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Crosstex Energy L.P. (XTEX)

Q2 2009 Earnings Call

August 7, 2009 11:00 am ET

Executives

Barry Davis - President & Chief Executive Officer

Bill Davis - Executive Vice President & Chief Financial Officer

Bob Purgason - Executive Vice President & Chief Operating Officer

Jill McMillan - Manager, Public & Industry Affairs

Analysts

Sharon Louie - Wells Fargo

Maggie Chwaleba - Raymond James

John Edwards - Morgan Keegan

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Crosstex Energy second quarter 2009 earnings conference call. My name is Marisol, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We’ll be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Ms. Jill McMillan of Crosstex Energy. Please proceed.

Jill McMillan

Thank you Marisol and good morning everyone. Thank you for joining us today to discuss Crosstex’s second quarter 2009 results. On the call today are Barry Davis, President and Chief Executive Officer; Bill Davis, Executive Vice President and Chief Financial Officer; and Bob Purgason, Executive Vice President and Chief Operating Officer.

Barry will begin our call with some brief introductory remarks and an overview of our second quarter performance. Then Bill will discuss detailed financial results and Bob will provide an operational update. Finally, Barry will briefly discuss the outlook for Crosstex. At the end of the call, Barry, Bill and Bob will answer your questions.

Our second quarter 2009 earnings release was issued early this morning. For those of you who didn’t receive a copy, it is available on our website at www.crosstexenergy.com. If you want to listen to a recording of today’s call, you have 90 days to access the replay by phone or webcast on our website.

As we begin this morning’s call, I will remind you that any statements that might include our expectations or predictions should be considered forward-looking statements within the meaning of the Federal Securities laws. These statements include, but are not limited to statements with respect to future financial performance and access to capital. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those implied or expressed by the forward-looking statements.

We encourage you to carefully review and consider the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading risk factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Barry Davis.

Barry Davis

Thank you, Jill. Good morning and thank you all for joining us on the call today to discuss our second quarter results. As you know, during the last few quarters Crosstex’s and other companies in the energy industry have faced significant challenges, including the collapse of the financial markets, the economic downturns and a decrease in commodity prices and slowdown in U.S. drilling activity.

We have faced these issues head on, with the plan that we laid out for you earlier in the year, which focuses on increasing liquidity, reducing leverage and improving profitability. Today, we will provide an update on our progress and the results we see from our efforts. We have accomplished important steps to delever the company, including the sale of our Mississippi, Alabama and South Texas assets.

We have significantly improved our operating results through margin enhancements, cost reductions and operating efficiencies; and we continue to grow our franchise assets in the Barnett Shale and the Haynesville Shale with high return projects. Our efforts along with some help from improved processing economics, has significantly enhanced the outlook for our business, which you will see in our updated guidance that Bill Davis will discuss later in the call.

Let me begin with some highlights of the second quarter. The most significant event during the quarter was our announcement in June, that we were selling our Mississippi, Alabama and South Texas assets to Southcross Energy for $220 million, we closed the transaction yesterday. We will use the proceeds from the sale to pay down approximately $212 million of the partnership’s outstanding debt, which will satisfy the September and December 2009 targets for debt reductions, including the recent amendments to our debt facilities.

Moving forward, we are actively exploring other asset sales that we believe are in the best interest of the company and our stake holders, but we will only complete additional sales if we believe the price is right. During the second quarter we saw liquid’s prices begin to improve and as the economy improves, we expect natural gas liquids prices will benefit, as will natural gas prices. We also continue to see some strong drilling activity in the Haynesville Shale.

From a macro perspective, although gas prices remain depressed, last week was the first week that we did not see a decrease in the overall U.S. rig count, which appears to be stabilizing. We were also starting to see some improvement in capital markets. Credit spreads and yields on equity for the pipeline in midstream sector have improved and we are encouraged that these general improvements will provide additional options to us as we execute our plan.

Turning now to our operating results, we had a solid second quarter. Adjusted cash flow was $57.8 million, $3 million less than the prior year period. However we increased adjusted cash flow by approximately $6.3 million from the first quarter of 2009. We are generating this level of cash flow despite weighted average natural gas liquids prices, which were less than half the level of prices in the second quarter of 2008.

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