Copano Energy LLC Q1 2010 Earnings Call Transcript - TheStreet

Copano Energy LLC Q1 2010 Earnings Call Transcript

Copano Energy LLC Q1 2010 Earnings Call Transcript
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Copano Energy LLC (CPNO)

Q1 2010 Earnings Call

May 07, 2010 10:00 am ET

Executives

Dough Lawing - EVP, General Counsel, Secretary

Bruce Northcutt - Director, President and Chief Executive Officer

Carl Luna - EVP & CFO

Analysts

Michael Bloom - Wells Fargo

John Edward - Morgan, Keegan

David Fleischer - Chickasaw Capital Management

Lenny Brecken - Brecken Capital

Presentation

Operator

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Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Copano Energy's first quarter earnings conference call. During today’s presentation all parties will be in listen-only mode. Following the presentation the conference will be open for question. (Operator Instructions) This conference is being recorded today Friday May 7

th

2010. I would now like to turn the conference to Mr.

Dough Lawing

, Executive Vice President and General Counsel, please go ahead sir.

Dough Lawing

Thank you and good morning. We appreciate you joining us for Capano Energy's conference call to review financial and operating results for the first quarter of 2010. If you would like to be on our email distribution list to receive future news releases, please call our Investor firm DRG&E. Their number is 713-529-6600. A replay of this call will available later this morning. Access details are provided in the news release. please note that information recorded on this call speaks only as of today May 7

th

2010. Therefore time-sensitive information may no longer be accurate as of the date of any replay. Our discussion today will include forward-looking statements that are based on management’s belief as well as in certain assumptions based on the experience and perception of the historical trends, current conditions and expected future developments.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, actual results may vary materially. Actual results are subject to a number of risks and uncertainties which are discussed in the company’s annual and quarterly reports filed with the Securities and Exchange Commission. Please note on this call, we will use the terms gross margin, EBITDA, adjusted EBITDA and total distributable cash flow. These are non GAAP financial measures and we have provided reconciliations to comparable GAAP measures in our news release. In addition the reconciliation of adjusted EBITDA to net income for our operating segments can be found in the Investor Relations page of Copano's website under events.

Bruce Northcutt, Copano’s President and Chief Executive Officer will begin today’s call by reviewing operating highlights for the first quarter of 2010, our outlook for the second quarter and the progress of our growth initiatives. Carl Luna, our Senior Vice President and Chief Financial Officer will then provide details on our financial results.

Bruce will then ramp up our formal presentations and then, we’ll take your questions. With that, I will now turn the call over to Bruce.

Bruce Northcutt

Thanks Dough and good morning everyone. I'm pleased with the progress we’re making on our various growth initiatives. Over the last several quarters, we’ve invested in expansion projects in areas that are seeing oil and rich gas directed drilling activities specifically the Barnett Shale Combo Play located in North Texas and the Eagle Ford Shale Play located in South Texas. And we’re now beginning to see volume increases in those areas. These projects and others that we are currently working on will have rates of return in excess of our cost of capital and will create additional value for Copano and its unitholders as they come online.

Our distribution coverage ratio fell to 81% for the first quarter. This is temporary and reflects the equity we issued in March to fund our growth plans, the conversion of our Class D unit as well as the planned six day shutdown of our Houston Central Plant which was necessary to complete the work acquired to start our fractionation facilities.

We expect coverage to significantly improve during 2010 given our growth outlook particularly the opportunities in Texas. Before discussing these opportunities and the progress we are making in further detail, let me quickly review the operating highlights for each of our business segments. In Oklahoma, our service throughput averaged 248,784 MMBtu per day for the first quarter of 2010, which was down 8% versus a year ago and flat from the prior quarter. We expect second quarter volumes to be slightly up versus the first quarter of 2010.

NGL production in Oklahoma in the first quarter averaged 15,334 barrels per day, which was flat versus a year ago and down about 5% from the fourth quarter. Although service throughput volumes were flat compared to the fourth quarter of 2009, plant inlet volumes were down 5% in part due to freeze-offs. We anticipate an increase in NGL production for the second quarter. Gross margin for the Oklahoma operating segment was $24.3 million for the first quarter which is an increase of 70% from a year ago and a decrease of 9% versus the fourth quarter of 2009.

The year-over-year increase was due to an 84% increase in NGL prices and a 55% increase in natural gas prices. Segment gross margin decreased compared to the fourth quarter due to lower NGL volumes primarily as a result of freeze-offs and also due to a partial outage of a third-party downstream NGL pipeline. Despite anticipated volume growth we expect the second quarter gross margin to be lower than the first quarter primarily due to a decrease in commodity prices.

14 rigs we’re drilling in our service areas in Oklahoma in the first quarter, nine were working in rich gas areas and five were working in the Woodford Shale. In addition we placed our 10 million cubic foot a day Burbank processing plant service in mid-April. The plant inlet has averaged about 4 million a day since first start up and we expect drilling behind the plant to continue.

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