Crosstex Energy Inc. Q2 2010 Earnings Call Transcript

Crosstex Energy Inc. Q2 2010 Earnings Call Transcript
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Crosstex Energy Inc. (XTXI)

Q2 2010 Earnings Call

August 6, 2010 11:00 AM EST

Executives

Chris Bell – IR Specialist

Barry Davis – President and CEO

Bill Davis – EVP and CFO

Analysts

Darren Horowitz – Raymond James

John Edwards – Morgan Keegan

Sharon Lui – Wells Fargo

Conor Ryan – Deutsche Bank

Robert Walker – Chickasaw Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Crosstex Energy, L.P. earnings conference call.

My name is Lacey and I’ll be your coordinator for today.

At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Ms. Chris Bell of Crosstex’s Investor Relations. Please proceed.

Chris Bell

Thank you, Lacey, and good morning, everyone. Thank you for joining us today to discuss Crosstex’s second quarter 2010 results.

On the call today are Barry Davis, President and Chief Executive Officer; and Bill Davis, Executive Vice President and Chief Financial Officer.

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Previous Statements by XTXI
» Crosstex Energy, Inc. Q3 2009 Earnings Call Transcript
» Crosstex Energy, Inc. Q2 2009 Earnings Call Transcript
» Crosstex Energy, Inc. Q1 2009 Earnings Call Transcript

Our second quarter 2010 earnings release was issued early this morning. For those of you who didn’t receive a copy, it’s available on our website at crosstexenergy.com. If you want to listen to a recording of today’s call, you have 90 days to access the replay by phone or webcast on our website.

I will remind you that any statements that might include our expectations or predictions should be considered forward-looking statements within the meaning of the Federal Securities laws.

Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements, and we undertake no obligation to update or revise any forward-looking statements.

We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading Risk Factors.

I will now turn the call over to Barry Davis.

Barry Davis

Thank you, Chris. Good morning and thank you all for joining us on the call today, to discuss our second quarter results.

We are very pleased with our solid second quarter results and the great progress we’ve made. As a result of the actions we’ve taken during the past year, today we are a leaner, more efficient company and it is paying off.

We are focusing on the disciplined execution of our 2010 strategies, which we outlined earlier this year. In this call, we will expand the following second quarter highlights.

First, we continued to improve our operations by maximizing cash flow from our existing asset, reducing costs, and increasing utilization. Adjusted EBITDA was $45.2 million for the second quarter 2010, up 12% from the second quarter of 2009. And distributable cash flow increased 73% for the second quarter 2010, compared to the second quarter of 2009.

Second, we continued to capitalize on our great asset position in three core higher growth operating areas in North Texas and Louisiana. We see additional opportunities for incremental growth in these regions, where we are identifying and investing in low-cost high-return projects. To that end, we recently announced two substantial projects in the Barnett Shale in North Texas that will expand our gathering system and add long-term contracted supply. I will talk more about these projects later.

Third, we continued to run our business consistent with our financial guidelines, managing risk, reducing leverage, and improving reliability of our cash flow. We have no significant near-term debt materially and a solid balance sheet, with no outstanding debt on our revolver at the end of the second quarter.

Fourth, based on our great results today, and the outlook for the remainder of the year, we expect to restore our distributions at the end of the third quarter, one quarter earlier than our original plan. This is an important achievement for us and one of the final steps that will reposition Crosstex for the future.

And, finally, we are very encouraged by the prospects of our business development team as identified beyond our core operating areas.

From a macro perspective, processing economics remained strong. Ethane, which represents about half of our NGL barrel, remains the preferred feedstock for ethylene plants.

Recently ethane prices have been under pressure due to ethylene plant maintenance during the second quarter. This appears to be completed. And, as a result, we have recently seen a positive impact on the demand in prices for ethane. Natural gas prices remained between $4 and $5 per MMbtu for the second quarter of 2010.

The US gas drilling rig count as of July 23

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was 982, a 17-month high, and up approximately 50% from the bottom about a year-ago. This is good news for our industry in general and Crosstex in particular.

As the gas rig count relates to our business, the number of rigs running in the Haynesville Shale has remained stable during the last few months at about a 140 rigs, more than double the number of rigs running in April 2009.

In the Barnett, the rig count has been fluctuating between 80 rigs and 90 rigs, with the most recent count at 86 rigs. The number of rigs drilling on our North Texas acreage is stable at about 11 rigs.

As I mentioned a moment ago, based on what we see today, we believe we will generate sufficient distributable cash flow to restore cash distributions on our common units. We anticipate that the Partnership will distribute $0.25 per unit in November for the third quarter 2010.

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