Niska Gas Storage (NKA) $350mm IPO, at price range mid-point of $21

Scheduled for Wednesday, May 12

NKA IS NOT A GOOD DEAL FOR INVESTORS

Compare to PNG

NKA is a financial engineering deal designed to benefit owning private equity firms, Carlyle & Riverstone.

Compare to PNG

If investors want a dividend return comparable to what NKA is offering, it’s much safer to go with an existing LLP in a similar business with a strong parent. A strong parent implies a believable growth plan. NKA is fully mature with no growth plan (PNG has a growth plan)

See the following table and also notice below that NKA’s percent of interest paid to revenue pre-IPO is 42%. Successful private equity IPO;s seldom if ever have an income statement that leveraged by debt.

Compare to PNG (below), NKA only looks less ‘expensive’ because PNG is bringing online more storage facilities that are already leased.

The problem with NKA is that it’s losing money and its interest payments are too high, as a % of revenue.

COMPARE PNG WITH PNG & MID-STREAM Limited Partnerships that have strong 'parents'
VALUATION RATIOS	Mrkt	Price /	Price /	Price /	ExpDividend	Price/
trailing 12 months	Cap (mm)*	Sales	Earnings	BookValue	% payout	EBITDA
Niska Gas Storge (NKA)	$1,420	9.5	-53	1.6	6.7%	9.7
PAA Nat Gas Stor PNG	$1,363	18.9	59	2.0	6.8%	35.9
Mid-stream companies with strong 'parents'
Williams Partners (WPZ).	$2,060	4.5	14	9.6	6.13%	11.6
Kinder Morgan Energy (KMP)	$19,350	2.8	15	2.9	6.27%	8.2
El Paso Pipeline (EPB)	$3,690	6.9	17	17.2	5.36%	11.8
*April 26, 2010

NKA’s income statement is in a down trend and NKA lost money for the nine months ended December 31, 2009, see below. Plus the balance sheet is too leveraged by debt that was used for dividends to the private-equity owned parent.

NKA’s ‘expected’ payout of 6.7% doesn’t look at stable & strong as PNG’s.

It’s a textbook case of a private equity firm borrowing on a company’s balance sheet to pay themselves dividends, then going to the public market for ‘equity’ pay the dividend debt.

BUSINESS

Largest independent owner and operator of natural gas storage assets in North America.

PRO FORMA ADJUSTMENTS

Nine months ended December 31, 2009

The pro forma adjustments have been prepared as if the non-public offering of the senior notes, this offering and the transactions to be effected at the closing of this offering had taken place on December 31, 2009, in the case of the pro forma balance sheet, and on April 1, 2009, in the case of the pro forma statement of operations.

PRIVATE EQUITY relationship with Holdco

After IPO, Holdco will own 48.2% of NKA and all incentive distribution rights Over 95% of the equity in Holdco is owned by the Carlyle/Riverstone Funds, with the balance owned by current and former officers and employees

CASH DISTRIBUTION POLICY

Expects to make a minimum quarterly distribution of $0.35 per common unit ($1.40 per common unit on an annualized basis)

DIFFICULT TO REPLICATE BUT NO GROWTH

. NKA believes that its combination of large, high-quality, strategically located storage facilities, access to economically attractive organic growth opportunities, ability to charge market-based rates and an experienced and complete storage business team makes the business difficult to replicate. REVENUE SEGMENTS

. Third-Party Gas Storage Contracts:68% of revenue . Proprietary Optimization: 32% of revenue . From inception to March 31, 2009, utilized an average of approximately 8% of operated capacity for proprietary optimization strategy, and proprietary optimization revenue, after deducting cost of goods sold, contributed an average of 32% of to total revenue.

POST-IPO NKA OWNERSHIP INTERESTS

. Public Common Units: 25.4% . Common Units held by Holdco. 23.6% . Subordinated Units held by Holdco: 49.0% . Incentive Distribution Rights: (a) . Managing Member Interest: 2.0% (a) Incentive distribution rights represent a potentially variable interest in distributions and thus are not expressed as a fixed percentage

USE OF PROCEEDS

. $340mm, assumes an IPO price of $21 . $280mm to fund a distribution to Holdco . Balance for working capital

 

Niska Gas Storage	NKA, C+, 6.5					Post-IPO units: 68m
Natural gas storage			March 31, fiscal year -- historical		Profoma
Houston, TX		2008	2009	Dec08 9mos	Dec09 9mos	IPO Mkt
Total revenue ($mm)		$233	$252	$212	$150	Cap (mm)
sector revenue						$1,420
. Long-term contracts		$121	$111	$86	$82	@$21
. Short-term contracts		$36	$52	$33	$40
. Optimization reve		$76	$89	$93	$28
Inerest expense % of revenue		32%	21%	21%	42%
Profit (loss)		$48	$109	$101	-$27
Profit (loss) % of revenue		21%	43%	48%	-18%
EBITDA		$157	$162	$113	$146
EBITDA % of revenue		67%	64%	53%	97%
VALUATION RATIOS	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
trailing 12 months	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Niska Gas Storge (NKA)	$1,420	9.5	-53	1.6	6.3	26%
PAA Nat Gas Stor PNG	$1,363	18.9	59	2.0	2.0	16%
PNG SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	1.5	2	1	6.5
COMPARE PNG WITH PNG & MID-STREAM Limited Partnerships that have strong 'parents'
VALUATION RATIOS	Mrkt	Price /	Price /	Price /	ExpDividend	Price/
trailing 12 months	Cap (mm)*	Sales	Earnings	BookValue	% payout	EBITDA
Niska Gas Storge (NKA)	$1,420	9.5	-53	1.6	6.7%	9.7
PAA Nat Gas Stor PNG	$1,363	18.9	59	2.0	6.8%	35.9
Mid-stream companies with strong 'parents'
Williams Partners (WPZ).	$2,060	4.5	14	9.6	6.13%	11.6
Kinder Morgan Energy (KMP)	$19,350	2.8	15	2.9	6.27%	8.2
El Paso Pipeline (EPB)	$3,690	6.9	17	17.2	5.36%	11.8