Energy Transfer Equity, L.P. (ETE)

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Energy Transfer Equity, L.P. (ETE)

Q4 2009 Earnings Call Transcript

February 19, 2010 3:00 pm ET

Executives

Martin Salinas – CFO

Mackie McCrea – President & COO

Tom Mason – VP, General Counsel & Secretary

Kelcy Warren – Chairman & CEO

Analysts

Ross Payne – Wells Fargo

Darren Horowitz – Raymond James

Derrick Baliski [ph] – RBC Capital

Michael Blum – Wells Fargo

Helen Ryoo – Barclays Capital

Ted Durbin – Goldman Sachs

Yves Siegel – Credit Suisse

John Edwards – Morgan Keegan & Company

Presentation

Operator

Ladies and gentlemen and welcome to the Energy Transfer Partners conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions) I would now like to turn the conference over to your host, Martin Salinas, Chief Financial Officer of Energy Transfer Partners. Please proceed, sir.

Martin Salinas

Good afternoon, everyone. As you know, we issued our results yesterday after the market close and as we’ve done in the past I’ll give a high-level overview of our results for the quarter and for the year ended December 31st, 2009. I’ll also update you on where we stand with some of our projects in addition to discussing our financing activities. We’ll then go into Q&A.

During the call I will make forward-looking statement within the meaning of Section 21E of the SEC Act of 1934 based on our belief as well as certain assumptions and information available to us. Kelcy, Mackie, John McReynolds, Bill Powers, and other members of our senior management team are here to answer your questions.

I’ll start with ETP’s results. Our consolidated EBITDA was $477.1 million for the quarter of 2009, roughly $139.3 million higher than the fourth quarter of 2008. And EBITDA for the year ended December 2009 was just a little over $1.5 billion, an increase of $104 million over 2008. I’ll go into a little more detail about what specifically impacted us during the fourth quarter when discussing the individual segments.

Distributable cash for the fourth quarter was $238.4 million and $962.1 million for the year. We paid $957 million in distributions to our partners during the year ended December 31st of 2009. I do want to point out also as relates to our distributable cash flow that we did have a one-time $11.1 million charge due to the settlement of interest rate swaps that were entered into back in the late 2008. And we also didn’t include a $15 million cash distribution from MEP that we received in January that relates to the fourth quarter results.

With respect to distributions, we paid our quarterly distribution of $89.375 per common unit at $3.575 on an annual basis to our common unitholders on February 15th. As we stated a couple of months ago, we are committed to growing our distribution rates and the goal of resuming growth in 2010 remains intact. As we look beyond 2010, growth is clearly visible as we will see significant and incremental distributable cash flow generate from pipelines that have been recently been completed or that will be completed in a relatively short period of time. I am mainly talking about the Phoenix Lateral, TIPS, MEP, FEP, and Tiger. And I’ll update you on where we stand with some of these here in a moment.

Moving to our specific operating segments, let’s start with our Intrastate Transportation and Storage Operations. Operating income for the quarter was $216.1 million compared to $164.2 million in 2008, and for the year operating income was $626.8 million versus 2008’s operating income of $718.3 million. Our results for the quarter were impacted by less volume than we saw a year ago due to the reduction in drilling activity that really started in late 2008, early 2009, the lower natural gas prices experienced during much of this quarter, and low basis differentials across Texas.

However, we did start to see volumes mainly on the Barnett Shale and Bossier producing basins start to increase in December by as much as $250 million to $300 million cubic feet a day, and based on recent discussions with several producers, we expect that number to grow to as much $500 million cubic feet per day or more by the end of the first quarter of 2010. The lower volumes coupled with lower natural gas prices also results in lower margins from our operational gas sales.

As we stated in our analyst meeting a couple of months ago, we hedged a substantial percentage of our estimated volumes in 2010 at an average NYMEX price of around $5.80 an MMBtu, and are already looking beyond 2010 to hedge more. As we stated in our last quarter’s earnings call, our year-to-date results were also impacted by the drop in natural gas prices that started in late 2008 and continued into 2009. Natural gas prices averaged $3.54 in 2009 versus the $9.66 in 2008. That led to a decrease in our margins year-over-year of $168.6 million.

On the flip side though, we had lower consumption expense of $56 million due to the lower natural gas prices. We also experienced an increase in transportation fees primarily from adding additional capacity to our Interstate system of $41 million. Recall that a large part of our pipelines are supported by fee-based contracts with a significant portion of the fee structure consisting of a reservation fee.

Our storage operations provided approximately $95 million of margin in the quarter and approximately $130 million for the year. While subject to fluctuations from quarter-to-quarter, our year-to-date margins from storage operations were fairly consistent year-over-year. In addition, the portion provided under fee-based agreements increased by roughly 17% to approximately $14 million in 2009.

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