Boardwalk Pipeline Partners, LP Management Discusses Q2 2012 Results - Earnings Call Transcript

Boardwalk Pipeline Partners, LP (BWP)

Q2 2012 Earnings Call

July 30, 2012 9:00 am ET

Executives

Allison McLean - Director of Investor Relations of of Boardwalk Gp Llc

Stanley C. Horton - Chief Executive Officer of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC

Jamie L. Buskill - Chief Financial Officer of Boardwalk GP LLC, Senior Vice President of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC

Analysts

Paul Jacob

John Edwards - Crédit Suisse AG, Research Division

Louis Shamie

S. Ross Payne - Wells Fargo Securities, LLC, Research Division

James Jampel

Elvira Scotto - RBC Capital Markets, LLC, Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

John K. Tysseland - Citigroup Inc, Research Division

Jeremy Tonet - JP Morgan Chase & Co, Research Division

Bernard L. Colson - Global Hunter Securities, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Boardwalk Pipeline Partners, LP Earnings Conference Call. My name is Carissa, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now turn the presentation over to your host for today's conference, Ms. Allison McLean, Director of Investor Relations. Please proceed.

Allison McLean

Thank you, Carissa. Good morning, everyone, and welcome to the Second Quarter 2012 Earnings Call for Boardwalk Pipeline Partners, LP. I'm Allison McLean, and I'm pleased to be joined today by Mr. Stan Horton, our President and CEO; and Mr. Jamie Buskill, our CFO.

If you'd like a copy of the earnings release associated with this call, please download it from our website at www.bwpmlp.com.

Following our prepared remarks this morning, we will turn the call over for your questions. We would like to remind you that this conference call will include the use of statements that are forward-looking in nature. Statements in this earnings call related to matters that are not historical facts are forward-looking statements. These statements are based on management's recent assumptions using currently available information and expectations. Actual results achieved by the company may differ materially from those projected in any forward-looking statement. The company expressly disclaims any obligation to update or revise any forward-looking statements made during this call. I'd also like to remind you that during this call today, we may discuss certain non-GAAP financial measures, such as EBITDA and distributable cash flow. With regard to such financial measures, please refer to our earnings release for a reconciliation to the most comparable GAAP measures.

Now I'd like to turn the call over to Mr. Stan Horton.

Stanley C. Horton

Thank you, Allison. Good morning. I hope you've had a chance to review the earnings press release that we issued this morning. We also announced a quarterly distribution of $0.5325 per unit, or $2.13 annualized. The distribution this quarter is unchanged from the amount paid last quarter.

Over the past several quarters, we've been increasing our distribution per unit by a relatively modest $0.0025 per unit, or approximately 2% on an annualized basis.

As you can see from our earnings release, earnings for the quarter were positive. So let me give you some background as to why we made the decision to maintain the distribution rate at the $0.5325 per unit this quarter.

As you are well aware, new shale gas basins have developed and are continuing to develop in areas not traditionally associated with natural gas production. Over the past several years, the industry has constructed significant new pipeline infrastructure to provide transportation from these natural gas basins to market. These developments have caused changes in natural gas transportation dynamics and have increased the overall amount of transportation capacity.

Both have caused increased competition in certain pipeline markets and resulted in lower basis spreads in many locations. In addition, these new supply sources have narrowed seasonal gas price differentials, thus, impacting natural gas towards spreads and have also dramatically reduced the overall price of gas to levels not seen in years.

Although gas price spreads between time periods have improved short-term and have positively impacted park and lending this year, they narrowed when looking at the future price curves.

Revenues from contract renewals can also be impacted by these current market conditions. In the near term, we have, on average, approximately $100 million of contract renewals each year, which represents less than 10% of annual historic revenues. Our current weighted average contract life for transportation contracts is about 6 years, and approximately 96% of annual revenues in 2011 were derived from firm contracts.

We have historically done a good job of recontracting our firm capacity at reasonable rates and terms. However, the fact remains that revenues from contract renewals can't be impacted by these market conditions. Most of the contract negotiations for 2012 are complete. And on average, across all contracts, things came in relatively flat to 2011.

However, when considering the factors discussed above, uncertainty for future contract renewals remains. There are a number of factors when considering -- that we consider before recommending to our Board of Directors that a distribution be declared. These factors include, among other things: an assessment of the earnings from our existing business and growth projects; our current and expected market, economic and regulatory environment; future financing requirements for new projects; and our financial position. Simply stated, under current market conditions, we do not believe it is prudent to increase the distribution this quarter. Our focus is to strengthen our financial position and complete our announced growth projects on time and on budget, while allowing time for the market fundamentals to improve.

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