Energy Transfer Equity, L.P. (ETE)

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Energy Transfer Equity, L.P. (ETE)

Q1 2011 Earnings Call

May 05, 2011 09:30 am ET

Executives

Martin Salinas - CFO

John McReynolds - Director, President and CFO, Energy Transfer Equity, L. P.

Kelcy Warren - CEO, Chairman of the Board of Directors

Mackie McCrea - President and COO

Analysts

Darren Horowitz - Raymond James

Helen Ryoo - Barclays Capital

Bernard Colson - Oppenheimer

Yves Siegel - Credit Suisse

John Edwards - Morgan Keegan Company

Michael Blum - Wells Fargo

Ross Payne - Wells Fargo

Presentation

Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2011 Energy Transfer Partners, L.P. Earnings Conference Call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Mr. Martin Salinas, Chief Financial Officer. Please proceed, sir.

Martin Salinas

Thank you and good morning everyone. Thanks for joining us today. Just based on the number of press releases that we’ve made over the last several weeks, including the one just this morning, we certainly have a lot to talk about, particularly, targets that we are pursuing and we expect will bring significant distributable cash flow growth to the partnership over the next several years and further increase our scale and diversification of revenue stream.

And in addition to bringing you up to speed on our growth initiative, we’ll also make certain comments about ETP and ETE financial results for the first quarter of 2011. I’ll also encourage you to visit our website to access the earnings release we issued yesterday after the market close.

And during this call, I’ll make forward-looking statements within the meaning of Section 21E of the SEC Act of 1934 based on our beliefs as well as certain assumptions and information that’s available to us. And as always, Kelcy, Mackie, John McReynolds and other members of our senior management team are here with me to answer your questions after our prepared remarks.

Okay. Before going to our growth initiatives, I would like to discuss our Q1 results. Our adjusted first quarter EBITDA was $471 million, down about $42 million from the first quarter of last year. The decrease was primarily due to lower storage margin on an adjusted basis or a cash that is -- but not only lower storage growth realized our results, but also decrease results from a year ago given the current [market additions] that we saw during the first quarter, I’ll touch about on that in here a little bit.

Also, adjusted EBITDA from our intrastate transportation and midstream segments declined slightly or affected by higher adjusted EBITDA from our intrastate segment as FEP and Tiger are now in service and generating cash flow.

I will remind everyone that FEP and Tiger’s fast growth will continue to grow in 2011 and the demand will increase mostly in Q3 and Q4 of this year. In addition, year-over-year EBITDA was impacted by the sale of MEP, which has an adjusted EBITDA of almost $19 million in the first quarter of 2010.

On a distributable cash flow perspective, we saw $337 million this quarter compared to about $385 million in the first quarter of 2010. And for the first quarter of 2011, we will pay ETP unit holders $3.0575 on an annual basis per common unit on May 16th.

And I just mentioned our distribution rate, we are confident we will see a rate increase in the near future. I know its fine to say, after any significant margin disruption or operational issues; we expect to grow the rate by no later than the third quarter of this year.

Now, I’ll go into a little bit more detail about the performance on our business segments starting with our intrastate business. Overall, transportation volumes continue to show resilience in long-term market conditions with our intrastate transportation segment having experienced an almost 5% increase going from roughly 11.3 Bcf a day in the first quarter of 2010 to almost 11.9 Bcf a day in the first quarter of this year.

The two testaments are not only our integrated transportation system, but also our commercial team working diligently to keep our pipes full. The net increase in volumes transported was primarily from increased production of our customers under long-term contract.

That was partially offset by a decrease in interruptible volumes mainly due to lower base of differentials between the West and East Texas market hubs. And the point of reference, the other spotlight difference between the implications was approximately zero in the first quarter of ‘11 compared to about a nickel in the first quarter of 2010.

And when looking at our operating income for the quarter, intrastate had $144.1 million compared to $134.2 million in 2010. I will just add to that a couple of factors. Margins from the sale of natural gas increased $5.2 million in the first quarter of this year as compared to the first quarter of last year, primarily due to systematic optimization activities, some of which was due to better pricing on the retained fuel hedges. In addition, we experienced an increase in transportation fees for the period which are likely related to the increased volumes that I previously mentioned.

Our storage margins did increase $7.8 million primarily by carrying a larger volume of inventory out of the withdrawal season are subjected to mark-to-market impact of the spread between its spot and forward prices narrowing during the period. And as you know this year's natural gas withdrawal season ends a little earlier than usual and we elected to defer the withdrawal of this gas out of our Bammel facility until next winter.

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