Crosstex Energy L.P. (XTEX)
Q3 2009 Earnings Call
November 6, 2009; 11:00 am ET
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
Darren Horowitz - Raymond James
Sharon Lui - Wells Fargo
Helen Ryoo - Barclays Capital
John Edwards - Morgan Keegan
[Steve Monieson - Monieson Capital]
Previous Statements by XTEX
» Crosstex Energy L.P. Q2 2009 Earnings Call Transcript
» Crosstex Energy LP Q1 2009 Earnings Call Transcript
» Crosstex Energy, L.P. Business Update Call Transcript
At this time, I would now like to turn the call over to, Ms. Jill McMillan of the Crosstex Energy.
Thank you, Anika and good morning everyone. Thank you for joining us today to discuss Crosstex’s third 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.
Our third 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. 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.
Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements and we undertake no obligations to update or revise any forward-looking statements. We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading risk factors.
I will now turn the call over to Barry Davis.
Thank you, Jill. Good morning and thank you all for joining us on the call today to discuss our third quarter results. Let me begin by saying that I am pleased with great progress that we’ve made. We continue to capitalize on the strategic position of our core assets, we also significantly reduced our debt and we cut costs and increased operating efficiencies, which have enhanced our margins and improved our overall operating results.
We are also encouraged by the improvements, we’re starting to see in the industry and the economy overall. Last week the U.S. drilling rig count rose to its highest level, since March of this year, as drilling activity has increased in response to higher commodity prices.
From a macro perspective, we continue to see improvement in capital markets. The average credit spread for midstream high yield has continued to decline from highs earlier in the year. As the economy rebounds, we anticipate that natural gas and natural gas liquids process will benefit, which we expect to support increase drilling activity.
We are also pleased with our third quarter performance. Adjusted cash flow was $51 million, just shy of adjusted cash flow for the third quarter of 2008. We are generating this level of cash flow despite significantly lower NGL prices compared with the third quarter of 2008. We have implemented operating efficiencies, realigned our organization as a result of asset sales and closely managed our costs.
We have also begun to see the impact of recent high return projects around our core assets. This focus has generated significant incremental profits for the year. Through the end of the third quarter, we have reduced operating expenses in G&A by approximately $13 million, compared with the same period in 2008.
On October 1, we announced the completion of sale of our natural gas treating business to Kinder Morgan for $266 million. The proceeds from this sale were used to pay down an additional $260 million of the partnerships outstanding debts. Crosstex entered the treating business in 1998, through a small acquisition of five employees and three amine plants. We saw it at that time as an opportunity to serve a niche and to create a significant business.
We steadily grew the business organically and through acquisitions to become the industry leader in natural gas treating business by 2005. We are proud of the business that we build and in fact that we were able to sell this to a great company like Kinder Morgan. The sale of our treating business along with the recent sale of our Alabama, Mississippi and South Texas assets and additional asset sales earlier this year has reduced our outstanding debt by more than $550 million.
This is allowed us to fully satisfy our target for debt reductions, established in our credit facilities and has positioned us to refinance our business. We continue to have ample liquidity to run our business with more than $200 million under our revolver at the end of the third quarter. We also ended the quarter at approximately 5.6 times, debt to EBITDA, which is well below our covenant of 8.25 times.
Turning to our operations, we are continuing to take advantage of the low cost high return opportunity in both North Texas Barnett Shale and in Louisiana in the Haynesville Shale, were our core midstream assets are strategically located. In the Barnett Shale in North Texas, we are beginning to see the rig count increase, which demonstrates the high quality of display.