-1 for our unitholders. Pre-Approval Policy
  89




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 (a) (1) Financial Statements
  (2) Financial Statement Schedules
  (3) Exhibits
 2.1
    
    
    
    
    Purchase and Sale Agreement dated December 28, 2010 by and among SGR Holdings, L.L.C., Southern
Pines Energy Investment Co., LLC and PAA Natural Gas Storage, L.P. (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed on December 30, 2010).3.1
    
    
    
    
    Certificate of Limited Partnership of PAA Natural Gas Storage, L.P. (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-1 (333-164492) filed on January 25, 2010).3.2
    
    
    
    
    Second Amended and Restated Agreement of Limited Partnership of PAA Natural Gas Storage, L.P. dated
August 16, 2010 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed
on August 20, 2010).3.3
    
    
    
    
    Certificate of Formation of PNGS GP LLC (incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-1 (333-164492) filed on January 25, 2010).3.4
    
    
    
    
    Amended and Restated Limited Liability Company Agreement of PNGS GP LLC dated May 5, 2010
(incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q filed on August 6,
2010).4.1
    
    
    
    
    Form of Registration Rights Agreement by and among PAA Natural Gas Storage, L.P. and the purchasers
party thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on
December 30, 2010).4.2
    
    
    
    
    Form of Registration Rights Agreement by and among PAA Natural Gas Storage, L.P. and the purchasers
party thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on
January 20, 2011).10.1
    
    
    
    
    Contribution Agreement dated as of April 29, 2010 by and among PAA Natural Gas Storage, L.P., PNGS
GP LLC, Plains All American Pipeline, L.P., PAA Natural Gas Storage, LLC, PAA/Vulcan Gas Storage,
LLC, Plains Marketing, L.P. and Plains Marketing GP Inc. (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed on May 4, 2010).10.2
    
    
    
    
    Omnibus Agreement dated May 5, 2010 by and among Plains All American GP LLC, Plains All American
Pipeline, L.P., PNGS GP LLC and PAA Natural Gas Storage, L.P. (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed on May 11, 2010).10.3
    
    
    
    
    Tax Sharing Agreement dated May 5, 2010 by and among Plains All American Pipeline, L.P. and PAA
Natural Gas Storage, L.P. (incorporated by reference to Exhibit 10.3 to the Current Report on Form
8-K filed on May 11, 2010).10.4
    
    
    
    
    Credit Agreement dated April 7, 2010 among PAA Natural Gas Storage, L.P., Bank of America, N.A.,
DnB Nor Bank ASA, Wells Fargo Bank, National Association, UBS Loan Finance LLC and Citibank, N.A.
and the other lenders party thereto (incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K filed May 11, 2010).10.5
    
    
    
    
    Employment Agreement, effective November 1, 2008, between Dean Liollio and Plains All American GP
LLC (incorporated by reference to Exhibit 10.10 to Amendment No. 3 to the Registration Statement on
Form S-1 (333-164492) filed on April 13, 2010).
 90




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##### Table of Contents



10.6
    
    
    
    
    Employment Agreement, effective September 15, 2009, between Richard McGee and Plains All American
GP LLC (incorporated by reference to Exhibit 10.9 to Amendment No. 3 to the Registration Statement
on Form S-1 (333-164492) filed on April 13, 2010).10.7
    
    
    
    
    PAA Natural Gas Storage, L.P. 2010 Long Term Incentive Plan (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed on May 11, 2010).10.8
    
    
    
    
    Form of Phantom Unit and Distribution Equivalent Right Grant Letter (incorporated by reference to
Exhibit 10.4 to Amendment No. 3 to the Registration Statement on Form S-1 (333-164492) filed on
April 13, 2010).10.9
    
    
    
    
    Form of Phantom Unit Grant Letter (incorporated by reference to Exhibit 10.9 to the Quarterly
Report on Form 10-Q filed on November 5, 2010).10.10
    
    
    
    
    Form of PNGS GP LLC Class B Restricted Unit Agreement (incorporated by reference to Exhibit 10.10
to the Quarterly Report on Form 10-Q filed on August 6, 2010).10.11
    
    
    
    
    Common Unit Purchase Agreement dated December 23, 2010 by and among PAA Natural Gas Storage, L.P.
and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed on December 30, 2010).10.12
    
    
    
    
    Common Unit Purchase Agreement dated January 19, 2011 by and among PAA Natural Gas Storage, L.P.
and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed on January 20, 2011).10.13
    
    
    
    
    Note Payable to PAA dated February 9, 2011 (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed on February 14, 2011).10.14
    
    
    
    
    Agreement to Lease with Option to Purchase, dated May 1, 2006, between Industrial Development Board
No. 1 of the Parish of Evangeline State of Louisiana, Inc. and Pine Prairie Energy Center, LLC
(incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Registration Statement on Form
S-1 (333-164492) filed on April 2, 2010).10.15
    *
    
    
    
    Director Compensation Summary.21.1
    *
    
    
    
    List of Subsidiaries of PAA Natural Gas Storage, L.P.23.1
    *
    
    
    
    Consent of PricewaterhouseCoopers LLP.23.2
    *
    
    
    
    Consent of PricewaterhouseCoopers LLP.31.1
    *
    
    
    
    Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).31.2
    *
    
    
    
    Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).32.1
    *
    
    
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350.32.2
    *
    
    
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350.
 
 
    
    Management compensatory plan or arrangement.*
    
    Filed herewith. 91




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##### Table of Contents



SIGNATURES
  PAA NATURAL GAS STORAGE, L.P.By:
    
    PNGS GP LLC, its general partnerDate: March 2, 2011
    
    By:
    
    /s/ Greg L. ArmstrongName:
    
    Greg L. ArmstrongTitle:
    
    Chairman and Chief Executive Officer(Principal Executive Officer)Date: March 2, 2011
    
    By:
    
    /s/ Dean LiollioName:
    
    Dean LiollioTitle:
    
    PresidentDate: March 2, 2011
    
    By:
    
    /s/ Al SwansonName:
    
    Al SwansonTitle:
    
    Senior Vice President andChief Financial Officer(Principal Financial Officer)
 92




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##### Table of Contents



Name
    
    Title
    
    Date/s/ Greg L. Armstrong

Greg L. Armstrong
    
    Chairman of the Board, Chief
Executive Officer and Director of PNGS GP
LLC
(Principal Executive Officer)
    
    March 2, 2011/s/ Dean Liollio

Dean Liollio
    
    President
and Director of PNGS GP LLC
    
    March 2, 2011/s/ Al Swanson

Al Swanson
    
    Senior Vice President, Chief Financial
Officer and Director of PNGS GP LLC
(Principal Financial Officer)
    
    March 2, 2011/s/ Donald C. OShea

Donald C. OShea
    
    Controller and Chief Accounting Officer of
PNGS GP LLC
(Principal Accounting Officer)
    
    March 2, 2011/s/ Harry N. Pefanis

Harry N. Pefanis
    
    Vice Chairman and Director of
PNGS GP LLC
    
    March 2, 2011/s/ Victor Burk

Victor Burk
    
    Director of
PNGS GP LLC
    
    March 2, 2011/s/ Bobby S. Shackouls

Bobby S. Shackouls
    
    Director of
PNGS GP LLC
    
    March 2, 2011/s/ Arthur L. Smith

Arthur L. Smith
    
    Director of
PNGS GP LLC
    
    March 2, 2011
 93




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##### Table of Contents



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
 INDEX TO FINANCIAL STATEMENTS
 PageConsolidated Financial StatementsManagements Report on Internal Control Over Financial Reporting
    
    
    F-2Report of Independent Registered Public Accounting Firm
    
    
    F-3Report of Independent Registered Public Accounting Firm
    
    
    F-4Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    F-5Consolidated Statements of Operations for the Periods Ended December 31, 2010, December 31, 2009, September 2, 2009 and December 31, 2008
    
    
    F-6Consolidated Statements of Changes in Partners Capital and Members Capital for the Periods Ended December 31, 2010, December 31, 2009, September 2, 2009 and December 31, 2008
    
    
    F-7Consolidated Statements of Cash Flows for the Periods Ended December 31, 2010, December 31, 2009, September 2, 2009 and December 31, 2008
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-9
 F - 1




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     /s/ GREG L. ARMSTRONGGreg L. ArmstrongChairman of the Board, Chief Executive Officer and
Director of PNGS GP LLC

(Principal Executive Officer)/s/ AL SWANSONAl SwansonSenior Vice President and Chief Financial Officer of
PNGS GP LLC

(Principal Financial Officer)  F - 2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal
Control  Integrated Framework
   Houston, Texas
    
    PricewaterhouseCoopers LLPMarch 2, 2011
 F - 3




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
  Houston, Texas
    
    PricewaterhouseCoopers LLPJanuary 22, 2010
 F - 4




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##### Table of Contents



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except unit amounts)
 December 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assetsCash and cash equivalents
    
    $
    346
    
    
    $
    3,124Restricted cash
    
    
    20,000
    
    
    
    Accounts receivable
    
    
    12,786
    
    
    
    6,439Natural gas imbalance receivables
    
    
    1,200
    
    
    
    400Other current assets
    
    
    1,544
    
    
    
    2,280Total current assets
    
    
    35,876
    
    
    
    12,243Property and equipmentProperty and equipment
    
    
    892,645
    
    
    
    816,267Less: Accumulated depreciation, depletion and amortization
    
    
    (14,837
    )
    
    
    (3,004
    )Property and equipment, net
    
    
    877,808
    
    
    
    813,263Other assetsBase gas
    
    
    37,498
    
    
    
    27,927Goodwill and intangibles, net
    
    
    47,546
    
    
    
    46,974Total other assets, net
    
    
    85,044
    
    
    
    74,901Total assets
    
    $
    998,728
    
    
    $
    900,407LIABILITIES, PARTNERS CAPITAL AND MEMBERS CAPITALCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    12,806
    
    
    $
    14,034Natural gas imbalance payables
    
    
    1,200
    
    
    
    400Accrued income and other taxes
    
    
    1,009
    
    
    
    1,610Total current liabilities
    
    
    15,015
    
    
    
    16,044Long-term liabilitiesNote payable to PAA
    
    
    
    
    
    
    450,523Long-term debt under credit facility
    
    
    259,900
    
    
    
    Other long-term liabilities
    
    
    423
    
    
    
    1,096Total long-term liabilities
    
    
    260,323
    
    
    
    451,619Total liabilities
    
    
    275,338
    
    
    
    467,663Commitments and contingencies (Note 11)Partners capital and members capitalCommon unitholders (31,586,405 units issued and outstanding at December 31, 2010)
    
    
    474,489
    
    
    
    Subordinated unitholders (25,434,351 units issued and outstanding at December 31, 2010)
    
    
    236,853
    
    
    
    General partner
    
    
    13,637
    
    
    
    Members capital
    
    
    
    
    
    
    432,744Accumulated other comprehensive loss
    
    
    (1,589
    )
    
    
    Total partners capital and members capital
    
    
    723,390
    
    
    
    432,744Total liabilities, partners capital and members capital
    
    $
    998,728
    
    
    $
    900,407
  F - 5




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##### Table of Contents



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per unit data)
 Successor
    
    
    
    PredecessorSeptember 3,
    
    
    
    January 1,Year Ended
    
    
    2009 through
    
    
    
    2009 through
    
    
    Year EndedDecember
    
    
    December 31,
    
    
    
    September 2,
    
    
    December 31,31, 2010
    
    
    2009
    
    
    
    2009
    
    
    2008(See Note 1)
    
    
    
    (See Note 1)RevenuesFirm storage services
    
    $
    90,965
    
    
    $
    23,972
    
    
    
    $
    42,649
    
    
    $
    42,871Hub services
    
    
    6,190
    
    
    
    1,637
    
    
    
    
    2,988
    
    
    
    1,417Other
    
    
    3,132
    
    
    
    (358
    )
    
    
    
    1,292
    
    
    
    4,889Total revenues
    
    
    100,287
    
    
    
    25,251
    
    
    
    
    46,929
    
    
    
    49,177Costs and expensesStorage related costs
    
    
    23,465
    
    
    
    7,003
    
    
    
    
    8,792
    
    
    
    8,934Other operating costs (except those shown below)
    
    
    7,242
    
    
    
    3,257
    
    
    
    
    4,820
    
    
    
    4,059Fuel expense
    
    
    2,368
    
    
    
    578
    
    
    
    
    1,816
    
    
    
    2,320General and administrative expenses
    
    
    15,965
    
    
    
    4,083
    
    
    
    
    3,562
    
    
    
    3,874Depreciation, depletion and amortization
    
    
    14,119
    
    
    
    3,578
    
    
    
    
    8,054
    
    
    
    6,245Total costs and expenses
    
    
    63,159
    
    
    
    18,499
    
    
    
    
    27,044
    
    
    
    25,432Operating income
    
    
    37,128
    
    
    
    6,752
    
    
    
    
    19,885
    
    
    
    23,745Other income/(expense)Interest expense, net of capitalized interest
    
    
    (7,323
    )
    
    
    (4,262
    )
    
    
    
    (4,352
    )
    
    
    (4,941
    )Interest income
    
    
    2
    
    
    
    
    
    
    
    
    139
    
    
    
    1,147Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    (473
    )
    
    
    (887
    )Gain on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    548Other income (expense)
    
    
    (20
    )
    
    
    (2
    )
    
    
    
    (17
    )
    
    
    (26
    )Net income
    
    $
    29,787
    
    
    $
    2,488
    
    
    
    $
    15,518
    
    
    $
    19,586Calculation of Limited Partner Interest in Net Income:(1)Net income
    
    $
    24,359
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/aLess general partner interest in net income
    
    
    537
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/aLimited partner interest in net income
    
    $
    23,822
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/aNet income per limited partner unit (basic and diluted)(1)Common and
Series A subordinated units (2)
    
    $
    0.54
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/aLimited partner units outstanding(1)Common and Series A subordinated units (2)(Basic)
    
    
    44,375
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/aCommon and Series A subordinated units (2)(Diluted)
    
    
    44,383
    
    
    
    n/a
    
    
    
    
    n/a
    
    
    
    n/a
 
 (1)
    
    Reflective of general and limited partner interest in net income since closing of the
Partnerships initial public offering. See Note 2, Net Income per Limited Parnter Unit.(2)
    
    Excludes Series B subordinated units. See Note 2, Net Income per Limited Partner Unit.  F - 6




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##### Table of Contents



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS CAPITAL AND MEMBERS CAPITAL
 (in thousands)
 Partners Capital
    
    AccumulatedLimited Partners
    
    
    
    
    
    OtherMembers
    
    
    
    
    
    Subordinated
    
    General
    
    ComprehensiveCapital
    
    Common
    
    Series A
    
    Series B
    
    Partner
    
    Loss
    
    TotalPredecessorBalance at December 31, 2007
    
    $
    300,715
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (5,998
    )
    
    $
    294,717Net income
    
    
    19,586
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,586Contributions from members
    
    
    74,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,500Distributions to members
    
    
    (14,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,500
    )Net derivative gain/loss on
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,073
    )
    
    
    (11,073
    )Balance at December 31, 2008
    
    $
    380,301
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (17,071
    )
    
    $
    363,230Net income
    
    
    15,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,518Contributions from members
    
    
    8,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,500Distributions to members
    
    
    (8,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,500
    )Net derivative gain/loss on
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,990
    
    
    
    1,990Balance at September 2, 2009
    
    $
    395,819
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (15,081
    )
    
    $
    380,738SuccessorBalance at September 2, 2009 (Predecessor)
    
    $
    395,819
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (15,081
    )
    
    $
    380,738Net income
    
    
    2,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,488Net effect of pushdown accounting
    
    
    34,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,081
    
    
    
    49,518Balance at December 31, 2009
    
    $
    432,744
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    432,744Net income attributable to the period from
January 1, 2010 through May 4, 2010
    
    
    5,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,428Extinguishment of related party note payable
to PAA
    
    
    16,375
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,375Contribution of net assets to PAA
Natural Gas Storage, L.P.
    
    
    (454,547
    )
    
    
    205,422
    
    
    
    158,088
    
    
    
    78,888
    
    
    
    12,149
    
    
    
    
    
    
    
    Issuance of common units to public, net of
offering and other costs
    
    
    
    
    
    
    268,168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268,168Modification of subordinated units
    
    
    
    
    
    
    
    
    
    
    (22,903
    )
    
    
    22,903
    
    
    
    
    
    
    
    
    
    
    
    Equity compensation expense
    
    
    
    
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    1,446
    
    
    
    
    
    
    
    1,815Modification of LTIP awards
    
    
    
    
    
    
    912
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    912Net income attributable to the period from
May 5, 2010 through December 31, 2010
    
    
    
    
    
    
    16,971
    
    
    
    6,851
    
    
    
    
    
    
    
    537
    
    
    
    
    
    
    
    24,359Distributions to unitholders
    
    
    
    
    
    
    (17,337
    )
    
    
    (6,974
    )
    
    
    
    
    
    
    (496
    )
    
    
    
    
    
    
    (24,807
    )Distribution equivalent right payments
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Contribution from general partner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net deferred loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,589
    )
    
    
    (1,589
    )Balance at December 31, 2010
    
    $
    
    
    
    $
    474,489
    
    
    $
    135,062
    
    
    $
    101,791
    
    
    $
    13,637
    
    
    $
    (1,589
    )
    
    $
    723,390
  F - 7




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##### Table of Contents



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Successor
    
    
    
    PredecessorSeptember 3,
    
    
    
    January 1,Year Ended
    
    
    2009 through
    
    
    
    2009 through
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    
    September 2,
    
    
    December 31,2010
    
    
    2009
    
    
    
    2009
    
    
    2008(See Note 1)
    
    
    
    (See Note 1)Cash flows from operating activitiesNet income
    
    $
    29,787
    
    
    $
    2,488
    
    
    
    $
    15,518
    
    
    $
    19,586Adjustments to reconcile to cash flow from operationsDepreciation, depletion and amortization
    
    
    14,119
    
    
    
    3,578
    
    
    
    
    8,054
    
    
    
    6,245Equity compensation expense
    
    
    1,815
    
    
    
    
    
    
    
    
    
    
    
    
    Non-cash change in fair value of derivative instruments
    
    
    (370
    )
    
    
    
    
    
    
    
    
    
    
    
    (548
    )Non-cash interest expense on borrowings from parent, net
    
    
    5,081
    
    
    
    4,262
    
    
    
    
    
    
    
    
    Change in assets and liabilitiesAccounts receivable and other assets
    
    
    (5,264
    )
    
    
    (480
    )
    
    
    
    (2,166
    )
    
    
    (5,097
    )Accounts payable and accrued liabilities
    
    
    (807
    )
    
    
    5,417
    
    
    
    
    1,197
    
    
    
    1,632Net cash provided by operating activities
    
    
    44,361
    
    
    
    15,265
    
    
    
    
    22,603
    
    
    
    21,818Cash flows from investing activitiesAdditions to property and equipment
    
    
    (74,268
    )
    
    
    (19,301
    )
    
    
    
    (47,542
    )
    
    
    (111,697
    )Cash paid for base gas
    
    
    (9,488
    )
    
    
    (4,366
    )
    
    
    
    (11,193
    )
    
    
    (12,913
    )Decrease (increase) in restricted cash and cash equivalents
    
    
    (20,000
    )
    
    
    14,000
    
    
    
    
    (6
    )
    
    
    5,090Proceeds from sale of assets
    
    
    176
    
    
    
    11
    
    
    
    
    180
    
    
    
    630Net cash provided by (used in) investing activities
    
    
    (103,580
    )
    
    
    (9,656
    )
    
    
    
    (58,561
    )
    
    
    (118,890
    )Cash flows from financing activitiesRepayments on term loan agreement
    
    
    
    
    
    
    (25,213
    )
    
    
    
    (1,225
    )
    
    
    (2,450
    )Borrowings on revolving credit facility
    
    
    322,200
    
    
    
    
    
    
    
    
    59,400
    
    
    
    65,000Repayments of borrowings on revolving credit facility
    
    
    (62,300
    )
    
    
    
    
    
    
    
    (29,900
    )
    
    
    Borrowings from parent
    
    
    24,000
    
    
    
    2,400
    
    
    
    
    
    
    
    
    Repayment of borrowings from parent
    
    
    (468,363
    )
    
    
    
    
    
    
    
    
    
    
    
    Net proceeds from issuance of common units
    
    
    268,168
    
    
    
    
    
    
    
    
    
    
    
    
    Costs incurred in connection with financing arrangements
    
    
    (2,441
    )
    
    
    
    
    
    
    
    (4,639
    )
    
    
    (206
    )Contribution from general partner
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    Distributions paid to common limited partners
    
    
    (24,311
    )
    
    
    
    
    
    
    
    
    
    
    
    Distributions paid to general partner
    
    
    (496
    )
    
    
    
    
    
    
    
    
    
    
    
    Distribution equivalent right payments
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    Contributions from members
    
    
    
    
    
    
    
    
    
    
    
    8,500
    
    
    
    74,500Distributions to members
    
    
    
    
    
    
    
    
    
    
    
    (8,500
    )
    
    
    (14,500
    )Net cash provided by (used in) financing activities
    
    
    56,441
    
    
    
    (22,813
    )
    
    
    
    23,636
    
    
    
    122,344Net decrease in cash and cash equivalents
    
    
    (2,778
    )
    
    
    (17,204
    )
    
    
    
    (12,322
    )
    
    
    25,272Cash and cash equivalentsBeginning of period
    
    
    3,124
    
    
    
    20,328
    
    
    
    
    32,650
    
    
    
    7,378End of period
    
    $
    346
    
    
    $
    3,124
    
    
    
    $
    20,328
    
    
    $
    32,650Cash paid for interest, net of amounts capitalized
    
    $
    2,094
    
    
    $
    
    
    
    
    $
    2,298
    
    
    $
    5,197Cash paid for income taxes
    
    $
    
    
    
    $
    
    
    
    
    $
    795
    
    
    $
    290Non-cash itemsChange in non-cash asset purchases included in accounts payable
    
    $
    (2,872
    )
    
    $
    1,008
    
    
    
    $
    1,534
    
    
    $
    (6,582
    )Non-cash interest capitalized on borrowings from parent
    
    $
    5,130
    
    
    $
    5,362
    
    
    
    $
    
    
    
    $
    
  F - 8




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##### Table of Contents



PAA NATURAL GAS STORAGE, L.P. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1Organization, Nature of Operations and Basis of Presentation
 Organization, Nature of Operation, Basis of Consolidation and Presentation
     PP&E, net
    
    $
    153,800Base gas
    
    
    (38,338
    )Goodwill
    
    
    (61,398
    )Other long term assets
    
    
    (4,546
    )$
    49,518
   F - 9




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##### Table of Contents



Note 2Summary of Significant Accounting Policies
 Use of Estimates
  Revenue Recognition
   (i)
    
    firm storage reservation fees fixed monthly capacity reservation fees which are
owed to us regardless of the actual storage capacity utilized by the customer. These fees
are recognized in revenue ratably over the term of the contract regardless of the actual
storage capacity utilized; this also includes seasonal park and loan services, pursuant
to which a customer will pay fees for the firm right to store gas in (park), or borrow
gas from (loan), our facilities on a seasonal basis; and
 (ii)
    
    firm storage cycling fees and fuel-in-kind fees for the use of injection and
withdrawal services are based on the volume of natural gas nominated for injection and/or
withdrawal; these fees are recognized in revenue in the period the volumes are nominated.
We retain a small portion of the natural gas nominated for injection as compensation for
our fuel use; the fuel-in-kind is reflected as revenue when received and in operating
expense in the period the fuel is used in operations. Any excess fuel collected is carried
as inventory at average cost.
  (i)
    
    interruptible storage services pursuant to which customers receive only
limited assurances regarding the availability of capacity in our storage facilities and
pay fees based on their actual utilization of our assets;
 (ii)
    
    non-seasonal park and loan services; and
 (iii)
    
    wheeling and balancing services pursuant to which customers pay fees for the right
to move a volume of gas through our facilities from one interconnection point to another
and true up their deliveries of gas to, or takeaways of gas from, our facilities.
   F - 10




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##### Table of Contents



Storage Related Costs
  Other Operating Costs and General and Administrative Expenses
  Cash and Cash Equivalents and Restricted Cash
  Accounts Receivable and Allowance for Doubtful Accounts
   Goodwill and Other Intangible Assets
  December 31,
    
    
    December 31,2010
    
    
    2009Goodwill
    
    $
    24,966
    
    
    $
    24,549Intangible assets
    
    
    25,441
    
    
    
    23,000Goodwill and intangibles
    
    
    50,407
    
    
    
    47,549Accumulated amortization
    
    
    (2,861
    )
    
    
    (575
    )Goodwill and intangibles, net
    
    $
    47,546
    
    
    $
    46,974
  F - 11




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##### Table of Contents



PredecessorBalance at December 31, 2008
    
    $
    86,064Balance at September 2, 2009
    
    $
    86,064SuccessorElimination of predecessor goodwill
    
    
    (86,064
    )Goodwill pushed down from PAA Ownership Transaction
    
    
    24,549Change in goodwill
    
    
    (61,515
    )Balance at December 31, 2009
    
    $
    24,549Push down accounting adjustment
    
    
    417Balance at December 31, 2010
    
    $
    24,966
   Lives(1)
    
    December 31,
    
    
    December 31,(In Years)
    
    2010
    
    
    2009Property tax abatement
    
    13
    
    $
    23,000
    
    
    $
    23,000Debt issue costs (2)
    
    3
    
    
    2,441
    
    
    
    0Total intangible assets
    
    
    
    
    25,441
    
    
    
    23,000Less: Accumulated amortization
    
    
    
    
    (2,861
    )
    
    
    (575
    )Total intangible assets, net of amortization
    
    
    
    $
    22,580
    
    
    $
    22,425
 
 (1)
    
    At the point of revaluing our assets to fair value, we also
reassessed the estimated useful lives used for amortization
purposes and revised them accordingly.(2)
    
    Costs incurred in connection with the issuance of the long-term debt
and amendments to our credit facilities are capitalized and amortized using the
straight-line method over the term of the related debt. In conjunction with the
PAA Ownership Transaction, the remaining balances of amortized and unamortized
debt issues costs were eliminated in conjunction with the repayment of the debt
on September 2, 2009. We incurred approximately $2.4 million of debt issuance
costs in connection with our senior unsecured revolving credit facility (See
Note 4). Such costs are being F - 12




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##### Table of Contents



amortized over the term of the credit facility
using the straight-line method of amortization. Amortization of debt issuance
costs is reflected as a component of depreciation, depletion and amortization
expenses in our accompanying condensed consolidated statements of operations.  Calendar Year
    
    Expense2011
    
    $
    2,5392012
    
    
    2,5242013
    
    
    1,9912014
    
    
    1,7252015
    
    
    1,725
 Asset Retirement Obligations
   Impairment of Long-Lived Assets
   
    
    Whether there is an indication of impairment;
    
    The grouping of assets;
    
    The intention of holding versus selling an asset;
    
    The forecast of undiscounted expected future cash flow over the assets estimated useful life; and
 F - 13




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##### Table of Contents




    
    If an impairment exists, the fair value of the asset or asset group.
  Property and Equipment
    Lives(1)
    
    
    December 31,
    
    
    December 31,(In Years)
    
    
    2010
    
    
    2009Natural gas storage facilities and equipment
    
    
    50 to 70
    
    
    $
    742,526
    
    
    $
    539,870Office property, equipment and other
    
    
    3 to 5
    
    
    
    48
    
    
    
    48Oil and gas properties
    
    
    n/a
    
    
    
    1,986
    
    
    
    1,986Land
    
    
    n/a
    
    
    
    8,288
    
    
    
    8,288Construction work in progress
    
    
    n/a
    
    
    
    139,797
    
    
    
    266,075892,645
    
    
    
    816,267Less: Accumulated depreciation and depletion
    
    
    
    
    
    
    (14,837
    )
    
    
    (3,004
    )Property and equipment, net
    
    
    
    
    
    $
    877,808
    
    
    $
    813,263
 
 (1)
    
    At the point of revaluing our assets to fair value in conjunction
with the PAA Ownership Transaction, we also reassessed the
estimated useful lives used for depreciation purposes and revised
them accordingly.     F - 14




---



##### Table of Contents



Base Gas
  Gas Imbalances
  Derivative Instruments and Hedging Activities
  Fair Value
   F - 15




---



##### Table of Contents



Income and Other Taxes
    Environmental Matters
  Recent Accounting Pronouncements
  Net Income Per Limited Partner Unit
  F - 16




---



##### Table of Contents



May 5, 2010 toDecember 31, 2010Net income
    
    $
    24,359Less: General partners incentive distribution paid (1)
    
    
    51Less: General partner 2.0% ownership
    
    
    486Net income available to limited partners
    
    $
    23,822Numerator for basic and diluted earnings per limited partner unit:Allocation of net income amongst limited partner interests:Net income allocable to common units
    
    $
    16,971Net income allocable to Series A subordinated units
    
    
    6,851Net income allocable to Series B subordinated units (2)
    
    
    Net income available to limited partners
    
    $
    23,822Denominator:Basic and diluted weighted average number of limited partner units outstanding: (2)(3)(4)Common units
    
    
    31,586Series A subordinated units
    
    
    12,789Series B subordinated units
    
    
    12,645Basic and diluted net income per limited partner unit: (2)(3)(4)Common units
    
    $
    0.54Series A subordinated units
    
    $
    0.54Series B subordinated units
    
    $
    
 
 (1)
    
    Based on the amount of the distribution declared per common and Series
A subordinated limited partner unit related to earnings for the
applicable periods, our general partner was not entitled to receive
any incentive distributions prior to the fourth quarter of 2010.(2)
    
    As of December 31, 2010, our Series B subordinated units were not
entitled to participate in our earnings, losses or distributions in
accordance with the terms of our partnership agreement as necessary
performance conditions have not been satisfied. As a result, no
earnings were allocated to the Series B subordinated units in our
determination of basic and diluted net income per limited partner
unit.(3)
    
    Substantially all of our LTIP awards (described in Note 10), which are
equity classified awards, contain provisions whereby vesting occurs
only upon the satisfaction of a performance condition. None of the
performance conditions on such awards had been satisfied as of
December 31, 2010. As such, our outstanding LTIP awards as of December
31, 2010 did not have a material impact in our determination of
diluted net income per limited partner unit.(4)
    
    The conversion of (i) our Series A subordinated units to common units
and (ii) our Series B subordinated units to Series A subordinated
units or common units is subject to certain performance conditions.
None of these performance conditions had been satisfied as of December
31, 2010 therefore, there is no dilutive impact of such units in our
determination of diluted net income per limited partner unit. Note 3Acquisitions and Dispositions
  Note 4Debt
  F - 17




---



##### Table of Contents



Note 5Partners Capital and Distributions
 Initial Public Offering
   Outstanding Units
  F - 18




---



##### Table of Contents



SubordinatedCommon
    
    Series A
    
    Series B
    
    TotalBalance, May 5, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Initial public offering
    
    
    31,584,529
    
    
    
    13,934,351
    
    
    
    11,500,000
    
    
    
    57,018,880Modification of subordinated units
    
    
    
    
    
    
    (2,000,000
    )
    
    
    2,000,000
    
    
    
    Vesting of LTIP awards
    
    
    1,876
    
    
    
    
    
    
    
    
    
    
    
    1,876Balance, December 31, 2010
    
    
    31,586,405
    
    
    
    11,934,351
    
    
    
    13,500,000
    
    
    
    57,020,756
 Modification of subordinated units
  Series A subordinated units
     Series B subordinated units
   F - 19




---



##### Table of Contents




    
    2,600,000 Series B subordinated units will convert into Series A subordinated units
on a one-for-one basis if (a) the aggregate amount of working gas storage capacity at
Pine Prairie that has been placed into service totals at least 29.6 Bcf, (b) we generate
distributable cash flow for two consecutive quarters sufficient to pay a quarterly
distribution of at least $0.36 per unit (representing an annualized distribution of $1.44
per unit) on the weighted average number of outstanding common units and Series A
subordinated units and all of such Series B subordinated units and (c) we make a
quarterly distribution of available cash of at least $0.36 per quarter for two
consecutive quarters on all outstanding common units and Series A subordinated units and
the corresponding distributions on our general partners 2.0% interest and the related
distributions on the incentive distribution rights;
 
    
    2,833,333 Series B subordinated units will convert into Series A subordinated units
on a one-for-one basis if (a) the aggregate amount of working gas storage capacity at
Pine Prairie that has been placed into service totals at least 35.6 Bcf, (b) we generate
distributable cash flow for two consecutive quarters sufficient to pay a quarterly
distribution of at least $0.3825 per unit (representing an annualized distribution of
$1.53 per unit) on the weighted average number of outstanding common units and Series A
subordinated units and all of such Series B subordinated units and, if any, the Series B
subordinated units described in the prior bullet, and (c) we make a quarterly
distribution of available cash of at least $0.3825 per quarter for two consecutive
quarters on all outstanding common units and Series A subordinated units and the
corresponding distributions on our general partners 2.0% interest and the related
distributions on the incentive distribution rights;
 
    
    2,066,667 Series B subordinated units will convert into Series A subordinated units
on a one-for-one basis if (a) the aggregate amount of working gas storage capacity at
Pine Prairie that has been placed into service totals at least 41.6 Bcf, (b) we generate
distributable cash flow for two consecutive quarters sufficient to pay a quarterly
distribution of at least $0.4075 per unit (representing an annualized distribution of
$1.63 per unit) on the weighted average number of outstanding common units and Series A
subordinated units and all of such Series B subordinated units and, if any, the Series B
subordinated units described in the prior two bullets, and (c) we make a quarterly
distribution of available cash of at least $0.4075 per quarter for two consecutive
quarters on all outstanding common units and Series A subordinated units and the
corresponding distributions on our general partners 2.0% interest and the related
distributions on the incentive distribution rights;
 
    
    3,000,000 Series B subordinated units will convert into Series A
subordinated units on a one-for-one basis if (a) the aggregate amount
of working gas storage capacity at Pine Prairie that has been placed
into service totals at least 48 Bcf, (b) we generate distributable
cash flow for two consecutive quarters sufficient to pay a quarterly
distribution of at least $0.4275 per unit (representing an annualized
distribution of $1.71 per unit) on the weighted average number of
outstanding common units and Series A subordinated units and all of
such Series B subordinated units and, if any, the Series B
subordinated units described in the prior three bullets, and (c) we
make a quarterly distribution of available cash of at least $0.4275
per quarter for two consecutive quarters on all outstanding common
units and Series A subordinated units and the corresponding
distributions on our general partners 2.0% interest and the related
distributions on the incentive distribution rights; and
 
    
    3,000,000 Series B subordinated units will convert into Series A
subordinated units on a one-for-one basis if (a) the aggregate amount
of working gas storage capacity at Pine Prairie that has been placed
into service totals at least 48 Bcf, (b) we generate distributable
cash flow for two consecutive quarters sufficient to pay a quarterly
distribution of at least $0.45 per unit (representing an annualized
distribution of $1.80 per unit) on the weighted average number of
outstanding common units and Series A subordinated units and all of
such Series B subordinated units and, if any, the Series B
subordinated units described in the prior four bullets, and (c) we
make a quarterly distribution of available cash of at least $0.45 per
quarter for two consecutive quarters on all outstanding common units
and Series A subordinated units and the corresponding distributions on
our general partners 2.0% interest and the related distributions on
the incentive distribution rights.
   F - 20




---



##### Table of Contents



Distributions
   
    
    first,98.0% to the holders of common units and 2.0% to our general partner, until each
common unit has received the minimum quarterly distribution of $0.3375, plus any arrearages
from prior quarters; and
 
    
    second, 98.0% to the holders of Series A subordinated units and 2.0% to our general
partner, until each Series A subordinated unit has received the minimum quarterly
distribution of $0.3375.
  Total Quarterly Distributions
    
    Marginal Percentageper Common Unit and
    
    Interest in DistributionsSeries A Subordinated Unit
    
    Unitholders
    
    General PartnerMinimum quarterly distribution
    
    
    
    $0.3375
    
    
    98.0
    %
    
    
    2.0
    %First target distribution
    
    above $0.3375 up to               $0.37125
    
    
    85.0
    %
    
    
    15.0
    %Second target distribution
    
    above $0.37125 up to               $0.50625
    
    
    75.0
    %
    
    
    25.0
    %Thereafter
    
    above             $0.50625
    
    
    50.0
    %
    
    
    50.0
    %
  F - 21




---



##### Table of Contents



Distributions PaidSeries A
    
    
    
    
    
    
    
    
    
    
    
    
    
    DistributionsCommon
    
    Subordinated
    
    General Partner
    
    
    
    
    
    per limitedDate Declared
    
    Date Paid or To Be Paid
    
    Units
    
    Units
    
    Incentive
    
    2%
    
    Total
    
    partner unitJanuary 12, 2011
    
    February 14, 2011 (1)
    
    $
    10.9
    
    
    $
    4.1
    
    
    $
    0.1
    
    
    $
    0.3
    
    
    $
    15.4
    
    
    $
    0.3450October 12, 2010
    
    November 12, 2010
    
    $
    10.7
    
    
    $
    4.0
    
    
    $
    
    
    
    $
    0.3
    
    
    $
    15.0
    
    
    $
    0.3375July 13, 2010
    
    August 13, 2010 (2)
    
    $
    6.7
    
    
    $
    2.9
    
    
    $
    
    
    
    $
    0.2
    
    
    $
    9.8
    
    
    $
    0.2114
 
 (1)
    
    Payable to unitholders of record on February 4, 2011, for the period October
1, 2010 through December 31, 2010.(2)
    
    Amount represents a quarterly distribution of $0.3375 per unit prorated from the May
5, 2010 closing date of the IPO
through June 30, 2010. Note 6Derivatives and Hedging Instruments
  Commodity Price Risk Hedging
  Anticipated Purchases and Sales of Natural Gas
 Interest Rate Risk Hedging
  Summary of Financial Statement Impact
  F - 22




---



##### Table of Contents



Predecessor
 Year Ended December 31, 2008Amount of Gain/(Loss)
    
    Amount of Gain/(Loss)Reclassified from AOCI
    
    Recognized in Incomeinto Income (Effective
    
    on DerivativesLocation of Gain/(Loss)
    
    Portion) (1)
    
    (Ineffective Portion) (2)
    
    TotalInterest Rate Derivatives
    
    Interest expense
    
    $
    (2,081
    )
    
    $
    
    
    
    $
    (2,081
    )January 1, 2009 throughSeptember 2, 2009Amount of Gain/(Loss)
    
    Amount of Gain/(Loss)Reclassified from AOCI
    
    Recognized in Incomeinto Income (Effective
    
    on DerivativesLocation of Gain/(Loss)
    
    Portion) (1)
    
    (Ineffective Portion)(2)
    
    TotalInterest Rate Derivatives
    
    Interest expense
    
    $
    (6,613
    )
    
    $
    
    
    
    $
    (6,613
    )Gain on interest rate swaps
    
    
    
    
    
    
    336
    
    
    
    336Total
    
    
    
    $
    (6,613
    )
    
    $
    336
    
    
    $
    (6,277
    )SuccessorYear Ended December 31, 2010Amount of Gain/(Loss)
    
    Amount of Gain/(Loss)Reclassified from AOCI
    
    Recognized in Incomeinto Income (Effective
    
    on DerivativesLocation of Gain/(Loss)
    
    Portion) (1)
    
    (Ineffective
Portion) (2)
    
    TotalCommodity Derivatives
    
    Other revenues
    
    $
    816
    
    
    $
    
    
    
    $
    816
 
 (1)
    
    Amounts represent derivative gains and losses that were
reclassified from AOCI to earnings during the period to coincide
with the earnings impact of the respective hedged transaction.(2)
    
    Amounts represent the ineffective portion of the fair value
of our cash flow hedges that were recognized in earnings during
the period. F - 23




---



##### Table of Contents



Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    
    
    
    
    Balance SheetLocation
    
    Fair Value
    
    Location
    
    Fair ValueCommodity derivatives designated
as hedging instruments
    
    Other current assets
    
    $
    43
    
    
    Other current assets
    
    $
    (4
    )
  Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    
    
    
    
    Balance SheetLocation
    
    Fair Value
    
    Location
    
    Fair ValueCommodity derivatives not designated
    
    Accounts payable and
    
    
    
    
    
    Accounts payable andas hedging instruments
    
    Accrued liabilities
    
    $
    37
    
    
    Accrued liabilities
    
    $
    (407
    )
   F - 24




---



##### Table of Contents



PredecessorBeginning liability balance, January 1, 2008
    
    $
    (7,265
    )Unrealized gains and (losses)Included in earnings
    
    
    548Included in other comprehensive income(1)
    
    
    (14,224
    )Settlements(2)
    
    
    3,150Beginning liability balance, January 1, 2009
    
    $
    (17,791
    )Unrealized gains and (losses)Included in earnings
    
    
    336Included in other comprehensive income(1)
    
    
    (4,628
    )Settlements(2)
    
    
    6,618Ending liability balance, September 2, 2009
    
    $
    (15,465
    )
 
 (1)
    
    Reflects changes in accumulated other comprehensive income due to changes in fair value.(2)
    
    Reflects amounts reclassified out of accumulated other comprehensive income to interest
expense concurrent with the interest expense accruals associated with the underlying hedged
debt. Note 7Comprehensive Income
  Successor
    
    
    
    PredecessorYear Ended
    
    
    September 3, 2009
    
    
    
    January 1, 2009
    
    
    Year EndedDecember 31,
    
    
    through
    
    
    
    through
    
    
    December 31,2010
    
    
    December 31, 2009
    
    
    
    September 2, 2009
    
    
    2008(See Note 1)
    
    
    
    (See Note 1)Net income
    
    $
    29,787
    
    
    $
    2,488
    
    
    
    $
    15,518
    
    
    $
    19,586Net derivative gain/(loss) on cash flow hedges
    
    
    (1,589
    )
    
    
    
    
    
    
    
    1,990
    
    
    
    (11,074
    )Total comprehensive income
    
    $
    28,198
    
    
    $
    2,488
    
    
    
    $
    17,508
    
    
    $
    8,512
 Note 8Major Customers and Concentration of Credit Risk
   F - 25




---



##### Table of Contents



Note 9Related Party Transactions
  Omnibus Agreement
  Tax Sharing Agreement
  Relationship with our general partner
  F - 26




---



##### Table of Contents



Note 10Equity Compensation Plans
 Long Term Incentive Plan (LTIP)
     WeightedAverageGrant DateFair ValueUnits
    
    
    per UnitOutstanding, May 5, 2010
    
    
    
    
    
    $
    Granted (1)
    
    
    675
    
    
    
    19.41Vested
    
    
    (2
    )
    
    
    23.08Cancelled or forfeited
    
    
    (50
    )
    
    
    19.22Outstanding, December 31, 2010
    
    
    623
    
    
    $
    19.42
 
 (1)
    
    Includes 662,000 equity classified awards and 13,500
liability classified awards.  F - 27




---



##### Table of Contents



Class B Awards of Our General Partner
   Transaction/Transition Awards Granted by PAA
  F - 28




---



##### Table of Contents



Other Consolidated Equity Compensation Information
  Successor
    
    PredecessorYear ended
    
    September 3, 2009
    
    January 1, 2009
    
    Year endedDecember 31,
    
    through December 31,
    
    through September 2,
    
    December 31,2010
    
    2009
    
    2009
    
    2008Liability
    
    Equity
    
    Liability
    
    Equity
    
    Liability
    
    Equity
    
    Liability
    
    EquityAwards
    
    Awards
    
    Awards
    
    Awards
    
    Awards
    
    Awards
    
    Awards
    
    AwardsEquity compensation expense
    
    $
    932
    
    
    $
    1,815
    
    
    $
    1,467
    
    
    $
    
    
    
    $
    304
    
    
    $
    
    
    
    $
    (110
    )
    
    $
    LTIP cash settled vestings
    
    $
    1,133
    
    
    $
    
    
    
    $
    383
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Distribution equivalent right payments
    
    $
    
    
    
    $
    16
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  EquityCompensationPlan Fair ValueYear
    
    Amortization (1) (2)2011
    
    $
    1,3082012
    
    
    7662013
    
    
    3582014 and thereafter
    
    
    113Total
    
    $
    2,545
 
 (1)
    
    Amounts do not include fair value
associated with awards containing performance
conditions that are not considered to be
probable of occurring at December 31, 2010.(2)
    
    Amounts do not include fair value
associated with awards which are not dilutive
to our limited partners or impact cash flow
available for distribution to our limited
partners. Note 11Commitments and Contingencies
  F - 29




---



##### Table of Contents



Total
    
    2011
    
    2012
    
    2013
    
    2014
    
    2015
    
    ThereafterLeases  storage, transportation, other
    
    $
    37,691
    
    
    $
    14,176
    
    
    $
    10,723
    
    
    $
    6,216
    
    
    $
    4,462
    
    
    $
    2,009
    
    
    $
    105Purchase obligations
    
    
    35,318
    
    
    
    18,057
    
    
    
    1,866
    
    
    
    1,866
    
    
    
    1,866
    
    
    
    1,866
    
    
    
    9,797Total
    
    $
    73,009
    
    
    $
    32,233
    
    
    $
    12,589
    
    
    $
    8,082
    
    
    $
    6,328
    
    
    $
    3,875
    
    
    $
    9,902
  Environmental
  Litigation
  Insurance
   Pine Prairie Project Sale and Lease
  F - 30




---



##### Table of Contents



F - 31




---



##### Table of Contents



Note 12Quarterly Financial Data (Unaudited):
 SuccessorFirst
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total (1)(in thousands, except per unit data)2010Revenues
    
    $
    22,205
    
    
    $
    24,158
    
    
    $
    25,083
    
    
    $
    28,841
    
    
    $
    100,287Gross margin (2)
    
    $
    10,179
    
    
    $
    13,727
    
    
    $
    13,784
    
    
    $
    15,403
    
    
    $
    53,093Operating income
    
    $
    6,165
    
    
    $
    9,987
    
    
    $
    10,375
    
    
    $
    10,601
    
    
    $
    37,128Net income
    
    $
    3,123
    
    
    $
    7,232
    
    
    $
    9,620
    
    
    $
    9,812
    
    
    $
    29,787Net income attributable to limited partners (3)(5)
    
    $
    
    
    
    $
    4,927
    
    
    $
    9,620
    
    
    $
    9,812
    
    
    $
    24,359Basic net income per limited partner unit (3)(5)
    
    $
    
    
    
    $
    0.11
    
    
    $
    0.21
    
    
    $
    0.22
    
    
    $
    0.54Diluted net income per limited partner unit (3)(5)
    
    $
    
    
    
    $
    0.11
    
    
    $
    0.21
    
    
    $
    0.22
    
    
    $
    0.54Cash distributions per common unit (4)
    
    $
    
    
    
    $
    0.2114
    
    
    $
    0.3375
    
    
    $
    0.3450
    
    
    $
    0.8939
 Predecessor
    
    SuccessorThird QuarterJuly 1
    
    September 3First
    
    Second
    
    through
    
    through
    
    FourthQuarter
    
    Quarter
    
    September 2
    
    September 30
    
    Quarter
    
    Total (1)2009Revenues
    
    $
    15,359
    
    
    $
    19,110
    
    
    $
    12,460
    
    
    $
    6,370
    
    
    $
    18,881
    
    
    $
    72,180Gross margin (2)
    
    $
    5,855
    
    
    $
    10,435
    
    
    $
    7,157
    
    
    $
    3,531
    
    
    $
    7,304
    
    
    $
    34,282Operating income
    
    $
    4,596
    
    
    $
    8,913
    
    
    $
    6,376
    
    
    $
    2,148
    
    
    $
    4,604
    
    
    $
    26,637Net income
    
    $
    3,871
    
    
    $
    6,054
    
    
    $
    5,593
    
    
    $
    1,006
    
    
    $
    1,482
    
    
    $
    18,006
 
 (1)
    
    The sum of the four quarters may not equal the total year due to rounding.(2)
    
    Gross Margin is calculated as Total Revenues less (i) Storage related costs, (ii) Other operating costs, (iii) Fuel expense and (iv)
Depreciation, depletion and amortization.(3)
    
    Excludes results attributable to the period prior to the closing of the Partnerships initial public offering on May 5, 2010.(4)
    
    Represents cash distribution per limited partner unit earned for the quarter which was declared and paid in the following quarter.(5)
    
    For all periods during 2010, our Series B subordinated units were not entitled to participate in earnings or distributions. Note 13Operating Segments
  F - 32




---



##### Table of Contents



Successor
    
    
    
    PredecessorSeptember
    
    
    
    January 1,Year Ended
    
    
    3,2009
    
    
    
    2009
    
    
    Year EndedDecember
    
    
    through
    
    
    
    through
    
    
    December31,2010
    
    
    December
    
    
    
    September
    
    
    31,200831,2009
    
    
    
    2,2009(See Note 1)
    
    
    
    (See Note 1)Revenues (1)
    
    $
    100,287
    
    
    $
    25,251
    
    
    
    $
    46,929
    
    
    $
    49,177Adjusted EBITDA
    
    $
    53,857
    
    
    $
    12,165
    
    
    
    $
    28,701
    
    
    $
    31,001Maintenance capital
    
    $
    438
    
    
    $
    320
    
    
    
    $
    384
    
    
    $
    377Long-lived assets (1), (2)
    
    $
    962,852
    
    
    $
    888,164
    
    
    
    
    
    
    
    $
    757,588Total assets (2)
    
    $
    998,728
    
    
    $
    900,407
    
    
    
    
    
    
    
    $
    811,436
 
 (1)
    
    We only have operations in the United States, thus no geographic data
disclosure is necessary for revenues or long-lived assets.(2)
    
    Amounts are as of December 31.  Successor
    
    
    
    PredecessorSeptember
    
    
    
    January 1,Year Ended
    
    
    3, 2009
    
    
    
    2009
    
    
    Year EndedDecember
    
    
    through
    
    
    
    through
    
    
    December31,2010
    
    
    December
    
    
    
    September
    
    
    31,200831, 2009
    
    
    
    2, 2009(See Note 1)
    
    
    
    (See Note 1)Adjusted EBITDA
    
    $
    53,857
    
    
    $
    12,165
    
    
    
    $
    28,701
    
    
    $
    31,001Selected items impacting Adjusted EBITDA:Equity compensation expense
    
    
    (2,747
    )
    
    
    (1,467
    )
    
    
    
    (304
    )
    
    
    110Acquisition related costs
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    
    Mark-to-market of open derivative positions
    
    
    370
    
    
    
    (370
    )
    
    
    
    
    
    
    
    548Depreciation, depletion and amortization
    
    
    (14,119
    )
    
    
    (3,578
    )
    
    
    
    (8,054
    )
    
    
    (6,245
    )Interest expense, net of amounts capitalized
    
    
    (7,323
    )
    
    
    (4,262
    )
    
    
    
    (4,352
    )
    
    
    (4,941
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    (473
    )
    
    
    (887
    )Net Income
    
    $
    29,787
    
    
    $
    2,488
    
    
    
    $
    15,518
    
    
    $
    19,586
 Note 14Subsequent Events
 Bluewater Incident
  Southern Pines Acquisition
  F - 33




---



##### Table of Contents



Sale of Land for PAA Natural Gas Processing Plant
  F - 34




---



##### Table of Contents



EXHIBIT INDEX
 2.1
    
    
    
    Purchase and Sale Agreement dated December 28, 2010 by and among SGR Holdings, L.L.C., Southern
Pines Energy Investment Co., LLC and PAA Natural Gas Storage, L.P. (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed on December 30, 2010).3.1
    
    
    
    Certificate of Limited Partnership of PAA Natural Gas Storage, L.P. (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-1 (333-164492) filed on January 25, 2010).3.2
    
    
    
    Second Amended and Restated Agreement of Limited Partnership of PAA Natural Gas Storage, L.P. dated
August 16, 2010 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed
on August 20, 2010).3.3
    
    
    
    Certificate of Formation of PNGS GP LLC (incorporated by reference to Exhibit 3.3 to the
Registration Statement on Form S-1 (333-164492) filed on January 25, 2010).3.4
    
    
    
    Amended and Restated Limited Liability Company Agreement of PNGS GP LLC dated May 5, 2010
(incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q filed on August 6,
2010).4.1
    
    
    
    Form of Registration Rights Agreement by and among PAA Natural Gas Storage, L.P. and the purchasers
party thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on
December 30, 2010).4.2
    
    
    
    Form of Registration Rights Agreement by and among PAA Natural Gas Storage, L.P. and the purchasers
party thereto (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on
January 20, 2011).10.1
    
    
    
    Contribution Agreement dated as of April 29, 2010 by and among PAA Natural Gas Storage, L.P., PNGS
GP LLC, Plains All American Pipeline, L.P., PAA Natural Gas Storage, LLC, PAA/Vulcan Gas Storage,
LLC, Plains Marketing, L.P. and Plains Marketing GP Inc. (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed on May 4, 2010).10.2
    
    
    
    Omnibus Agreement dated May 5, 2010 by and among Plains All American GP LLC, Plains All American
Pipeline, L.P., PNGS GP LLC and PAA Natural Gas Storage, L.P. (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed on May 11, 2010).10.3
    
    
    
    Tax Sharing Agreement dated May 5, 2010 by and among Plains All American Pipeline, L.P. and PAA
Natural Gas Storage, L.P. (incorporated by reference to Exhibit 10.3 to the Current Report on Form
8-K filed on May 11, 2010).10.4
    
    
    
    Credit Agreement dated April 7, 2010 among PAA Natural Gas Storage, L.P., Bank of America, N.A.,
DnB Nor Bank ASA, Wells Fargo Bank, National Association, UBS Loan Finance LLC and Citibank, N.A.
and the other lenders party thereto (incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K filed May 11, 2010).10.5
    
    
    
    Employment Agreement, effective November 1, 2008, between Dean Liollio and Plains All American GP
LLC (incorporated by reference to Exhibit 10.10 to Amendment No. 3 to the Registration Statement on
Form S-1 (333-164492) filed on April 13, 2010).10.6
    
    
    
    Employment Agreement, effective September 15, 2009, between Richard McGee and Plains All American
GP LLC (incorporated by reference to Exhibit 10.9 to Amendment No. 3 to the Registration Statement
on Form S-1 (333-164492) filed on April 13, 2010).10.7
    
    
    
    PAA Natural Gas Storage, L.P. 2010 Long Term Incentive Plan (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed on May 11, 2010).10.8
    
    
    
    Form of Phantom Unit and Distribution Equivalent Right Grant Letter (incorporated by reference to
Exhibit 10.4 to Amendment No. 3 to the Registration Statement on Form S-1 (333-164492) filed on
April 13, 2010).10.9
    
    
    
    Form of Phantom Unit Grant Letter (incorporated by reference to Exhibit 10.9 to the Quarterly
Report on Form 10-Q filed on November 5, 2010).




---



##### Table of Contents



10.10
    
    
    
    Form of PNGS GP LLC Class B Restricted Unit Agreement (incorporated by reference to Exhibit 10.10
to the Quarterly Report on Form 10-Q filed on August 6, 2010).10.11
    
    
    
    Common Unit Purchase Agreement dated December 23, 2010 by and among PAA Natural Gas Storage, L.P.
and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed on December 30, 2010).10.12
    
    
    
    Common Unit Purchase Agreement dated January 19, 2011 by and among PAA Natural Gas Storage, L.P.
and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed on January 20, 2011).10.13
    
    
    
    Note Payable to PAA dated February 9, 2011 (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed on February 14, 2011).10.14
    
    
    
    Agreement to Lease with Option to Purchase, dated May 1, 2006, between Industrial Development Board
No. 1 of the Parish of Evangeline State of Louisiana, Inc. and Pine Prairie Energy Center, LLC
(incorporated by reference to Exhibit 10.7 to Amendment No. 2 to the Registration Statement on Form
S-1 (333-164492) filed on April 2, 2010).10.15*
    
    
    
    Director Compensation Summary21.1*
    
    
    
    List of Subsidiaries of PAA Natural Gas Storage, L.P.23.1*
    
    
    
    Consent of PricewaterhouseCoopers LLP.23.2*
    
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    Consent of PricewaterhouseCoopers LLP.31.1*
    
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    Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).31.2*
    
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    Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).32.1*
    
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    Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350.32.2*
    
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    Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350.
 
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    Management compensatory plan or arrangement.*
    
    Filed herewith.