Southcross Energy Partners, L.P. (SXE)

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Southcross Energy Partners LP (SXE)

Q2 2013 Earnings Call

August 7, 2013 11:00 AM ET

Executives

Michael Anderson – SVP and CFO

David Biegler – Chairman, President and CEO

Analysts

Jeremy Tonet – J.P. Morgan

Edward Rowe – Raymond James

Michael Blum – Wells Fargo

Ethan Bellamy – Robert W. Baird Research

James Bardowski – Sidoti & Company

Presentation

Operator

Good morning and welcome to the Southcross Energy Partners’ Second Quarter 2013 Financial and Operating Results Call. As a reminder, today’s call is being recorded, and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation.

With that, I will turn the call over to Mr. Michael Anderson, Senior Vice President and Chief Financial Officer. Thank you sir, you may begin.

Michael Anderson

Thank you and good morning everyone. We appreciate you joining us for the Southcross Energy Partners’ second quarter 2013 financial and operating results conference call. With me today is David Biegler, our Chairman, President and Chief Executive Officer.

Before we begin, I would like to remind all participants that our comments today may include forward-looking statements. It should be noted that a variety of factors could cause the Partnership’s actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. For a complete discussion of these risks, we certainly encourage you to read the Partnership’s earning release and our documents on file with the SEC.

Today’s call may also contain certain non-GAAP financial measures. You can refer to the press release we issued this morning for important disclosures regarding such measures and also their reconciliations. You can obtain a copy of our press release in the investors tab of our website at southcrossenergy.com.

And with those opening remarks, I will now hand the call over to David Biegler. David?

David Biegler

Thank you, Michael. I will start with some comments on our second quarter results and then move through our operating highlights and our current outlook for the business.

Our second quarter adjusted EBITDA was $6.2 million, an improvement over our first quarter but not as large an improvement as we had expected. This was due to several unusual items which had a negative EBITDA impact of approximately $2.3 million. Michael will cover the details of the financial results, but I want to elaborate on the operational components.

First an outage at our Bonnie View fractionation to what we call zero or reduced production for about eight days and it caused us an estimated $1.5 million in EBITDA for the quarter. The $1.5 million which was related to the downtime resulted from gas supply shut-ins and curtailments selling liquid rich gas at lean gas prices and added operating and clean-up expense.

The downtime was caused by an initial design deficiency in the plant and we took an additional several days beyond fixing it to ensure that we had no residual safety related issues. While it was disappointing to have this type of an event, particularly after we had had several months of good performance at Bonnie View, we believe we have most of the smell in our rearview mirror and it reached a steady and stable level of operating performance.

We will continue to tweak operations to improve performance and enhance flexibility but do anticipate these types of issues going forward. In addition, the other unusual operating cost included the accrual of $400,000 for de-commissioning a compressor site abandoned when we ended the foremost processing contract.

Once we decided not to renew the site it leads proper accounting call for the accrual. Financial results are starting to reflect our efforts to build the better and stronger downstream NGL and residue gas business.

We began selling NGLs under our new NGL sales contracts in May which has already improved our processing margins and we’ll continue to do so in the quarters ahead. Bonnie View produced 99% purity NGL products in the second quarter, a far cry from the 69% that caused our difficulties in the first quarter.

Our volume of NGLs sold continues to increase as processed gas volumes and plant recoveries increased. In the second quarter we sold an average of 10,740 barrels of NGLs per day, an increase of 6% over the first quarter and an improvement of almost 20% from the fourth quarter of last year.

These production numbers continue to reflect relatively low ethane production due its limited frac spread value at today’s ethane price. Our business is benefiting from our location at the intersection of strong Eagle Ford and South Texas drilling and the continued expansion and development of petrochemical facilities and NGL and natural gas export facilities in the Corpus Christy area.

We believe Southcross’ strategic position in the Eagle Ford sale and proximity to the lower Gulf Coast petrochemical and industrial infrastructure gives us an edge and direct access for residue natural gas sales and NGL prices received and in obtaining new gas supply.

This past week we announced commencement of propane sales through an additional pipeline connected to our Bonnie View fractionator, more important than this type of connection; we continue to see downstream opportunities for investing in the infrastructure for both petrochemical and export NGL markets because of our market position in this area.

We are also in discussions with various customers to expand our South Texas end-use market gas sales. We made good progress on the gas supply side of our business and signing contracts for new volumes. Earlier this week, we announce completion of an important pipeline extension in Karnes County from our major rich gas propane trunk line or B pipeline.

Read the rest of this transcript for free on seekingalpha.com