Boardwalk Pipeline Partners L.P. (BWP)

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Boardwalk Pipeline Partners, LP (BWP)

Q4 2012 Earnings Call

February 11, 2013 9:00 am ET

Executives

Molly Ladd Whitaker

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

Mark L. Reichman - Simmons & Company International, Research Division

John Edwards - Crédit Suisse AG, Research Division

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

Jeremy Tonet - JP Morgan Chase & Co, Research Division

Paul Jacob

Yves Siegel

Presentation

Operator

Good day, ladies and gentlemen, welcome to the Quarter 4 2012 Boardwalk Pipeline Partners, LP Earnings Conference Call. My name is Mo, and I'll be your operator today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Molly Ladd Whitaker, Director of Investor Relations and Corporate Communications. Please proceed.

Molly Ladd Whitaker

Thank you, Mo. Good morning, everyone, and welcome to the fourth quarter 2012 earnings call for Boardwalk Pipeline Partners, LP. I'm pleased to be joined today by Mr. Stan Horton, our President and CEO; and Mr. Jamie Buskill, our CFO.

If you would 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 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 beliefs and 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 reconciliation to the most comparable GAAP measures.

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

Stanley C. Horton

Thank you, Molly, and good morning, everyone. I hope you've had a chance to review the earnings press release that we issued this morning. In addition to reporting earnings, we also announced a quarterly distribution of $0.5325 per unit or $2.13 annualized. Jamie will review the results of the quarter shortly.

In the fourth quarter, we continued to make progress implementing our 3 strategic goals of: one, adding new end-use markets to our pipeline and storage systems; two, diversifying into other areas of the midstream sector; and three, emphasizing the need to control our cost structure to achieve greater efficiencies. With regards to the first goal of adding new end-use markets to our existing pipeline and storage systems, HP Storage salt cavern expansion at Petal is on schedule for gas injections to begin in the second quarter of 2013. When complete, the cavern will add approximately 5 billion cubic feet of working gas capacity. This incremental capacity has been fully contracted for the first year that this cavern will be in service.

We are also moving forward with our Southeast Market Expansion project, which will allow us to transport an additional 450 million cubic feet of natural gas into the growing areas of demand in the southeast region of the United States, including the markets in Mississippi, Alabama and Florida. This $300 million project is supported by 10-year firm agreements of primarily electric generation and industrial customers. We anticipate beginning construction in early 2014. The targeted and service date of the project remains late in 2014.

We are also making progress on attaching new power loads and are pleased to have recently executed a long-term contract with Kentucky Utilities to serve their Cane Run combined cycle power plant that is scheduled to be placed into service in late 2014. This project is in addition to the previously announced gas-fired power generation projects in Texas and Louisiana, the Southeast Market Expansion project and the other firm contracts that were executed with power producers in 2012. In aggregate, these projects represent an average of approximately 765,000 MMbtu a day once all of the projects are in service, and much of this new power generation load will utilize existing pipeline capacity that will be up for renewal over the next 2 years. The new flexible services that FERC has recently approved on our pipelines are being used to support some of this load.

During the last several earnings calls, we have spoken about how compressed basis differentials are negatively impacting our business. Simply put, when firm transportation contracts come up for renewal, the change in market fundamentals from the time the contract was originally executed resulted either the contract being renewed at a reduced rate or the capacity being termed back and remarketed to another customer. Some of the capacity being termed back is used to meet the new electric load I just discussed. But those loads will not come on stream until the projects are completed. In the interim, the capacity is marketed by our pricing desk and in the short-term market, which we think will continue to experience very low rates during 2013, due to the narrow basis spreads.

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