Boardwalk Pipeline Partners L.P. (BWP)

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Start Time: 09:00

End Time: 09:41

Boardwalk Pipeline Partners, LP (BWP)

Q4 2013 Earnings Conference Call

February 10, 2013, 09:00 AM ET

Executives

Stanley Horton - CEO, President and Director

Jamie Buskill - SVP, Chief Financial & Administrative Officer

Molly Ladd Whitaker - Director of IR and Corporate Communications

Analysts

Shneur Gershuni - UBS

Harry Mateer - Barclays Capital

Stephen Maresca - Morgan Stanley

Darren Horowitz - Raymond James & Associates, Inc.

Ross Payne - Wells Fargo Securities

Sharon Lui - Wells Fargo Securities

John Edwards - Crédit Suisse AG

Elvira Scotto - RBC Capital Markets

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Q4 2013 Boardwalk Pipeline Partners, LP Earnings Conference Call. My name is Alison, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Molly Ladd Whitaker, Director of Investor Relations and Corporate Communications. Please proceed, ma'am.

Molly Ladd Whitaker

Thank you, Alison. Good morning, everyone. Welcome to the fourth quarter 2013 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 use of 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 statements. 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 adjusted 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 would like to turn the call over to Stan Horton.

Stanley Horton

Thank you, Molly. Good morning, everyone. I hope you've had a chance to review the press release we issued this morning. In addition to reporting earnings, we also announced a quarterly distribution of $0.10 per unit or $0.40 annualized which is a reduction to the amount of the distribution that we've paid in the past quarter.

I would like to explain the reasons behind the Board of Directors' decision to reduce the distribution. Considering that, over the past four quarters, we distributed $2.13 per common unit with approximately one-times coverage and at December 31 had a debt to EBITDA ratio of 4.6 times.

Because our transportation in storage revenues are continuing to face substantial market headwind, we do not foresee these conditions changing appreciably over the next 12 to 24 months. The Board has declared a distribution at an amount that will free up internally generated cash to help fund growth and reduce leverage.

As Jamie has stated numerous times, our target is a low 4 times debt to EBITDA ratio. The lower distribution amount announced today will help facilitate our ability to meet these financial goals given the challenging market conditions we are facing.

A subsidiary of Loews Corporation has offered to provide Boardwalk with up to $300 million and subordinated debt if required during 2014 to fund growth capital expenditures and have expressed its willingness to offer financial support for the proposed Bluegrass project should this project move forward. With this support and the lower distribution amount, the Partnership does not anticipate needing to sell additional Limited partner units in 2014.

Our practice historically has been to not provide financial guidance, however, we are deviating from that practice and are providing limited guidance related to forecasted 2014 distributable cash flow to assist investors in understanding the rationale for reducing the distribution. We are forecasting our 2014 distributable cash flow to be approximately $400 million, down from approximately $560 million in 2013.

The reduction in distributable cash flow from the 2013 levels is due to several factors. First, as we have discussed previously, new supply sources of natural gas have been identified and developed including the Marcellus and Utica shale plays. In just two years both these natural gas production has grown from 6 billion cubic feet per day to 13 billion cubic feet per day and could exceed 25 billion cubic feet per day by 2020.

New supply sources and related pipeline infrastructure has caused significant narrowing of basis differentials on our pipeline systems, reducing the transportation rates we typically can obtain on firm transportation contract renewals.

As we mentioned last quarter, we anticipate an annualized $40 million reduction in revenues from firm transportation contract renewals and explorations in 2014. We have been experiencing reduced revenues resulting from contract renewals and explorations for several years, which have had a negative cumulative effect on revenues.

Second, more recently the value of our storage and park and lending services has been adversely impacted. Increased gas production led to a compression of seasonal spread and reduced volatility and the more flattened forward natural gas pricing curve which is currently backward dated is expected to reduce parking and lending and storage revenues in 2014.

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