Energy Transfer Partners, L.P. Q2 2010 Earnings Call Transcript

Energy Transfer Partners, L.P. Q2 2010 Earnings Call Transcript
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Energy Transfer Partners, L.P. (ETP)

Q2 2010 Earnings Call Transcript

August 9, 2010 9:30 am ET

Executives

Martin Salinas – CFO

Mackie McCrea – President and COO

Kelcy Warren – Chairman and CEO

Analysts

Yves Siegel – Credit Suisse

Darren Horowitz – Raymond James

Ted Durbin – Goldman Sachs

Michael Blum – Wells Fargo Securities

John Edwards – Morgan Keegan

Ross Payne – Wells Fargo Securities

Gabe Moreen – Bank of America/Merrill Lynch

Helen Ryoo – Barclays Capital

Barrett Blaschke – RBC Capital Markets

Jeremy Tonet – UBS Warburg

Presentation

Operator

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Previous Statements by ETP
» Energy Transfer Partners Q2 2009 Earnings Transcript
» Energy Transfer Partners Q1 2009 Earnings Call Transcript
» Energy Transfer Partners L.P. Q3 2008 Earnings Call Transcript

Welcome to the Energy Transfer’s second quarter earnings conference call. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of today’s conference. (Operator instructions)

I would now like to turn the presentation over to your host for today’s call, Martin Salinas, Energy Transfer’s Chief Financial Officer. Please proceed, sir.

Martin Salinas

Thank you, operator, and good morning and welcome to our second quarter earnings call for 2010. We issued our results this morning before the market opened, and I’ve decided to talk about them along with some positive trends that we are seeing, primarily in our transportation volumes and basis differentials.

We'll also give you an update on our FEP and Tiger projects; they are getting closer and closer to completion. I’ll also make a few comments about EPE and how its new ownership of Regency has coming along.

As in the past, I'll make forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act of 1934, based on our belief as well as certain assumptions and information available to us during this call.

Kelcy, Mackie, John McReynolds and other members of our senior management team are here with me to answer your questions.

Before I go through our second quarter results, I would like to highlight a few things that have positively impacted ETP. In addition to seeing an uptick in our quarterly EBITDA of roughly 25% from this time last year, we are seeing some nice volume increases across our system compared to the latter part of 2009 and early 2010. Our Barnett shale volumes alone have increased 0.5 Bcf a day and we expect an additional 200 million cubic feet a day to 300 million cubic feet a day by the end of this year. All in all, our transportation volumes are up over 1 Bcf since the fourth quarter of 2009.

Natural gas prices have also increased from this time last year and we are recognizing better margins as a result of the increase. As we stated in our first quarter call, we have had a significant portion of our commodity risk exposure in 2010 and 2011 at effective levels and certainly much higher than what we’ve realized in 2009. In addition to the increased volumes and natural gas prices, we are now seeing basis differentials significantly wider compared to the last fall and earlier this year.

During the quarter alone, we saw differentials go from an average of $0.08 in April to $0.14 in June, meaning we expect to get a full quarter’s worth in our third and fourth quarters.

From a capital project perspective, FEP and Tiger have entered the construction phase and we are well on our way to bringing these two pipelines in service ahead of our original schedule and significantly below our initial cost estimate. FEP is slated for a fourth quarter 2010 in-service date and Tiger’s original capacity of 2 Bcf is on target for Q1 of 2011 with a planned expansion of 400 million cubic feet a day to occur in the latter half of 2011.

I'd also like to remind everyone that these projects are supported by minimum of 10-year 100% demand fee contracts. Also each one of the construction related agreements have been executed on fixed cost basis.

In addition to FEP and Tiger, I would like to bring up to speed on a number of other growth initiatives that we are pursuing. In the Haynesville, North Louisiana area, we are currently gathering and transporting over 200 million cubic feet a day and expect to exceed 300 million cubic feet a day by the end of this year. These assets will be bringing gas to the Tiger pipeline when it comes online.

In addition in East Texas, as we announced, a 52-mile [ph] project predominantly consisting of a 24-inch and 20-inch pipe that is expected to be completed by the fourth quarter of this year, we expect volumes to exceed 1 million cubic feet a day on this pipeline by the end of the first quarter of 2011.

In Eagle Ford Shale, we are pleased to announce a 50-mile pipeline of predominantly 24-inch in South Texas. The system and gather rich gas for initial delivery into a processing plant and capacity will be in excess of 350 million cubic feet a day and we anticipate volumes to grow rapidly throughout 2011. Both the East Texas pipeline and our system in the Eagle Ford will tie into our existing HPL System.

In the Marcellus shale, we expect to be flowing gas by the end of the third quarter with initial volumes of 40 million cubic feet a day and growing to 100 million cubic feet a day by the end of the first quarter of 2011.

And as we announced in May, as part of the Regency transaction, we contributed a substantial ownership interest in MEP to ETE in exchange for 12.3 million ETP units that ETE owns. This provided us with a tax efficient method of transporting MEP and allows for future growth projects to be more accretive due to the reduced number of ETP units. It goes without saying that ETP’s management team is very excited not only about the status of existing projects but the incremental distributable cash flow coming from them, but also about the opportunities for strategic growth primarily in the prolific shale plays where our assets are located.

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