Duncan Energy Partners, LP. ( DEP)

Q3 2010 Earnings Call

October 26, 2010 10:00 am ET

Executives

Randy Burkhalter - IR

Mike Creel, President and CEO

Jim Teague - EVP and COO

Randy Fowler - EVP and CFO, General Partner of Enterprise & President and CEO, General Partner of Duncan Energy Partners

Analysts

Ted Durbin - Goldman Sachs

Darren Horowitz - Raymond James

Steve Maresca - Morgan Stanley

John Tysseland - Citigroup

Yves Siegel - Credit Suisse

Sharon Lui - Wells Fargo

John Edwards - Morgan Keegan

Ross Payne - Wells Fargo

Bernie Colson - Oppenheimer

Presentation

Operator

Good morning. My name is [Tia] and I will be the conference operator today. At this time, I would like to welcome everyone to the Enterprise Products and Duncan Third Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

At this time, I would like to turn the conference over to Mr. Randy Burkhalter. Sir, you may begin.

Randy Burkhalter

Thank you, [Tia]. Good morning and welcome to the Enterprise Products Partners and Duncan Energy Partners joint conference call to discuss third quarter earnings. Our speakers today will be Mike Creel, President and CEO of Enterprise’s General Partner. He will be followed by Jim Teague, Executive Vice President and Chief Operating Officer, and then Randy Fowler, Executive Vice President and Chief Financial Officer of the General Partner of Enterprise and also President and CEO of the General Partner of Duncan Energy Partners. Also in attendance are other members of our senior management team.

During this call, we will make forward-looking statements within the meaning of Section 21-A 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 management of both Enterprise and Duncan. Although management believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance to 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.

With that, I’ll turn the call over to Mike Creel.

Mike Creel

Thanks Randy. Before we get started just wanted to make sure that everybody understands that in this earnings we are not going to talk about the pending merger with Enterprise GP Holding. I am not going to answer questions on that, but I would point you to the proxy statements that’s on file with the SEC.

With that, we’ve reported solid earnings again this quarter supported by record natural gas transportation volumes and new record NGL, crude oil, refined products, and petrochemical pipeline volumes.

Gross operating margin for the quarter increased 29% over the third quarter of last year with four of our five business segments reporting improved results. Our NGL Pipelines and Services business reported strong results that were only slightly lower than last. The large improvement for the quarter came from our Petrochemical and Refine Product Services segment which had record gross operating margin of $166 million or 138% over the third quarter of 2009.

Within this segment our propylene fractionation business reported a $30 million increase in gross operating margin due to higher spread between polymer grade or refinery grade propylene. This was a result of lower volumes of petrochemical cracker source propylene combined with increased consumed amount for propylene derivative products.

Gross operating margin from our refined products business increased by $49 million this quarter, or $20 million after adjusting for the $29 million of charges taken by TEPCO for its river terminals in the third quarter of last year prior to the merger. The improved results were due to higher average pipeline transportation seas and increased volumes in our river terminals primarily due to increased demand related to agricultural in the Midwest and drilling in the Haynesville Shale. We also began commercial operations that are new refined products terminals in Fort Arthur last June.

Gross operating margins from our octane enhancement business increased $50 million over the third quarter of 2009 due to higher production volumes and sales prices. Our Onshore Natural Gas Pipelines and Services segment reported a $46 million or 42% increase in gross operating margin on record transportation volumes of 11.7 trillion BTUs per day which were 11% higher than the 10.5 trillion BTUs per day in the third quarter of the last year. This quarter-to-quarter increase was primarily related to shale supplies including the Haynesville, Piceance Basin in the Barnett Shale and the Eagle Ford.

Slightly offsetting these increases in volumes were lower transportation of conventional production in South Texas which was down by about a 100 million cubic feet a day. We recently completed the expansion of our newly acquired state line gathering system in the Haynesville Shale increasing its capacity 75% to 700 million cubic feet a day. For a relatively nominal cost we can further expand the capacity by another 70% the 1.2 billion cubic feet a day. Our Haynesville gathering systems continue to benefit from the ramp up of volumes as more wells come on and Jim will go into more detail about our projects and commercial initiatives in the Haynesville plays and Eagle Ford shale plays in a few minutes.

We began service in the late July on the southern half of our Trinity River lateral pipeline which accesses the heart of the north field between Arlington and Fort Worth Texas. You may recall we have gained service from the northern half of the Trinity River lateral last year.

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