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Duncan Energy Partners L.P. Q1 2010 Earnings Call Transcript

Duncan Energy Partners L.P. Q1 2010 Earnings Call Transcript

Duncan Energy Partners L.P. (DEP)

Q1 2010 Earnings Call

April 27, 2010 11:30 AM ET


Randy Burkhalter - Investor Relations

Randy Fowler - CFO


Darren Horowitz - Raymond James

Sharon Lui - Wells Fargo Securities

Barrett Blaschke - RBC Capital Markets

Brian Zarahn - Barclays Capital

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Welcome to the Duncan Energy Partners First Quarter Earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) As a reminder today's call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce Mr. Randy Burkhalter, Vice President of Investor Relations. You may begin.

Randy Burkhalter

Thank you, Regina. Good morning and welcome everyone to the Duncan Energy Partners conference call to discuss first quarter earnings. Leading our call today will be President and CEO, Randy Fowler. Also in attendance for the call today are other members of our senior management team to assist during our Q&A, which we will conduct after the prepared remarks.

During this call we will make forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act of 1934, based on the beliefs of the company, as well as assumptions made by and information currently available to Duncan's management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call.

Now I will turn the call over to Randy.

Randy Fowler

Good morning and thank you for joining us today. I am pleased to report DEP is off to a good start this year reporting solid first quarter results. We increased the quarterly cash distribution for the six consecutive quarter, exceeding what was paid to partners in the first quarter of 2009 by 4.1%. This year our DEP two midstream businesses are expected to generate approximately $88 million of distributable cash flow or approximately $22 million per quarter.

We reported net income attributable to Duncan Energy Partners of $21.2 million or $0.37 per common unit on a fully diluted basis in the first quarter of 2010. This compares to 19.9 million or $0.34 per common unit on a fully diluted basis for the first quarter last year.

DEP’s distributable cash flow increased to $32 million this quarter from 29.5 million last year, and we continue to have solid coverage of our cash distributions with DCF coverage – DCF providing 1.2 times coverage of the distribution that was declared with respect to the first quarter 2010. We’ve retained approximately $6 million of distributable cash flow to reinvest back in the partnership and reduce debt.

Now turning to our business performance, gross operating margin was up 16% compared to the first quarter of last year with the natural gas and NGL segments reporting higher gross operating margin as a result of increased transportation storage fees. Starting with our natural gas pipeline business we reported a 10% increase in gross operating margin due primarily to the Sherman Extension pipeline that began commercial service in August of last year.

With 95% of the revenue from this pipeline generated from firm capacity reservation fees, it contributed a little more than $5 million per month to gross operating margin. In this quarter it generated $15.7 million of the gross operating margin. We also benefited from increased condensate sales as a result of higher commodity prices, higher throughput volumes primarily from increased spot sales on our Acadian Pipeline System an increased firm storage fees from the Wilson Gas Storage facilities.

Of note, we’ve recently signed a new shipper on the Acadian System, which is a investment grade rated customer that will add in the incremental 50 million cubic feet a day of gas transportation volumes on our Acadian pipeline beginning next month. It’s a five year agreement that has monthly demand charge along with commodity fee. So, very excited to sign up that customer, and really I’d say that’s probably some of the fruit of the painful extension coming in with the new supplies coming out from North Louisiana, that was a added benefit to that development.

After adjusting for operational measurement gains and losses associated with our storage of business on the NGL pipeline side, this segment reported an 18% increase in gross operating margin, which was $26 million for the first quarter of 2010 compared to 22.1 million for the first quarter of 2009. The increase is primarily attributable to higher storage fees and volumes at the Belvieu NGL storage facility. NGL transportation volumes increased to 120,000 barrels per day in the first quarter of 2010 from 115,000 barrels a day last year, primarily from our South Texas NGL pipeline.

NGL fractionation volumes were also higher at 82,000 barrels per day compared to 79,000 barrels a day for the same quarter of 2009. One of our growth projects is the conversion of two NGL storage caverns, and actually in the press release we say both of those facilities will be in service in the fourth quarter of 2010, actually one of those will be going in the service in the fourth quarter of 2010. When it’s complete in the caverns, we will be able to store up to four million barrels of refined products. DEP’s portion of the project cost on converting one of these caverns is $12 million, which is 66% of the 18 million to be spent on the conversion on a adage basis.

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