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Crosstex Energy, L.P. (XTEX)

Q1 2010 Earnings Conference Call

May 7, 2010 11:00 AM ET

Executives

Chris Bell – IR Specialist

Barry Davis – President and CEO

Bill Davis – EVP and CFO

Analysts

Darren Horowitz – Raymond James

John Edwards – Morgan Keegan

Greg Smart [ph] – Federated Investor

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2010 Crosstex Energy L.P. earnings conference call. At this time, all participants are in listen-only mode and we will facilitate the question-and-answer session at the end of the presentation.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn your presentation over to Ms. Chris Bell. Please proceed.

Chris Bell

Good morning, everyone. Thank you for joining us today to discuss Crosstex’s first quarter 2010 results. On the call today are Barry Davis, President and Chief Executive Officer; and Bill Davis, Executive Vice President and Chief Financial Officer.

Our first quarter 2010 earnings release was issued early this morning. For those of you who didn’t receive a copy, it is available on our website at 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 obligation 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 listed under the heading Risk Factors.

I will now turn the call over to Barry Davis.

Barry Davis

Thank you, Chris. Good morning and thank you all for joining us on the call today to discuss our first quarter 2010 results. We are pleased with our solid first-quarter results and the great progress we continue to make. As a result of the actions we took in 2009 to increase liquidity, reduce debt and improve profitability, today we are a leaner and more efficient company that is strategically positioned for performance and growth. We have no near-term debt maturities and a dramatically delivered balance sheet that we will continue to delever and we have great assets in three core high growth operating areas that are second to none in the industry.

Today we are focused on the disciplined execution of our strategies for 2010. First we will continue to improve our operations by reducing costs, increasing utilization, and extracting every bit of cash flow we can out of our existing assets. Second, we will conduct our business according to conservative financial guidelines managing risks, continuing to reduce leverage and improving the reliability of our cash flow.

Finally, we will continue to capitalize on our great asset positions in North Texas and Louisiana where we see additional opportunities for incremental growth as we work to identify and invest in low-cost high return projects in these areas.

From a macro perspective, the NGL to gas ratio remains strong, which allowed us to achieve solid processing margins in the first quarter. Our fee based business is strong and we had processing margins on top of it, this makes for an even better result. The U.S. gas drilling rig count is solid at 958 rigs, up 44% since bottoming out at 665 in July of 2009. This is good news for our industry in general and for Crosstex in particular.

As the gas rig count relates to our business, the number of rigs running in the Haynesville Shale has more than doubled since April 2009 to approximately 140 rigs and in the Barnett, the rig count is stable at about 90 rigs.

As I mentioned earlier, we are pleased with our first quarter performance. Adjusted EBITDA from continuing operations was $43.8 million versus $34.3 million for the first quarter of 2009. And distributable cash flow from continuing operations was $17.7 million compared to with $14.2 million for the first quarter of 2009. These improvements are the result of higher processing margins, strong volume growth in our LIG system and lower operating expenses and G&A costs.

Since we recapitalized our business, our leverage is much improved at 4.4 times debt to adjusted EBITDA on a pro forma basis and we plan to further delever. Due to our strong operating results and our improved financial condition, we will pay a cash distribution of $0.2125 per unit or a total of $3.1 million on our series A convertible preferred units issued earlier this year to Blackstone/GSO.

We are able to pay this distribution while staying within our conservative financial guidelines. Bill will provide more details on this distribution later. Our ability to pay this distribution in cash rather than stock is a big step in the right direction and will avoid the dilutive effect of issuing more convertible preferred units.

Based on what we are seeing today, we continue to expect to restore distributions on the common units from the result of operations for the fourth quarter of 2010.

Before I get into operations, I want to mention that we hosted an analyst conference on April 1st. So we won’t be repeating a lot of what was said there, especially from an operational standpoint. For those of you who weren’t able to attend the meeting or listen to our public broadcast online or on the phone, a replay is still available on our Crosstex’s website.

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