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Edited Transcript of BWP earnings conference call or presentation 1-May-17 1:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Boardwalk Pipeline Partners LP Earnings Call

HOUSTON May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Boardwalk Pipeline Partners LP earnings conference call or presentation Monday, May 1, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jamie L. Buskill

Boardwalk Pipeline Partners, LP - Chief Finance & Administrative Officer of Boardwalk GP LLC, SVP of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC

* Molly Ladd Whitaker

Boardwalk Pipeline Partners, LP - Director of IR and Corporate Communications - Boardwalk Gp Llc

* Stanley C. Horton

Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC

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Conference Call Participants

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* Jeremy B. Tonet

JP Morgan Chase & Co, Research Division - Analyst

* John David Edwards

Crédit Suisse AG, Research Division - Director in United States Equities Research

* Ryan Michael Levine

Citigroup Inc, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Boardwalk Pipeline Partners First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Molly Whitaker, Director of Investor Relations and Corporate Communications. Ma'am, you may begin.

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Molly Ladd Whitaker, Boardwalk Pipeline Partners, LP - Director of IR and Corporate Communications - Boardwalk Gp Llc [2]

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Thank you, Terrence. Good morning, everyone, and welcome to the First Quarter 2017 Earnings Call for Boardwalk Pipeline Partners. 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 statement due to a wide range of risks and uncertainties, including those that are set forth in our SEC documents. The company expressly disclaims any obligation to update or revise any forward-looking statements made during this call.

I would 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.

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [3]

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Thank you, Molly, and good morning, everyone. I hope you have had the opportunity to review the press release we issued this morning. In addition to reporting earnings, we announced a quarterly distribution of $0.10 per unit or $0.40 annualized.

2017 is off to a good start. We reported first quarter earnings that were favorably compared with last year, as Jamie will discuss. Our announced growth projects are progressing well. And we're pleased with the opportunities that we're seeing in the marketplace. We placed the Northern Supply Access Project into service on March 2, and commercial service began on April 1. Now this is the second north-to-south project on Texas Gas that we have placed into service over the last year, and it raises our total north-to-south capacity to more than 900,000 MMBtu a day. Texas Gas is now truly a bidirectional system that allows us to maintain gas flows in the traditional south-to-north direction while north-to-south capacity has been added.

We have more than $1 billion in announced growth projects under construction, the largest of which is our Coastal Bend Header project. A tremendous amount of work is occurring on this project that will serve the Freeport LNG facility. We have received all of our regulatory permits and all of the right-of-way has been secured and cleared. Construction of the 66-mile header pipeline and one of the new compressor stations has commenced. The fully contracted 1.4 billion cubic feet a day project is on schedule to be placed into service in 2018.

We also have underway a number of projects that will serve end-use markets in Louisiana, several of these projects under construction at Boardwalk Louisiana Midstream that will expand our ethane and ethylene transportation and storage and brine supply infrastructure. These previously announced projects have in-service dates ranging from 2017 to 2019. Gulf South has 2 projects in Louisiana, each to provide firm natural gas transportation service to power plants. The first of these projects, which was previously announced, will provide approximately 133,000 MMBtu a day, a firm transportation service and is on schedule to meet its 2018 targeted in-service date subject to FERC approval. We anticipate that construction of the compressor station and minimal amount of new pipe will begin in early 2018.

We recently signed a precedent agreement to provide 200,000 MMBtu a day of firm transportation service to a second proposed power plant in Louisiana. The targeted in-service date is 2019, subject to customary approvals, and the contract term is 20 years.

Now all of these projects are backed by long-term, fixed-fee firm contracts with primarily investment-grade customers and have an aggregate weighted average contract life of 17 years. These projects are consistent with our strategy to attach more end-use markets to our system.

As we have been discussing for some time now, we have a higher concentration of contracts that are coming up for renewal in the 2018 to 2020 time frame. These contracts are primarily from the large pipeline expansion projects that were placed into service during the 2008 to 2010 time frame related to the mid-continent shale boom. Although majority of the renewals are a couple of years away, we continue to focus on best positioning the company to renew or remarket the capacity, particularly in light of current market conditions. Adding end-use markets and new natural gas supply sources remain integral to our strategy.

One of the 2008 to 2010 expansion projects was construction of our Gulf Crossing system. There have recently been third-party projects announced to move gas out of Oklahoma, primarily from the SCOOP/STACK basins' south to pipeline interconnects that include Gulf Crossing. While it's too early to tell what impact these recently announced projects will have, but we believe this development could provide new gas supplies for Gulf Crossing. We're in a stronger position than we were a few years ago, as illustrated by our first quarter results and our ability to continue to place good projects into service on time and at or below budget.

Now I'll turn the call over to Jamie for the financial update.

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Jamie L. Buskill, Boardwalk Pipeline Partners, LP - Chief Finance & Administrative Officer of Boardwalk GP LLC, SVP of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC [4]

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Thank you, Stan, and good morning, everyone. For the quarter, we recorded revenues net of fuel and transportation expenses at $348 million, an increase of $23 million or 7%. This increase was primarily due to our recently completed growth projects and the favorable market conditions for our storage and park and lending services. We transported approximately 550 TBtu of natural gas and approximately 15 million barrels of liquids in the first quarter of 2017. Excluding fuel and transportation expenses and depreciation, we reported operating expenses of $102 million for the quarter, which was comparable to the $104 million reported in the first quarter of 2016.

Net income was $119 million, an increase of $18 million or 18% from $101 million for the comparable period last year. EBITDA for the quarter was $246 million, an increase of $24 million or 11%. We generated $176 million of distributable cash flow for the quarter compared to $160 million generated in the fourth quarter of 2015. Net income, EBITDA and distributable cash flow reflect the increases in operating revenue.

We invested $134 million in capital in the first quarter comprised of $109 million in growth capital and $25 million in maintenance capital. For 2017, we are forecasting total capital expenditures of approximately $850 million, $710 million growth capital and $140 million maintenance capital. We ended the quarter with $29 million of cash, the full capacity of our $300 million subordinated debt agreement and the full borrowing capacity of our $1.5 billion revolving credit facility.

Our debt-to-EBITDA ratio at the end of the first quarter was 4.4x, and when netted with cash, the ratio was 4.3x. With our 2017 forecasted capital expenditures, we expect that our debt-to-EBITDA ratio, based on a trailing 12 months of EBITDA, will increase in 2017 as a result of the negative carry until those growth projects are placed into service and begin generating revenues.

In closing, we had another good quarter. We're making progress executing our growth strategy and placing growth projects into service, and our liquidity position to fund those projects is strong.

That concludes my remarks, and I will now turn the call over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Jeremy Tonet from JPMorgan.

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Jeremy B. Tonet, JP Morgan Chase & Co, Research Division - Analyst [2]

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Jamie, I was just wondering if you can build on your comment as far as debt-to-EBITDA rising over the course of the year due to the negative carry associated with the projects. Is the end of the year kind of -- the peak is where you guys see leverage shaking out? Or anything else that you can provide there as far as color on the timing?

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Jamie L. Buskill, Boardwalk Pipeline Partners, LP - Chief Finance & Administrative Officer of Boardwalk GP LLC, SVP of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC [3]

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I can't really provide any color beyond the 2017 time frame. If you look at our capital expenditure forecast, we're looking at $850 million in growth capital -- or in total capital this year, $710 million of that being growth, so it's a pretty heavy capital spend year. And as I said in my remarks that until those earnings start coming in from those projects, you have a negative carry situation. But can't really comment beyond the 2017 time frame.

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Jeremy B. Tonet, JP Morgan Chase & Co, Research Division - Analyst [4]

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And Stan, as far as some of the contract roles that you're talking about and some of the impact there, I was just wondering if you could provide a little bit more color as far as the timing behind when you see that peak level happening. Or any other thoughts there?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [5]

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Yes. I wish I could provide you some specific guidance on that. But as I said in my remarks, it's a couple of years before the first of these contracts really start expiring. Certainly favorable to us that to attach maybe the SCOOP/STACK volumes to Gulf Crossing at Bennington. We are excited about the prospects of that pipeline bringing additional supplies in. Certainly, increased drilling that we're seeing in the Haynesville is positive for the recontracting. Some of the new basins that you're looking in Fayetteville with the Moorefield could be exciting. Those are the areas that we need drilling and need gas supplies. But other than that, there's nothing specific I can provide you right now.

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Jeremy B. Tonet, JP Morgan Chase & Co, Research Division - Analyst [6]

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Just one last one. As far as Evangeline, I was just wondering if you can tell us what type of contribution that was to the quarter. It was a clean quarter and everything kind of up and running there without any issues?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [7]

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Well, on Evangeline, we don't break out income by asset or -- and we don't do segments, so I can't provide any guidance for you there on what financial contribution. I can tell you this, Evangeline has been running very strong volumes, no operational issues. The integrity of that pipeline is good now as it has been in a very long time with the time and effort money that we spent rehabilitating that pipeline. So it's been a good acquisition for us and again, the throughput on that has been very strong.

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Operator [8]

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And our next question comes from John Edwards from Crédit Suisse.

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John David Edwards, Crédit Suisse AG, Research Division - Director in United States Equities Research [9]

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Just building on Jeremy's questions, Stan. Just with the Midship Pipeline, could you -- any color you can provide as far as potential capacity being leased on Gulf Crossing? I mean, any -- I mean, obviously, there's 2 takeaway pipes out of Bennington. You've got a competing pipeline in yours. We had basically assumed it would be split roughly equally, that 1.4-or-so capacity come off Midship. Is that a safe assumption? Anything you can comment there? Or is it just a time where you really can't comment?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [10]

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Yes, I really can't. You've been following Boardwalk long enough to know that we don't provide guidance and to try to provide guidance on what future contracting is. When we get leases done or new contracts done, believe me, we will be out talking about them. But until that time, these are just forecast, and we just don't provide forecast.

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John David Edwards, Crédit Suisse AG, Research Division - Director in United States Equities Research [11]

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Okay. I guess -- okay, so let me switch to another topic. I think your fourth quarter '16 call, you were talking about a firm reservation around $1.055 billion for 2017 and $975 million for '18. Any updates you could provide there?

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Jamie L. Buskill, Boardwalk Pipeline Partners, LP - Chief Finance & Administrative Officer of Boardwalk GP LLC, SVP of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC [12]

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No, we haven't provided any updates, but it really hasn't materially changed since our last disclosure.

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John David Edwards, Crédit Suisse AG, Research Division - Director in United States Equities Research [13]

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Okay. All right. And then in terms of the maintenance capital this quarter, it looked a little bit high relative to what we were expecting. Is that mainly a timing issue? Or are you still -- you're still thinking for the full year, you're at this around, what, $140 million, I guess you have or so?

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Jamie L. Buskill, Boardwalk Pipeline Partners, LP - Chief Finance & Administrative Officer of Boardwalk GP LLC, SVP of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC [14]

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$140 million. And it is timing related, John. We were able to get more work completed in the first quarter of this year compared to last year. And it really just had to do with the nature of the work that was being done at the time.

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John David Edwards, Crédit Suisse AG, Research Division - Director in United States Equities Research [15]

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Okay. And then on the gas storage side. Any update on how the LNG plants might drive right some demand for storage?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [16]

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I really don't have an update. My viewpoint is that, over time, operational storage is going to be needed, not only for the LNG plants, but for additional electric generation that's being built, additional industrial load that's coming on. All of these markets have some sort of peaks and valleys and ebbs and flows. And it's my belief that they're going to need to be able to park gas at times and pull on gas to hit peaks at time, and that's going to be helpful. But until you get some of these very large LNGs starting to run consistently and you're starting, not only to see the third and fourth trains at Sabine right now, then I think it's too early to tell. But I'm still bullish on storage long term. I think storage is a good play.

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Operator [17]

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And our next question comes from Ryan Levine from Citigroup.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [18]

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For the quarter, was there any EBITDA or [GCS] contribution from Northern Supply Access given the date of in-service?

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Jamie L. Buskill, Boardwalk Pipeline Partners, LP - Chief Finance & Administrative Officer of Boardwalk GP LLC, SVP of Boardwalk GP LLC and Treasurer of Boardwalk GP LLC [19]

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No. The contracts on that starts April 1, so there really wasn't any contribution to speak of in the first quarter.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [20]

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Okay. And then in your remarks, you mentioned the Moorefield Shale. Are you hearing or seeing any data points that would cause any optimism for recontracting for your system that's overlying that shale?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [21]

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Just what's been talked about by the producers in that area. Those are the data points that I've seen. You've probably seen the same ones.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [22]

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Okay. And then in terms of rates for recontracting on Gulf Crossing. I understand the -- your limitation on disclosure. But are you anecdotally -- or is there any color you can provide us as to where those conversations are today in terms of process?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [23]

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No, I really can't. I mean, needless to say, we're in discussions with a lot of people and those discussions are competitive discussions. And just no color that I can add right now.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [24]

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And last question. Is there any progress for expansions off of Texas Gas in Indiana?

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Stanley C. Horton, Boardwalk Pipeline Partners, LP - CEO of Boardwalk GP LLC, President of Boardwalk GP LLC and Director of Boardwalk GP LLC [25]

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No, we don't have anything that we've announced in Indiana.

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Operator [26]

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And at this time, I'm showing no further questions.

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Molly Ladd Whitaker, Boardwalk Pipeline Partners, LP - Director of IR and Corporate Communications - Boardwalk Gp Llc [27]

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Once again, we'd like to thank you for joining us this morning and for your continued interest in Boardwalk Pipeline Partners. 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.

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Operator [28]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.