Crosstex Energy Inc. Q3 2008 Earnings Call Transcript

Nov. 7.08 | About: Devon Energy (DVN)

Crosstex Energy Inc. (XTXI) Q3 2008 Earnings Call November 7, 2008 11:00 AM ET


Chris Bell - Investor Relations Specialist

Barry Davis - Chairman, President and CEO

Bill Davis - Executive Vice President and CFO

Bob Purgason - Executive Vice President and COO


Darren Horowitz - Raymond James

Sharon Lui - Wachovia

John Edwards - Morgan Keegan

Ken Shubin Stein - Spencer Capital


Good day, ladies and gentlemen, and welcome to the Third Quarter 2008 Crosstex Energy Earnings Call. My name is Omid and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions). As a reminder, this conference being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s conference, Ms. Chris Bell. Please proceed, ma’am.

Chris Bell - Investor Relations Specialist

Thank you, Omid, and good morning everyone. Thank you for joining us today to discuss Crosstex's third quarter 2008 financial results, and other financial details. On the call today are Barry Davis, Chairman, President and Chief Executive Officer; Bill Davis, Executive Vice President and Chief Financial Officer; and Bob Purgason, Executive Vice President and Chief Operating Officer. Barry will lead the discussion followed by Bill and Bob. At the end of the call, they will answer your questions.

Our third quarter 2008 earnings release was issued early this morning. For those of you who didn't receive a copy, it is available on our website at If you want to listen to a recording of today's call, you have 30 days to access a replay by phone or webcast on our website.

As we begin this morning’s call, I will remind you that the comments today include forward-looking statements within the meeting of the Federal Securities laws. These statements are based on certain assumptions, based on management’s experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in this circumstances. These statements include, but are not limited to, statements with respect to the impacts of the recent Hurricanes Gustav and Ike on the partnerships business, future commodity prices, statements regarding national gas production and volumes delivered to the partnerships facilities, statements regarding future capital expenditures, asset sales and the payment of distributions and dividends, and the future financial performance condition and liquidity of the partnership and the corporation. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which may cause our actual results to differ materially from those implied or expressed by the forward-looking statements.

Factors that could cause actual results to differ materially from their expectations, are included in the periodic report we filed with the SEC. We encourage you to carefully review and consider the cautionary statements and other disclosures made in those filings. Specifically those under the heading risk factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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. On the call today, we will update you on our third quarter results. We will also provide more information about the significant changes that have affected our business during the last few weeks and the impact these changes have on our longer term view of our earnings. We will then discuss our plan to respond to these changes with quick and decisive actions, and we will provide a view into 2009.

In the third quarter, the partnership's distributable cash flow was $30.3 million, 1.02 times the amount required to cover the quarterly cash distribution of $0.50 per unit. Through nine months of 2008, our distributable cash flow was $111.4 million, up 49% from the first nine months of 2007.

Third quarter gross margin was $110.2 million compared with $97.2 million in the third quarter of 2007, a 13% increase, despite a $12 million hurricane impact. The improvement is due to higher pipeline system throughput of 300,000 MMBtu, an increase of 13% over the third quarter of 2007, partially offset by lower processing throughput volume as a result of the hurricanes. This growth is primarily from continued expansion of gathering and transportation systems in the Barnett Shale in North Texas, which grew at 60%, compared with the third quarter of 2007.

Now I would like to move away from our third quarter results to address other important issues on all of our minds. Right up front, I would like to answer two important questions. First, we believe we will have sufficient liquidity to fund our plans and to comply with our credit agreements through 2009 using our Base Case assumptions for earnings and stressing them significantly for processing and commodity price sensitivities.

Secondly, we have set the distribution in dividend amounts at the appropriate level based on what we know today. And we have strong commitment to maintaining and growing the distribution in the future. That said, we believe in uncertain times like these, it is imperative that we manage the business with a total focus on maintaining liquidity and reducing leverage.

And we will manage Crosstex and make all future decisions in such a manner as we have additional information. Now, we’ll run through the significant changes that have affected Crosstex over the last few weeks which we announced in our news release last Friday.

We now believe the hurricanes Gustav and Ike adversely impacted EBITDA in the second half of 2008 by approximately $25 million. Or about $14 million in the third quarter of which $12 million is gross margin and $2 million is operating expense and then about $11 million in the fourth quarter.

We’ve revised our estimates because producers in top line companies have extended the projected time required to repair the offshore infrastructure needed to restore gas plays. In North Texas, delays in infrastructure development, equipment delivery and right away access are contributing to slower volume growth which we’ve talked about on previous calls.

While volumes are still growing, they are not growing as quickly as we planned. Bob will talk more about this in a moment. Commodity prices have continued to decline, from the beginning of October until the beginning of November, oil prices have fallen about 35%, natural gas prices about 13% and natural gas liquid prices about 38%.

Consequently, we have seen considerable reductions in our processing margins and percent-of-liquids fees. These sharp declines are also impacting our view about processing economics in 2009 and the potential impacts if the conditions continue.

Last, based on announcements we have seen, several producers are revising their drilling budgets as they react to the market and economic turbulence. They are drilling out of cash flow right now. As a result, we have taken a more conservative stance and adjusted our forecast to account for a general slowdown in industry drilling activities.

It is clear we are now operating in a dramatically different commodity environment than just a few weeks ago which we believe will continue into the future for sometime. The effect of this changing environment on us as well as on producers will have a longer term impact on Crosstex's results in just the third and fourth quarter of 2008.

We now have the view that 2009 EBITDA is estimated between $250 million and $300 million with the difference being commodity prices and processing. This compares to normalize third quarter EBITDA of approximately $66 million or about $264 million annualized.

Bill will address this further in just a moment. As we have been dealing with these times during the last few weeks and we looked at our revised 2009 forecast under our current conditions, it became clear to us that we needed to make quick and decisive adjustments to our overall strategy.

Our near-term operating strategy focuses on immediate actions that would do three things. Increase liquidity, reduce leverage, each without depending on access to capital markets in 2009 and improving profitability. So far, we have completed the following previously announced actions. We have reduced the distribution in dividends. We have completed agreements to sell non-strategic assets and conditions to closing have been satisfied. We have reduced capital expenditure significantly through 2009 and we have reduced balances outstanding under letters of credit.

In addition to those previously announced and now completed actions, we are also finalizing agreements today with our banks and private lenders to amend our covenants to create adequate room to operate in the current environment.

Bill will provide additional insight into these actions we’ve taken with our credit agreements in a moment.

Now, let’s discuss each of our actions in more detail. As we announced, we reduced the distribution and dividend rates for the third quarter.

We lowered Crosstex Energy L.P’s quarterly cash distribution rate to $0.50 and we lowered Crosstex Energy Inc’s dividend rate to $0.32. The payments will be made on November the 14th to unitholders and shareholders of record on November 10th. Another move to improve liquidity and de-leverage of the sale of non-strategic assets.

As we announced last week, we have signed agreements to sell assets that together will generate proceeds of approximately $105 million and those assets have a total of approximately $9 million of trailing EBITDA impact and 11.5 times multiple.

The invested capital on these assets being sold is approximately $42 million. We earlier indicated that we expected to close these transactions before year end. But now, we expect to close before the end of November, having satisfied all conditions to closing.

We expect to identify the details for you when the transactions actually close. We will consider additional asset sales overtime to improve liquidity and further de-lever the company.

In addition, we have reduced our base capital plan expenditures to about $78 million in the fourth quarter of 2008 and just over $100 million for all of 2009, which will be invested primarily in the Barnett and Haynesville Shales.

At these lower levels, our projects can be financed with our revolver availability and cash flows. These are substantial cash flow projects that will provide growth despite a relatively modest level of total expenditures.

This is a $340 million reduction in previously planned expenditures over this period. And we've also reduced our outstanding letters of credit. We expect letters of credit will reduce to approximately $100 million at December 31, 2008, creating an additional $30 million of availability under our revolver.

These actions are designed to improve liquidity, or more accurately, reduce our capital needs from previously communicated levels, about $500 million to $600 million by year end 2009. We anticipate this will allow Crosstex to exit 2009 with $150 million to $200 million of availability under our revolver, again, assuming no access to capital markets and no further asset sales.

In additions to these actions to improve liquidity, we have a plan to increase profitability. We are focusing on boosting returns on existing assets. We have identified savings from operating expenses of $6 million to $7 million annually, and from G&A savings of $12 million, for a total of about $20 million impact in 2009. We also believe we can further improve margins and return on investments across all of our assets, as we get further into executing our plan.

Now I'd like to briefly comment on the longer term future, and our prospects for growth beyond 2009. Our platform of great assets, continue to provide opportunities. We have a backlog of some excellent growth projects, and our base plan includes only a few of them. Some existing projects will be put on hold until access to capital returns. We will continue to look for opportunities to do more of these projects, as capital becomes available.

As far as new project opportunities are concerned, we will address them on case-by-case basis and determine if we should pursue them and how. We may also continue to develop alternative ways to fund incremental projects, other than using cash-flow and traditional MLP debt and equity markets. We recently said, we are working with financial investors on these alternative sources of capital.

While our focus is on our base business and liquidity plan through the end of 2009, we will continue to review alternative financing structures for specific projects and pursue them if they make sense.

In these uncertain times, as we said in the beginning, we will manage our business with emphasis on maintaining adequate liquidity, deleveraging, and near-term profit enhancements. Our commitment is to be good stewards of the capital you’ve allocated to us, and create the most long-term value possible.

Now, Bill Davis will provide additional details on our third quarter financial results and other financial matters.

Bill Davis

Thanks Barry, and thanks to all of you for joining us on the call today. As Barry has said, we are taking action to address the challenges thrust upon us in the last five weeks. As it relates to near term liquidity, at the end of the third quarter, we had bank revolver debt outstanding of approximately $850 million and LC commitments of approximately $130 million, leaving $205 million available on our revolver.

Our proceeds from asset sales and cash-flows in the fourth quarter will be greater than our total planned capital expenditures and distribution (inaudible). And as Barry said, we also expect to see a reduction in our letter of credit commitments of approximately $30 million. So our revolver availability will actually increase in the fourth quarter, to a little over $240 million.

Given the stress in the financial markets the last several months, we've been forced to rely on the revolver equipment for financing more than we would like. In addition, our debt-to-EBITDA ration has been stressed by the events for the last weeks. Therefore, we've gone to our banks and private lenders to negotiate a slower step down on our pro forma debt-to-EBITDA covenant, and a change in our EBITDA-to-interest covenant. This was a delay to step down on pro forma debt-to-EBITDA from the 5 to 1 level until the end of the third quarter 2009, when it will become 4.75 to 1, and then 4.5 to 1 at 12/31/09 and thereafter. This change will cost us a 25 basis point upfront fee and an increase on our borrowing cost of 125 basis points.

While it's expensive, it provides necessary insurance during these next few quarters as we execute our plan to improve liquidity and reduce debt. We expect pro forma debt-to-EBITDA at this time of about 4.6 to 1 at December 31, 2008.

As we look out to 2009, our focus will be to manage our liquidity. To that end, we've significantly reduced our capital program. We have delayed the planned startup of the Bear Creek plant by one year, as we expect our existing capacity for processing in North Texas of 285 million a day, to be sufficient until about the midpoint 2010. As a result, we've shifted 35 million of capital for this project from 2009 and to 2010.

In the [Bundaberg] project in North Texas, we have reduced the capital on phases I and II to approximately $20 million and phase III capital of $20 million has been shifted to 2010. We expect to complete other North Texas gathering infrastructure over the course of 2009, at a total investment of approximately $55 million.

In North Louisiana, our Red River expansion phase I, adding 35 million of capacity, has been completed at a cost of about $5 million. We are working on a phase II expansion for April, adding 100 million a day of capacity through new compression, at a cost of approximately $35 million. We have deferred for now, the line looping called [foreign] phase III of the project at a capital cost of $70 million, until capital markets improve.

As Barry said, we are continuing to review alternative capital sources to fund other discrete projects. However, as we said in the call a few weeks ago, we don’t expect any announcements on any of these prior year end.

As we look out to 2009, we still have work to do create our budgets for the year. However, if we look at our third quarter EBIDTA of approximately $52.5 million, and normalize it for things like the hurricanes and the charge we took for the SemGroup bankruptcy, it's approximately $66 million for the quarter, or $264 million annually. Distributable cash flow, normalized for those same items, would have been approximately $14 million to $15 million higher than reported or $45 million for the quarter, 41% higher than in 2007. So you see significant growth was really there, it was just overshadowed by the events during the quarter.

When we continue to expect growth in 2009, however, [deplete at] lower level than we previously thought. And we also have to temper our expectations with the difficult financing environment and the commodity price volatility that we're experiencing.

However, if we were to assume a similar processing environment to the third quarter, that growth would likely lead to EBITDA expectations in 2009 of approximately $300 million. Given the processing environment more like today's, which seems unlikely for a full year, based on what we hear for expert forecasters, you'd probably have an outcome that is more in the $250 million range.

We think within the range of likely price decks for 2009, based on the prognostications we've seen, our average liquids price is between $0.80 and $.90, which does imply a WTI price of between $65 and $75 and average Henry Hub prices of between 650 and 550. Net of our hedges, the $0.10 change in liquids prices would equate to a range of about $6 million on a percentage of liquids contracts. On our processing margin opportunity, the range of potential outcomes based on that price deck is approximately $40 million as you have potential NGL-to-gas ratios of approximately 195% at the high to around 145% at the low.

Every 5% step in that ratio approximates about $4 million of margin opportunity for us on an annual basis. Volumes that we can process under this type of arrangement have continued to grow during the year increasing from around 15% of our volumes in 2007 to around 25% of our processing volumes in the third quarter.

The total of these two, our POL impacts and the potential processing margin ranges approximate to $50 million difference in processing outcomes and creates the range of $250 million to $300 million on our current expected EBITDA in 2009.

With these factors in mind, it’s too soon for us to make predictions regarding our 2009 distribution other than to say we’ve made the adjustments we believe are appropriate given what we know today.

We’ll continue to evaluate this as we proceed with an attempt to manage to our primary objectives of maintaining liquidity and reducing leverage. Now I’ll turn the call over to Bob to review our operations.

Bob Purgason

Thank you, Bill. I am going to run through our operations and update you on third quarter activities. And I’ll begin with North Texas operations. Third quarter throughput for the North Texas pipeline was about 342,000 MMBtus per day, down 1% from the second quarter throughput.

The September hurricanes damaged Mont Belvieu, the major natural gas liquids hub near Huston. Now because natural gas liquids facilities at Mont Belvieu were disrupted by the hurricanes Gustav and Ike, some production that normally flow into the North Texas Pipeline was curtailed.

These disruptions caused a complete shutdown of the NGL pipelines taking liquids from our plants and much of the processing industry for a number of days forcing a temporary shutdown of our processing plants. We then had to curtail some of this rich gas production in the parts of the field where liquids must be removed for the gas to clear the pipeline specifications.

Now, other than the slight reduction in natural gas processing volumes, volumes continued to grow across the North Texas region. Throughput for the third quarter of 2008 on our North Texas gathering system was about 762,000 MMBtus per day or about 21% higher than the second quarter of 2008. 86,000 MMBtus per day in this growth came from our North Johnson gathering system, which we completed in the second quarter.

We continue to expand our infrastructure to handle the growing production in the Barnett Shale as we told you we would. But we've revised our production forecast for 2009 to account for the delays that Barry mentioned. As a result, producers have been slower in getting some of their production tasks and we anticipate though that our producer customers will develop the volumes, but the volumes that we expected in 2008, now appear likely to be in 2009 and 2009 volume increases now appear more likely to flow in 2010. All indications are that drilling activity on our acreage in the Barnett will remain high, with the number of drilling rigs on our acreage remaining approximately flat.

As a result of our new volume forecast, we have delayed the construction and completion date for Bear Creek, our fourth cryogenic plant. We now see the need for this plant in mid-to-late 2010.So delaying this project is part of the capital spending reductions in 2009 that Bill described.

And natural gas processed in the third quarter averaged just shy of 200,000 MMBtus per day, 2% above our second quarter volumes. The hurricane-related NGL curtailments and our previously discussed NGL takeaway capacity bottlenecks have continued to reduce the amount of liquids that we can recover from our plants.

We do believe we will have ample liquids takeaway capacity by early 2009, when expansion projects by West Texas Pipeline and Louis Dreyfus and a new line being installed by ONEOK are scheduled to be operational.

Now industry experts continue to see additional growth in the Barnett Shale in 2009 and so do we. Even with the 2009 rig pull back of 14% for the region which is much higher than we are currently seeing. We expect production from first year wells that should continue to more than offset declines for this field in 2009.

We remain enthusiastic about the Barnett Shale as a key US gas resource and a significant part of North Americas long-term robust supply outlook.

Now to Louisiana. As we discussed in our recent conference calls, the two September hurricanes had a negative impact on our Louisiana facilities. Our Crosstex link system had gas shut in throughout South Louisiana, but volumes have essentially recovered to near pre-hurricane levels and leg is again transporting about 1 Bcf per day.

However, the hurricane's impact did cause average volumes for the quarter to decline about 8% from second quarter 2008 volumes.

Drilling on our Red River System in North Louisiana continues to be quite active. And we are pursuing the expansion of our Red River Pipeline system. There is a lot of interest by producers as they find a viable means to get their Haynesville Shale gas to market and the Northern part of our system is right in the middle of the action.

We recently added 35 million cubic foot a day of capacity and plan to add an additional capacity of at least a 100 million cubic foot a day in 2009. In Southern Louisiana, the Sabine plant was the only facility that sustained major damage and repair should be completed by mid to late December.

The results, the rest of our straddle plants are operating at lower volumes as repairs to offshore pipelines that feed the plants are proceeding, but taking longer than originally thought. During the next two months, we expect volumes will continue to grow approaching pre-hurricane levels in January 2009.

Volumes at our Eunice plant, are about 400,000 MMBtus per day or about 90% of pre hurricane levels. The Pelican plant is running at about a 145,000 MMBtus per day or 40% of pre-hurricane levels and Bluewater is running about a 130,000 MMBtus per day or about 90% of pre-hurricane levels.

There is over 170,000 MMBtus per day available to process at Sabine, which is 65% of the plant's pre-hurricane volume. But the High Island Offshore System or HIOS that feeds gas to both Sabine and Eunice is scheduled to be reconnected in mid December. So when the repairs are complete and the plant starts, we expect to be processing at close to pre-hurricane levels at Sabine.

The accounting system that supplies a significant portion of gas to the Pelican plant, is scheduled to be reconnected by year end. So when completed, we expect Pelican to be back to normal levels beginning in January. These pipeline connections had been delayed from our early October estimates, but our pipeline suppliers are diligently pursuing these repairs and reconnections. The timing is not under our control, but we will be ready to process the gas from these pipelines when they return to service.

Our overall operational plan in Louisiana remains unchanged. We continue to integrate our strategically located pipeline system and processing plants to maximize their value. We still look forward to being a major participant in the Haynesville Shale, and enjoy the positive impact it will have on our Louisiana business.

Now, to treat. In treating, the pace of commercial activity continued to increase late in third quarter, which will drive our planned installations this fall and winter. We executed 18 contracts for new amine plants in the third quarter, making it one of the best for our treating business.

Now, treating is in a great position to also benefit from activity in the Haynesville. The combination of CO2 in the gas and expected high production volumes make it an attractive play for us, as Haynesville gas needs to be treated or blended. Right now, we have four amine plants on the ground, treating Haynesville Shale gas.

We have also signed agreements for 12 more plants, most of which will be installed in the fourth quarter. Demand has increased for our larger plants, due to high initial flow rates of the Haynesville wells. We also have multiple plant deals pending, and expect to see continued strong demand for our treating plants in the Haynesville during the fourth quarter. We see run rate growth in our aiming treating segment of over $7 million per year from these new executed contracts.

Now, I'll turn the call back to Barry.

Barry Davis

We've spend much of our time today talking about what has changed over the last several weeks, and our plans to address these changes. I'd now like to take a minute and remind you what has not changed at Crosstex. We have strong underlying long-term business fundamentals.

Over the last 12 years, we have assembled and constructed great assets that are strategically located in areas with attractive production, sizable reserves, dependable end users and competitive dynamics. These assets will continue to be necessary to serve producers and consumers.

We remain a full service provider with excellent long-term customer relationships. We believe there will be continued volumes acceleration in North Texas and Louisiana, our key operating areas. We also see continued growth opportunities in other areas, and we have focused and experienced employees dedicated to executing our business plan over the long-term.

We believe we have made a good start on implementing our plan. We don’t expect any meaningful ongoing correction in either the stock market or the capital markets in the near term. So, we are going to approach our business strategies very conservatively. We will manage the business to preserve value over the long-term.

We will focus on reducing leverage, maintaining a strong distribution coverage ratio, and improving our overall return on invested capital. We are convinced that our plan and the actions we have taken are the appropriate response to today's environment.

The world has changed, but our underlying assets and business have not. We look forward to moving ahead and to advancing past these trying times. We will focus on things that we can control, and not be distracted by what we cannot control.

In the end, we will build a stronger balance sheet and create greater value because of them. We appreciate your continued support.

Now I’ll turn the call over to our operator Omid, who will facilitate the Q&A. Bill Davis, Bob Purgason and I will be happy to answer any questions you may have.

Question-and-Answer Session


(Operator Instructions). And your first question comes from the line of Darren Horowitz with Raymond James. Please proceed.

Darren Horowitz - Raymond James

Bill, first question on liquidity. Kind of under the scenario that you outlined, given the $250 million EBITDA run rate for next year. Can you give us a little bit more color on what type of financial instruments are being discussed, both in terms of aggregate size as well as rate?

Bill Davis

What type of financial instruments?

Darren Horowitz - Raymond James

Yeah. In terms of incremental debt or, you know, maybe some sort of hybrid if you could get [that]. I mean, just giving us little bit more color on the possibilities that you’re looking at, in terms of enhancing liquidity going forward?

Bill Davis

Yeah. Darren, what we had in our plan for 2008 was a fairly straightforward high yield offering, but that market remained closed all year, or at least in the three quarters of the year. Were we to be able to get into the high yield markets again, if those were to open up, we'd be ready to execute on that again.

With regard to our base plan, however right now, we are making plans not to have any access to the capital markets, and just to live within the existing revolver capacity that we've got.

Darren Horowitz - Raymond James

Okay. Switching gears over to another avenue of liquidity for you, maybe financing at the project level. Can you give us any insight there in terms of maybe contract structure that's being discussed?

Bill Davis

Probably premature to do that, Darren, that’s in the middle of negotiations right now, and until we actually get to a point where we have an agreement, I don’t think it would be productive to be making all those issues public.

Darren Horowitz - Raymond James

Okay. And then quickly, just one operational question. When you talked about the infrastructure delays in North Texas, can you just give us your volume expectations on a run rate basis through next year? Is it more or less flat with where you were in the second quarter, or do you think there's going to be a bit more of a moderation?

Barry Davis

Darren, we still see growth in next year's volumes, as I tried to indicate. We've just shifted things to the right. The drilling rigs that are running will increase the volumes on our system. You can look at that on a well-by-well basis, we've got pretty good visibility for that. So still we will be looking at growth.

Darren Horowitz - Raymond James

But if there's a mid-teens decline in drilling rigs as you alluded to, despite the fact that you're getting higher IP rates, don’t you think that there's going to be an organic nature of production trailing off into the tail end of next year under this commodity price environment?

Barry Davis

Darren what we see is, particularly in the Barnett, the rigs that are moving, are moving our in the fringe areas, not in the core, and the tier areas, where most of our acreage is. We do expect maybe a small tail end at the very back of 2009. But it's going to take that long for anything to really have an impact. So in terms of our 2009 forecast, we really don’t see a big tailing off. And again, the producers that we're talking to around our acreage, are saying they still have good economics at these prices, and are continuing to move forward.

Darren Horowitz - Raymond James

Okay. I appreciate the color. Thank you very much.


Your next question comes from the line of Sharon Lui with Wachovia. Please proceed.

Sharon Lui – Wachovia

Hi, good morning

Barry Davis

Good morning, Sharon

Sharon Lui – Wachovia

I was just wondering in terms of the coverage ratio based on the low end of your guidance of 250, what that equates to?

Bill Davis

The covered ratio on the distribution for next year?

Sharon Lui – Wachovia

On the covered distribution?

Bill Davis

Just a second, Sharon. Let me look at that. That would be right around between 21 and 1.1.

Sharon Lui – Wachovia

Okay. And I guess in terms of the assets that you divested, can you just I guess provide color on which system?

Bill Davis

Not until the closing. We are prohibited by confidentiality until doing that at the closing.

Sharon Lui – Wachovia


Bill Davis

But as we said, those closing should happen next week.

Sharon Lui – Wachovia

Okay. I guess just looking at your growth CapEx budget of 178. Can you just provide some color on what's the major projects, given that I guess the Red River project has been scaled back and the Bear Creek project has been pushed to 2010?

Bill Davis

In what sense do want color, Sharon, and more than what I reviewed in the script?

Sharon Lui – Wachovia

I'm just trying to piece together how you come to the 178? What are the major expenditures?

Bill Davis

Okay. Let me just tick through them. The portion, the Bear Creek plant that we're going to actually spend and that number is around $30 million. In the [Binbur] project, it's around $20 million. In other North Texas gathering infrastructure, it's around $55 million. In the Red River expansion, that's around $35 million for that project.

Sharon Lui – Wachovia

Thank you.


Your next question comes from the line of Noa (inaudible). Please proceed.

Unidentified Analyst

Thank you. Just real check. I just want check, when does your revolver actually mature and do you have any debt that comes due, say the next three years other than anything, if the revolver matures within that time period?

Bill Davis

Well the revolvers matures in June of 2011. We do have maturities on our senior notes that have been happening over the last couple of years and we’ll continue, those are detailed in our public filings in the 10-Q and 10-K. I think near-term, next year it is around $10 million of total matures.

Unidentified Analyst

Okay. Thank you very much.

Bill Davis



Your next question comes from the line of John Edwards with Morgan Keegan. Please proceed.

John Edwards - Morgan Keegan

Yes. Good morning, everybody.

Barry Davis

Hi, John.

John Edwards - Morgan Keegan

As far as the scaling back of the things, are you looking at any kind of work force reductions?

Barry Davis

Yeah, and it’s currently not required in the plan that we’re executing. We think that in fact we go into this period really sure that is a whole industry was. We were probably about 10% short on employees and at least on the spots that we had available. So, we go in a good shape and we think that we will be able to manage through this without the reduction been required.

John Edwards - Morgan Keegan

Okay. So are you scaling back on hiring?

Barry Davis

Yes, we would be. Every position that we had, that was previously available has been reevaluated and significantly scaled back.

John Edwards - Morgan Keegan

Okay. And then I know Bob went through this plant by plant. But just overall and I know Darren was kind of asking about this. As far as the impact of the hurricanes, the volumes, how much was hurricanes, how much was equipment shortages, and I guess he was trying to get to, what's the sense of what the growth rate should be going forward?

Barry Davis

Yeah. I guess, John, in terms of the Barnett, the hurricane impact really cut volumes on the North Texas pipeline for those few days of curtailment in the field. And then our processing plant volumes were down, because we shut the plant down for about five days while the NGL pipelines were coming back on. In fact, even then, we had to start the NGL pipelines slowly, so we stayed in a partially curtailed mode for a couple of weeks.

In terms of putting some color on the volumes, again, we're seeing easily good 10 and 15% growth and on a year-over-year basis, even more than that in terms of volume growth. So the gathered volumes continue to grow at a good clip in the Barnett, and we're not seeing a slowdown. We're not seeing a change in the drilling rigs that are running in our acreage. In fact, the Barnett as a whole has been -- I'll call it marginally declined, about a 5% cut in rates, the [way on] rigs, the way we've been counting them. since September 1. So we've been tracking that closely and there are very few rigs that are being redeployed to other areas, and the few that are, seem to be going to the Haynesville.

John Edwards - Morgan Keegan

And then on the treating facilities, I think you're talking about 7 million a year run rate, I assume you're talking about EBITDA?

Barry Davis

Yeah. Operating income which will directly flow to EBIDTA on that business.

John Edwards - Morgan Keegan

Okay, great. Thank you very much.

Barry Davis

You bet.

Bill Davis

Thanks, John.


Your next question comes from the line of Ken Shubin Stein with Spencer Capital. Please proceed.

Ken Shubin Stein - Spencer Capital

Hi guys. Thanks for updating us. I am in fact subdued with XI. Given that it now has a nearly 20% dividend as of today, could you just share with us your thoughts about the dividend policy versus possibly using this distressed share price to shrink the share base at the parent, or use the capital to buy EX units, just share with us your thoughts are about capital allocation given that statement?

Bill Davis

Yeah. Ken, let me first of all say that there is really no rational way to explain the dislocation that we've seen there. But I will say that our focus right now is totally on the things that we said, which is reducing leverage, improving liquidity and enhancing profit in the base business. Once we get through, if you will, this immediate period, we'll look at things like that. We think that stabilization will come and that we'll see an improvement in that dividend yield. But over time, I think we will evaluate other alternatives related to XI and EX.

Ken Shubin Stein - Spencer Capital

Okay. Thank you.


I show there are no further questions. I would now like to turn the call over to Barry Davis for any closing remarks.

Barry Davis

Thank you, Omid. Let me just say in closing that guys we thank you for joining us on the call today. And during these challenging times, we again thank you for your understanding and support, and we hope that you have a great day

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