Operator: Good morning ladies and gentlemen, and welcome to the First Quarter 2013 Boardwalk Pipeline Partners LP Earnings Conference Call. My name is Shantale, and I will be your facilitator for today’s 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. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the call over to your host for today, Ms. Molly Ladd Whitaker, Director of Investor Relations and Corporate Communications. Please proceed, ma’am.
Molly Ladd Whitaker - Director of IR and Corporate Communications: Thank you, Shantale, and good morning, everyone. Welcome to the first quarter 2013 earnings call for Boardwalk Pipeline Partners, LP. I am 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 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 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 C. Horton - President and CEO: Thank you, Molly, and good morning, everyone. I hope you've had a chance to review the earnings press release that we issued this morning. In addition to reporting earnings, we also announced a quarterly distribution of $0.5325 per unit, or $2.13 annualized. Jamie will review the results of the quarter shortly.
In the first quarter, we continued to make progress in implementing our growth strategy. On March the 6th, we announced that we are pursuing with Williams the joint development of an NGL pipeline named Bluegrass Pipeline to transport Marcellus and Utica mixed NGL production to growing petrochemical markets on the U.S. Gulf Coast. The project would include the development of pipeline, storage and fractionation assets, and potentially a new LPG export terminal.
At this juncture, we are continuing to work through cost assessment, due diligence, and other pre-development activities, as well as negotiating the terms of the joint venture and related agreements with Williams. There are number of conditions that must be met for this project to be approved, including completing our negotiations and executing definitive joint venture and related agreements with Williams, executing customer contracts sufficient to support the project, receipt of regulatory approvals and approvals by the Boards of both Boardwalk and Williams.
Also in the first quarter, we received an additional binding firm commitment of 100 million cubic feet a day for our Southeast Market Expansion project and have increased the project size to 550 million cubic feet a day. The estimated project cost remains approximately $300 million. We filed a certificate application for the project with the Federal Energy Regulatory Commission in March, and are anticipating construction to commence in the first half of 2014 with a proposed in-service of late 2014.
We are also proceeding with two pipeline projects that will support new electric power generation loads, one in North Texas and the other in the Mississippi River Corridor in Louisiana. As previously discussed, these projects have a combined expected capital cost of approximately $50 million.
The FERC 7(c) comment period for the 125 million cubic feet a day project in North Texas concluded without protest, and we are expecting to commence construction during the third quarter of this year. We are targeting an in-service date of mid-2014. On the 100 million cubic feet project in Louisiana, our prior notice filing was approved and construction began in the first quarter. The targeted in-service date is the fourth quarter of this year.
The Flag City gas processing plant is currently being commissioned, and the plant and gathering lines are expected to begin commercial operations in May. At Boardwalk Louisiana Midstream, we are progressing with the 50 million Brine Sales & Transportation project that is expected to go into service in the third quarter. This project involves construction of a 26-mile 12-inch pipeline from Boardwalk Louisiana Midstream's Choctaw facilities and to our customer's petrochemical plant, and is supported by a 20-year contract with minimum volume commitment and expansion options.
The HP Storage salt cavern expansion at Petal is on schedule for gas injections to begin in the second quarter of 2013. When complete, the cavern will add approximately 5 billion cubic feet of working gas capacity.
Now that concludes my comments on the quarter, and I will turn the call over to Jamie.
Jamie L. Buskill - CFO, SVP and Treasurer: Thank you, Stan. Good morning, everyone. Operating revenues for the first quarter were $329 million, which is $16 million higher than comparable period in 2012. Net of fuel and transportation expense, revenues for the quarter were $306 million, an increase of $12 million, or 4%, from $294 million for the comparable period in 2012. The increase was primarily driven by revenues associated with the acquisition of Boardwalk Louisiana Midstream. For the first quarter, we transported 646 TBtu of natural gas and 11.1 million barrels of liquids.
Turning now to operating expenses; we reported operating expenses of $187 million for the quarter, an increase of $8 million, or 4%, from $179 million for the comparable period in 2012, primarily as a result of the acquisition of Boardwalk Louisiana Midstream.
EBITDA for the quarter was $209 million, an increase of $12 million, or 6%, from $197 million for the comparable period in 2012. EBITDA for the quarter was primarily impacted by the Boardwalk Louisiana Midstream acquisition.
Net income for the quarter was $101 million, an increase of $8 million, or 10%, from $93 million for the comparable period last year. We generated $155 million of distributable cash for the quarter. This compares to $125 million generated in the first quarter of 2012, an increase of 24%.
As of March 31st, outstanding borrowings under our revolving credit facility were $370 million within available borrowing capacity of $630 million. We anticipate growth capital expenditures related to previously announced projects will be approximately $250 million in 2013, of which $63 million was invested in first quarter.
Maintenance capital expenditures were $8 million in the first quarter.
That concludes my remarks. So I'll now turn the call over to the operator for questions.
Operator: Sharon Lui, Wells Fargo.
Sharon Lui - Wells Fargo: Just in regards to the Bluegrass project, maybe if you can comment on the feedback you’ve been getting from customers and when you think you would be able to complete all the stuff that you talked about.
Stanley C. Horton - President and CEO: The feedback from the customers has been positive, both into the pipe in the producing area and in the Louisiana for those customers that would be using the project. So, that is, as again said, very positive. So far as completing everything, I mean, this is a multi-year project to get it in service. So, right now we are anticipating that trying to complete the agreement with Williams and gain Board approval, and hopefully we can have that done in a couple of months.
Sharon Lui - Wells Fargo: And in terms of, I guess, coming up with the cost assessment, do you have a preliminary cost in mind right now?
Stanley C. Horton - President and CEO: As I said, we are working through the project with Williams; we are working on the scope, we are working on the cost estimates, we are working on budgets, and we’re just not at a positive right now to release that kind of information. Once the agreements with William are finalized and this project has been approved by both companies, that type of information can be released.
Sharon Lui - Wells Fargo: Would you be, I guess, seeking approval from FERC to convert part of your pipe to NGL service, when does that process need to begin?
Stanley C. Horton - President and CEO: We expect to file the abandonment application on Texas gas with the Federal Energy Regulatory Commission as soon as the agreements with Williams are finalized and executed.
Operator: Mark Reichman, Simmons & Company International.
Mark Reichman - Simmons & Company International: Just several questions. First, do you have any change in expectations regarding contract renewals in 2013 or is it still pretty consistent with what you conveyed in the fourth quarter call?
Stanley C. Horton - President and CEO: I think it's pretty consistent with what we conveyed in the fourth quarter call. There have been no surprises either way.
Mark Reichman - Simmons & Company International: Then on your growth projects including the Gulf South, Southeast market expansion, the power generation projects in the salt cavern expansion, has there been any change to capital investment requirements or expected in service states?
Stanley C. Horton - President and CEO: No. The only one that's relatively minor, as I said we did add 100 million cubic feet a day to our Southeast market expansion project and I think the capital cost there just went up a couple of million dollars to be handle that incremental load. But it's still within the 300 million that we have previously announced. So everything is very, very consistent with what we've previously talked about.
Mark Reichman - Simmons & Company International: Then maintenance capital came in a little less than what I was anticipating at $8 million. I think in the past you were kind of projecting $95 million for full year 2013. Is that still a good number?
Jamie L. Buskill - CFO, SVP and Treasurer: Yes, Mark, we’re still looking at around $95 million to $100 million mark for the year.
Mark Reichman - Simmons & Company International: Then just lastly back on the proposed Bluegrass Pipeline, with regard to your negotiations with Williams, I understand that you had mentioned that your – one of the requirements is to get sufficient customer contracts, but what specifically is needed to move it from a letter of intent to a definitive agreement just between you and Williams?
Stanley C. Horton - President and CEO: Just a finalization of those documents between the two parties, continuing to make sure that we are both in agreement on the scope and on the various documents. When you form these agreements, there is a myriad of things to do operating agreements, capital agreements, I mean it’s not just one 120 page agreement that has been to done and we’re working through those right now. So scope, capital cost, JV agreements, LLC agreements, construction agreements, operating agreements, et cetera, are all in the process of being negotiated.
Operator: (Paul Jacob), Raymond James.
Paul Jacob - Raymond James: Relating to the Bluegrass Pipeline, if you were to proceed with that project how do you think you would balance existing volumes on the Texas gas pipeline with the incremental mixed NGL volumes moving south?
Stanley C. Horton - President and CEO: Well, first of all, the facilities on the Texas gas pipeline that we would seek to abundant are facilities that are no longer needed for natural gas service. So there is really nothing that we have to balance. There is a 26-inch pipeline, about 620 miles of pipeline that we would be abandoning from natural gas service, and then using those pipeline facilities for NGL service and moving the NGLs from North to South. So there is no combination of pipelines that would be used for both. We still have pipeline assets that would serve the customers. Those pipeline assets are more than enough to meet all of our firm requirements with our customers on the system.
Paul Jacob - Raymond James: So then would you expect to lose any volumes then on abandoned portion of the pipeline?
Stanley C. Horton - President and CEO: No absolutely not. Again, these are facilities that aren't needed to meet the current firm requirements of our system, so right now they’re somewhat redundant assets.
Paul Jacob - Raymond James: Could you talk about how you plan to leverage HP Storage for potential LPG export, and what it would take to move ahead with that opportunity?
Jamie L. Buskill - CFO, SVP and Treasurer: I am sorry; could you repeat that question again?
Paul Jacob - Raymond James: Could you talk about how you could leverage HP Storage for potential LPG export, and what it would take to move ahead with that opportunity?
Jamie L. Buskill - CFO, SVP and Treasurer: We would actually – I think you got a different company. We would actually be using probably the Boardwalk Louisiana Midstream and the resources and assets there to leverage that. But I'll go back to what Stan says, we're still looking at the customer needs and working with Williams on what exactly needs to be done there, and so once we have that finalized, we'll explain that in greater detail at the time.
Paul Jacob - Raymond James: On the cost cutting front, I know that you guys made some cuts last year, and I was just wondering if maybe that affected engineering and design capabilities required for a larger interstate pipeline like Bluegrass. In other words, would it be fair to assume that if Bluegrass is green-lighted, you may need to spend some upfront capital on SG&A or not?
Jamie L. Buskill - CFO, SVP and Treasurer: If you look at the changes we made, we mainly – the major reorganization were really in the G&A area, and a lot of that was related to back office type costs. So I don't think we've lost any capability whatsoever in the changes we've made. In fact, with our BLM acquisition, again, we brought on some resources that really strengthen our knowledge of dealing with liquids.
Paul Jacob - Raymond James: Then last question for me. Where does leverage currently stand? What do you think it might be this year on a run rate basis?
Jamie L. Buskill - CFO, SVP and Treasurer: If you look at leverage, we entered the quarter with $3.6 billion in debt. That compares to $3.5 billion at the end of the year and $3.4 billion at the end of March of 2012. So we've brought down our ratios from debt-to-EBITDA. If you look at the actual calculation, not adjusting for any type of negative carry on the projects we're building out, our debt-to-EBITDA at the end of March of last year was roughly 5.4 times, at the end of this March 2013 we’re around 4.9, and the thing I'll point out is that only includes two quarters of contribution for BLM. So we made quite a bit of progress in the last 12 months of reducing our leverage. As far as projections, we're not going to provide any protections as to where we think things may play out.
Operator: Stephen Maresca, Morgan Stanley.
Stephen Maresca - Morgan Stanley: A lot of what I had has already been asked, but it appears to be Bluegrass morning. So I'll follow up on that. Is there any more color you can give in terms of like what needs to actually be built in terms of new pipe versus what you can use existing pipe?
Stanley C. Horton - President and CEO: Not at this time. Once the agreements with Williams are finalized, I think we can go out and answer those questions. But right now, we're working through project design, scope, et cetera, and really don't want to talk about those things until we have finalized it.
Stephen Maresca - Morgan Stanley: What would make you feel comfortable in terms of commitments to move forward with something like this? Whether it’s (10% of) capacity or what?
Stanley C. Horton - President and CEO: Again, that's information that we really don't want to talk about right now. As the project proceeds and we get the commitments that we needed to go forward with the project, at that point in time you'll have a pretty good idea, but this is competitive market information and we really don't want to go out and talk about a number or series of numbers.
Stephen Maresca - Morgan Stanley: Then final, is that something in process right now, trying to obtain commitments from customers?
Stanley C. Horton - President and CEO: We're talking to the market at both ends of the pipe. So, yes, that process is ongoing.
Operator: Elvira Scotto, RBC Capital Markets.
Elvira Scotto - RBC Capital Markets: One quick follow-up question for me. The potential for building out some LPG export, is that contingent upon Bluegrass moving forward or could you do something in that area outside of Bluegrass?
Stanley C. Horton - President and CEO: Right now the project is somewhat tied into the Bluegrass Pipeline project. Is it possible to do something outside of it? At this point in time, I don’t want to say yes or no on that, but right now it’s tied into the Bluegrass project.
Operator: Scott Fogleman, Credit Suisse.
Scott Fogleman - Credit Suisse: I just need some clarification. The North Texas project, you mentioned that there was no protest during the comment period. I am sorry; I missed the in-service date for that.
Stanley C. Horton - President and CEO: The in-service date of that one, I believe, is at…
Jamie L. Buskill - CFO, SVP and Treasurer: Mid-2014.
Stanley C. Horton - President and CEO: Yes, mid-2014.
Scott Fogleman - Credit Suisse: Also on the FERC abandonment, you mentioned you’ll file it as soon as the JV discussions are agreed upon with Williams. What’s the general lag? I mean, about how along -- assuming there is no real issue, I mean, how long does it take for FERC to sign off on that thing?
Stanley C. Horton - President and CEO: We’re estimating it’d be nine to 12 months.
Operator: Ross Payne, Wells Fargo.
Ross Payne - Wells Fargo: Jamie, can you give us a specific number for the debt? I know it is $3.6 billion rounded, but I don’t know if you had exact…
Jamie L. Buskill - CFO, SVP and Treasurer: It’s $3,607.7 million.
Operator: (Robert Slysz), Private Investor.
Robert Slysz - Private Investor: Your General Partner has been fabulous in assisting Boardwalk in many ways over the years, including the issuance of the Class B stocks nearly five years ago. The dividend rate on the Class B shares will be changing in the course of this year. This raises also the issue of the incentive distribution rights, and I am wondering if either of you would care to make any comments, because this could affect your dividend policy in the future, and it is an issue that's likely to come up fairly soon.
Jamie L. Buskill - CFO, SVP and Treasurer: Yes, it's our understanding that Loews does intend to convert its Class B units into common units after the second quarter. Assuming if Loews does that, it will impact our quarterly distribution by approximately 5 million in additional distributions, assuming our current distribution rate.
Robert Slysz - Private Investor: Do you think that might lead to any change in the incentive distribution arrangement?
Jamie L. Buskill - CFO, SVP and Treasurer: I can't comment on any future financing type activities, and really that's probably a better question for our General Partner, Loews.
Robert Slysz - Private Investor: Would you pass that on to them?
Jamie L. Buskill - CFO, SVP and Treasurer: I will do that.
Operator: (Matt Niblack, HITE).
Matt Niblack - HITE: You’re not giving a lot of details right now on Bluegrass, and understandably so, but maybe if you could just comment qualitatively on the level of customer excitement around the project.
Stanley C. Horton - President and CEO: I really can't. We're at the process of having a lot of discussions with customers, and I'd like to just let those discussions go forward without commenting on them right now. I mean, that's the best way to handle it right now.
Matt Niblack - HITE: Okay. Apart from Bluegrass then, what do you see is your near-term need to come back to equity markets for financing, given the number of other growth projects you have underway?
Jamie L. Buskill - CFO, SVP and Treasurer: Again, if you look, we can't comment, one, on future financing. But if you look at our capital spend, absent Bluegrass, we're looking around $250 million on capital. We've already invested $63 million of that. So our capital need for the remainder of the year is now less than $200 million.
Operator: At this time, there are no further questions in the queue. I would like to turn the call back over to management for closing remarks. Please proceed.
Molly Ladd Whitaker - Director of IR and Corporate Communications: Once again, we would like to thank you for joining us this morning and for your continued interest in Boardwalk Pipeline Partners, LP. As a reminder, an online replay of this call is available on our website at www.bwpmlp.com. This concludes today's conference call. Thank you and have a great day.
Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.