Boardwalk Pipeline Partners LP Q1 2009 Earnings Call Transcript

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 |  About: Boardwalk Pipeline Partners, LP (BWP)
by: SA Transcripts

Boardwalk Pipeline Partners LP (NYSE:BWP)

Q1 2009 Earnings Call

April 27, 2009; 9:00 am ET

Executives

Rolf Gafvert - Chief Executive Officer

Jamie Buskill - Chief Financial Officer

Allison McLean - Director of Investor Relations

Analysts

Darren Horowitz - Raymond James

Gabe Moreen - Banc of America/Merrill Lynch

Jim Harman - Barkley’s Capital

Sharon Lui - Wachovia

Ross Payne - Wachovia

Phyllis Gray - Dwight Asset Management

John Edwards - Morgan Keegan

Steve Maresca - Morgan Stanley

Ross Haberman - Haberman Funds

Brian Burge - Legal and General

Operator

Good day ladies and gentlemen and welcome to the first quarter 2009 Boardwalk Pipeline Partners LP earnings conference call. My name is Ann and I will be your coordinator for today’s call. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. At this time all participants are in a listen-only mode and we will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over to your Allison McLean, Director of Investor Relations. Please proceed.

Allison McLean

Thank you Ann. Good morning everyone and welcome to the first quarter 2009 earnings call for Boardwalk Pipeline Partners LP. I am Allison McLean and I’m pleased to be joined today by Mr. Rolf Gafvert, our CEO and Mr. Jamie Buskill, our CFO. If you’d 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 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. 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. With regard to such financial measures, please refer to our earnings release for reconciliations to the most comparable GAAP measures.

Now I would like to turn the call over to Mr. Rolf Gafvert.

Rolf Gafvert

Thank you Allison and good morning everyone. I hope all of you have had a chance to review the press release we issued this morning. During the first quarter, we placed in service, the pipeline portions of our remaining expansion projects and all of our pipeline expansions are now transporting natural gas, a significant milestone.

We’ve also placed in service, the compressors stations associated with the initial projects. We have three additional compression facilities scheduled to go in service next year. We have recently received the regulatory approvals for the compression projects associated with the Fayetteville and Greenville Laterals and we are working on the normal regulatory approvals for the compression on the Gulf Crossing Project.

In light of the progress we have made on our expansion projects and the performance of our legacy assets, we have announced a first quarter distribution of $0.485 per unit, $0.05 increases from our prior distribution. We were able to increase our quarterly distribution, despite the startup issue related to construction, which I would like to discuss in greater detail.

As we noted last quarter, we are working to meet the conditions set forth by PHMSA and administration within the department of transportation, to operate our expansion pipeline at a higher operating pressures in order to meet the scheduled ramp up of firm capacity held by our shippers. As a result of this commissioning process, we found anomalies in certain joints of our pipe on our expansion pipelines.

We have tested a significant portion of our expansion pipeline joints for the presence of pipe anomalies, and the anomalies identified to-date represent less than 1% of the total joints tested. Testing for anomalies is continuing on the remaining portions of the expansion pipeline. Because of the anomalies, we reduced operating pressures on all of our expansion pipelines below historical operating pressures, which has resulted in reduced revenues from firm shippers.

Transportation revenues excluding fuel for the first quarter were approximately $12 million lower than expected as a result of operating our expansion pipeline under lower pressures. Furthermore, we anticipate that major sections of expansion pipeline will need to be shutdown for periods of time during 2009, in order to remove and replace joints with anomalies.

As a result, we expect substantial revenue reductions from our expansion projects until the pipe anomalies are remediated and all necessary testing has been successfully completed and we’ve received the authority from PHMSA to operate at higher operating pressures.

We are working very closely and cooperatively with PHMSA in order to obtain final resolution to this matter. We anticipate that our estimated capital expenditures for the expansion projects established a year ago will be adequate to cover any additional costs associated with remediating the pipeline anomalies.

Jamie will go into more detail on how the costs and reduced revenue will impact the financial statements. I will now give you a recap of where we stand on each of the expansion projects. Jamie will provide an update on capital spending for the expansions during his discussion.

The current throughput on these pipelines reflects the reduced operating pressures and all of the capacity numbers for these projects assume that we have resolved the pipeline anomalies issues and have received the approval from PHMSA to operate at higher operating pressures.

We are currently flowing approximately 1.1 Bcf a day on our East Texas Pipeline expansion, compared to the anticipated peak-day capacity of 1.4 Bcf a day. We are currently flowing approximately 0.5 Bcf a day on our Southeast expansion pipeline of the anticipated peak-day capacity of 1.9 Bcf a day. We are currently flowing approximately 0.7 Bcf a day on Gulf Crossing, out of an anticipated peak-day delivery of 1.4 Bcf a day.

Gulf Crossings capacity will increase to 1.7 Bcfs per day following construction of addition compression, which is expected to be in service in 2010, subject to FERC approval.

Right now we are currently flowing approximately 0.7 Bcf a day on the Fayetteville Lateral, compared to the anticipated peak-day delivery capacity of 0.8 Bcf per day, and for the Greenville Lateral, we’re currently flowing approximately 0.4 Bcf a day, compared to the anticipated peak-day delivery capacity of 0.8 Bcf per day. We plan to increase the capacity in early 2010 to 1.3 Bcf per day on the Fayetteville Lateral and 1 Bcf per day on the Greenville Lateral as we add compression.

As we discussed in last quarter’s call, The Fayetteville Lateral includes a section of 18 inch pipeline under the Little Red River in Arkansas, which will be replaced with a 36 inch line once the new horizontal directional drill under the river is completed. We are making very good progress with this drilling effort and so expect it to be complete during the second quarter of this year.

Now, I would like to provide an update on our storage and parking and lending business. As you may recall in 2008, customers signed precedent agreements for 5.1 Bcf of storage capacity in our Western Kentucky Storage Expansion and that capacity was placed in service in November 2008. During the first quarter of 2009, we sold out the remaining 3.3 Bcf of capacity on a firm basis, with market base rates. We anticipate the remaining capacity going into service by November 2009.

Once completed, over 8.4 Bcf of storage capacity would have been added under the third Phase of this project and all of this capacity is sold out on a firm basis. In addition, we anticipate higher parking and lending revenues in 2009, due to favorable pricing spreads between the stock price of natural gas and the future market.

In the first quarter, we signed ship agreements are approximately 0.4 Bcf per day of capacity that will support expanding our pipeline system in the Haynesville production area in Louisiana. The project will consist of adding compression facilities to the Gulf South System at an estimated cost of up to $200 million.

We anticipate placing this project in service during late 2010, and the weighted-average life of the shipper contracts for this project is an excess of the 11 years. This expansion is an excellent example of how we can optimize our newly expanded footprint, offering with relatively low capital investments. We will of course continue to explore such attractive growth opportunities.

That concludes my overview for Boardwalk. I will now like to turn the call over to Jamie Buskill, our Chief Financial Officer, who will share with you, the financial results for the quarter and will also provide further detail on our financing plan.

Jamie Buskill

Thanks Rolf. First I would like to address the impact that the pipe anomalies are having on our financial results and expected capital outlays. We are still testing portions of our system for anomalies. The full costs remediate the pipe anomalies as unknown. However, we currently do not anticipate having to increase our overall expansion projects budgets for the cost associated by the remediating pipe and anomalies.

We believe that the constituency dollars within our combined cost estimates of $4.8 billion for the expansion project established over a year ago will be adequate. However, uncertainties remain, including the final scope of the pipe anomalies remediation effort, the timing of when PHMSA will address final authority to operate under higher operating pressures, and the timing when we can ramp up to full contracted capacity.

We anticipate that most of the cost associated with repairing the pipe anomalies will be capitalized. However, certain cost associated with pipe anomalies remediation of the East Texas Pipeline, which has been in service for over a year and now, will be expensed as the costs are incurred.

Also related to earning, although expansion revenues were lower than anticipated due to the pipe anomaly issue, starting in the first quarter significant expenses associated with the expansion such as depreciation, property taxes and interest are now being recognized, resulting in lower operating results.

I will now walk through the details of our financial results. Operating revenues for the first quarter of 2009 were $223 million, which is an increase of $26 million or 13% from $197 million for the comparable period in 2008. The increase was driven by revenues from our pipeline expansion project in higher storage and parking loan revenues, which were approximately $5 million above last year, due to favorable natural gas spread in the Western Kentucky Storage Expansion.

Turning now to operating expenses; for the first quarter 2009, we reported operating expenses of $145 million, which is an increase of $49 million or 51% from $96 million for the comparable period in 2008. The increase was driven by higher depreciation of property tax expenses related to the expansion project, higher depreciation and maintenance expenses resulting for major maintenance project and expansion project operation. In addition, the 2008 period was favorably impacted by $11 million of contract settlement gain.

Net income for the first quarter of 2009 was $52 million, which is a decrease of $36 million or 41% from $88 million for a comparable period last year. The decrease was driven by the revenue and expense drivers previously discussed, plus higher interest expense due to higher outstanding debt balances and lower capitalized interest; and the 2008 period was favorably impacted by a $3 million mark-to-market gain, related to certain derivatives associated with the expansion project.

EBITDA in the first quarter of 2009 was $125 million, which was $9 million or 6% lower than a comparable period last year. Due to the discovery of the pipe anomalies, EBITDA was approximately $13 million below what was anticipated for the first quarter of 2009. Taking into consideration, the contract settlement and mark-to-market gain, which both favorably impacted 2008, along with the lost revenues and additional expenses incurred from pipe anomalies, EBITDA for the quarter would have been $90 million higher year-over-year.

In the first quarter we invested another $262 million into our expansion projects, bring our total investment, when we include the East Texas Pipeline to $4 billion. We have approximately $940 million remaining to invest in our expansion projects, which includes approximately $200 million for our Haynesville project. We expect to invest approximately $630 million during the remainder of 2009 and approximately $310 million in 2010.

We ended the quarter with a cash balance of $115 million and are fully drawn on our revolver at $954 million. To complete our core projects, we anticipate that we will need to raise approximately $500 million in financing in 2009 and 2010, not including the Haynesville project. We expect to use a mix of debt and equity for the remaining capital requirement.

As previously announced, our general partner and largest unit holder Loews Corporation, has advised us that it’s willing to provide up to $500 million of additional capital to us. We are currently working with lows on the terms of a subordinated debt financing. The Haynesville project will require approximately $200 million of additional financing, primarily in 2010.

In conclusion, we have made significant progress toward the completion of our expansion project. Although we are disappointed with the discovery of the pipe anomalies and the revenue delays they have caused, we anticipate that our estimated capital expenditures for the expansion project established over a year ago will be adequate to cover any additional cost associated with remediating the pipe anomalies. To further understand the risk and uncertainties surrounding our expansion project, you should read our 10-K and 10-Q reports, which are on file with the SEC.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Darren Horowitz - Raymond James.

Darren Horowitz - Raymond James

Jamie, first for you and I know that you guys are still working through this anomaly assessment, but can you just remind us what the contingency dollars were, that were set aside in your initial estimate and how much of that was remaining, net of what you spent in this first quarter?

Jamie Buskill

Well, we really haven’t disclosed how much is in contingency and I’ll just point you back to what we spent so far in the projects. When you include the East Texas Pipeline, we’ve invested about $4 billion to $5 billion, and we’re still receiving cost in, on the completion of those projects and we’re still doing the Red River Crossing on Fayetteville that Rolf mentioned.

Back when we set these estimates, as we said before, these are very complicated projects and there is a lot of risk. You’re certain to have some of those risks come to fruition, so we have build in a pretty sizeable contingency to deal with them and it is one of those risks that came to fruition.

Darren Horowitz - Raymond James

Okay. If it’s possible, when we’re looking at the East Texas line and what you’ve expensed so far based on what you’ve incurred, can you just give us a sense for the percent of expenses or cost you’ve actually expensed versus capitalized, so we have a bit of a benchmark going forward?

Jamie Buskill

Yes, the only expense so far really has been just about $1 million to run anomaly tool, which is in the O&M line. In addition, there’s some right away remediation that occurs, which is typical with these types of projects which can get expensed, that makes up less than $1 million.

In the future on East Texas, when we actually go in and replace the pipe, the cost of digging up the old pipe, that will be expensed and will show up in the future on the gain and loss on disposal of asset line, so it will be easy to distinguish that amount and then we will capitalize the new pipe that we fit in the ground.

Darren Horowitz - Raymond James

Okay, and then just one final question, when we’re trying to get a better idea of how to project what your throughputs going to be for the duration of this year, can you give us an idea of what “major sections that will need to be shutdown 2009” means? Is this a situation where we can use this current throughput and the associated revenues and expect that to perpetuate through the back half to this year or do you get the sense that as you guys take a deeper dive into this anomaly issue, you might actually see throughput and revenues be even less?

Jamie Buskill

Well we’re still working through the issues, so there’s still some unknown. If you look at throughput, in the first quarter we had about 539 TBtu on the entire system, versus 432 for the first quarter of last year. There is going to be a lot of noise in the number, particularly the second and third quarter as we deal with this issue. We’re still working on timing and working with PHMSA.

So, it’s difficult to pinpoint exact dates, but as we work today, you will see a hit in revenue as we operate under the lower pressures and then we have to take certain sections of the pipeline down in order to make the replacements.

Operator

Your next question comes from Gabe Moreen - Banc of America/Merrill Lynch

Gabe Moreen - Banc of America/Merrill Lynch

Just wanted to make sure there’s no penalties in terms of the reduced capacity you can be able to I guess offer your shippers for the next couple quarters? I guess there is no performance penalties on your partners, is that correct?

Rolf Gafvert

We don’t talk about specific contract arrangement. There will be some slight penalties related to that, but in the end, the lost revenue is the biggest driver on the financial results.

Gabe Moreen - Banc of America/Merrill Lynch

Flip side to that penalty question is whether there’s any recourse on your part in terms of going back to your contractors and seeing if you can get some reimbursement for some of the anomalies, which were discovered on the work?

Jamie Buskill

Gabe, we just make a practice not to comment about those types of issues.

Gabe Moreen – Banc of America Merrill Lynch

Okay, switching gears we’ve seen some storage spreads; the winter summer storage spreads look a little bit more attractive here. Are you seeing any more interest in the part of your clients in parking and lending services?

Rolf Gafvert

Yes, this is I think going to turn out to be a fairly good year. You’ve got relatively low prices in the current months and 2010 is as much as $2 higher. So we’re seeing quite a bit of interest and we’re gradually lagging into filing up now.

Gabe Moreen – Banc of America Merrill Lynch

One follow-up question Jamie; in terms of the subordinated debt comments from Loews, would that just be subordinated to the rest of the debts you got outstanding. So in other words you’re not contemplating doing something at either the pipelines levels; is that the way to read that?

Jamie Buskill

That would be subordinated to the revolver. Hopefully in the next few weeks, we’ll be able to announce more details on that arrangement.

Operator

Your next question comes from Jim Harman - Barkley’s Capital

Jim Harman - Barkley’s Capital

I got in the queue with five questions and I’m left with two. I guess question number one is, what percentage of the system do you think you need to check and question number two would be, do you have a range of potential revenue impacts that you’re going through the pipeline replacement?

Rolf Gafvert

I guess on the first question we intend to inspect all of our systems, all the new expansion pipes. So, we aren’t finished yet, but we’ve analyzed over three quarters of the pipe and as far as the revenue projections.

Jamie Buskill

Right, related to the revenue projections Jim, I’m not going to give you any projections. Although, we’re definitely going to see impacts in the second, third quarter and it’s very difficult to project that because we’re still working though the issues, but in the first quarter as we said, there was a $12 million impact to revenues from where we thought we would be and about $1 million impact to the expenses, because of the costs of the anomalies totaled on the East Texas Pipeline.

Operator

Your next question comes from Sharon Lui - Wachovia.

Sharon Lui - Wachovia

I’m just wondering if any of the lost revenue might be covered by insurance.

Jamie Buskill

Again Sharon, we’re not going to comment about those particular issues now. What I’m hopeful is that, at the end of the day that we can repair these anomalies and actually come in still a little bit lower than our cost estimate of the 4.8 and from a cash standpoint, to the extent that does occur, that will hopefully help offset some of the lost cash from the lower revenues.

Sharon Lui - Wachovia

For the Haynesville addition, the CapEx of $200 million, is the increase related to the additional compression that you’re adding?

Rolf Gafvert

Yes.

Sharon Lui - Wachovia

Okay, so that’s not because of cost creep from 105?

Rolf Gafvert

No.

Jamie Buskill

No Sharon, if you remember, it’s only about a 200 a day project last time when we talked about Haynesville. We in essence doubled the contract commitments.

Sharon Lui - Wachovia

Okay and just some housekeeping items; on the taxes and other income taxes line of $22 million, is that a good number going forward?

Jamie Buskill

That’s a pretty good number for the quarter. What happens is that, you start getting more of a full quarter impact earlier on when the revenues come in based on how that’s determined. So, you’ll still see a little bit of increase there, but the majority of the taxes are in.

Sharon Lui - Wachovia

Okay and the maintenance CapEx I guess for the quarter was a little light. Are you still comfortable with I guess the guidance of $68 million for the full year?

Jamie Buskill

Yes. As we said before, once all the projects are up and running we’re looking in the mid upper $60 million range.

Operator

Your next question comes from Ross Payne - Wachovia.

Ross Payne - Wachovia

First question is, can you just gives us a little more detail of what was causing the anomalies here on the joints, is it type of material or is it the way it was welded or what was kind of driving that?

Rolf Gafvert

Yes, what we’re looking at is essentially slight expansions of the pipe, which we feel occurred during the successful hydrostatic testing. This new inline inspection tool we use is able to actually detect expansions and as I said in less than 1% of the case, we found minor expansions and we’re still working to find a way around the problem.

Ross Payne - Wachovia

Okay. When you looked to add compressions to these systems in 2010, does this situation make it more difficult to add that addition compression over and above the normal compression you would add?

Rolf Gafvert

No. We feel very good that we’ll be able to fix this problem and all of the compression will work as planned.

Ross Payne - Wachovia

On the contract gain, I was wondering if I can get a little more detail on what’s the contract gain was.

Jamie Buskill

Yes, the contract gain was actually in the first quarter of 2008. It related to a bankruptcy settlement, basically related to a contract.

Ross Payne - Wachovia

Also, the CapEx budget, are you pretty much on at the same level as we were last quarter?

Jamie Buskill

Again, for the expansion project; I’m assuming that’s what you’re referring to; we’re looking at spending just over $600 million for the rest of this year and about $300 million next year and that includes the Haynesville project in those estimates as well.

Ross Payne - Wachovia

Okay, so that total is what now?

Jamie Buskill

Roughly $600 million for the remainder of 2009, and approximately $300 million for 2010.

Ross Payne - Wachovia

Okay so, that’s all in the $4 billion expansion program.

Jamie Buskill

We’ve spent $4 billion to-date and remember, the cost estimates was 4.8 for the core project and the added compression and then $200 million for Haynesville types that estimate to $5 billion.

Ross Payne - Wachovia

Two housekeeping items, the debt number at the end of the quarter and the shareholders equity if you have it.

Rolf Gafvert

Yes, the debt number at the end of the quarter was $3.51 billion and the equity was $3.214 billion.

Ross Payne - Wachovia

Okay, and on the sub-debts, so you’re looking to go to Loews for a potential debt and equity at this point, relative to hitting the capital markets.

Jamie Buskill

Again Loews has indicated to us that they’re willing to backstop up to $500 million of additional financing. We are working on doing a subordinated debt arrangement with them for a portion of that. Now ideally if the markets are cooperative, it’s possible we could do the remaining financing in the public markets, but to the extent the markets aren’t attractive, we could work with Loews on again for up to additional $500 million.

Operator

Your next question comes from Phyllis Gray - Dwight Asset Management

Phyllis Gray - Dwight Asset Management

Could you describe how these pipeline anomalies will be repaired?

Rolf Gafvert

Sure, we planed to actually, physically go out and find the anomalies which we have done, dig them up and what we’ll do is essentially shutdown a portion of the pipe and cut out that joint and put it in a pre-tested joint, weld it back in. That will take some time to do, but once that’s complete, then we should be able to operate at higher pressures.

Sharon Lui - Wachovia

The physical inspection is conducted how?

Rolf Gafvert

It’s an inline tool, which runs on the inside of the pipe.

Sharon Lui - Wachovia

So you’re going to peg the whole pipe?

Rolf Gafvert

Yes, I mean this is just a new peg, one that the industry hasn’t used in the past, but it obviously identified anomalies in this case.

Sharon Lui - Wachovia

How much pipe per day can be analyzed this way?

Rolf Gafvert

It moves at about five miles per hour, so 100 to 120 miles a day.

Sharon Lui - Wachovia

Just to clarify on the financing plans, the commitments from Loews, is that $500 million in total for a potential combination of debt and equity?

Jamie Buskill

Yes, if you go back, last year Loews actually made a commitment up to $1 billion. We did a $500 million equity deal with Loews in November last year and so that brought the number, remaining amount down to $500 million.

Sharon Lui - Wachovia

Your total need for this year was how much?

Jamie Buskill

Well again, if you look at what we’ve raised to-date, we’ve raised just over $4 billion and our financing needs for the remaining, with the Loews piece is about $500 million. Again, if the markets are available, we’ll build in the public market, but if not $500 million from Loews, then we’ll need approximately 200 additional million related to the Haynesville project.

Sharon Lui - Wachovia

Would that be project finance for that or at the Boardwalk level?

Jamie Buskill

It would either be Boardwalk that or even we may to that at the subsidiary level or equity.

Operator

Your next question comes from John Edwards - Morgan Keegan.

John Edwards - Morgan Keegan

Jamie, now the $13 million EBITDA shortfall or I guess below what you’re expecting this quarter, are you expecting a similar type of impact then for the next couple of quarters?

Jamie Buskill

Let me talk to that $13 million. The $13 million is strictly related to the anomaly. Another issue that you have in the quarter that you started up the project is that, typically those projects come on sometime during the month, and the way the process works, you take a full month of depreciation, you stop capitalizing interest for that full month, so you really get a full month of expenses, even though you don’t get a full month of revenues.

In addition, since shippers have to have their gas lined up and the process lined up before the month starts, it’s not unusual that that first partial month that your revenues don’t ramp up to the level that you anticipate. So normally there is a drag on your results when you startup a project because of those factors, that’s not in this $12 million.

To your question, there is going to an impact, probably second and third quarter. It’s hard to anticipate what that is because we’re still working through the plans of how to deal with the issue.

John Edwards - Morgan Keegan

Okay and then when did you discover the issue?

Jamie Buskill

Well, over the last few weeks a lot of activity has been around this related issue. Again, that’s why we can’t provide some clarity, because we’re still working through it. As Rolf said, we’re about three quarters of the way done in analyzing the pipe.

John Edwards - Morgan Keegan

Okay and how far were you done as of the end of the first quarter?

Jamie Buskill

John I don’t know, we’d have to go back. I don’t know how much we were at the end of the first quarter.

Rolf Gafvert

All of the 42-inch pipe has been pigged with this tool and a portion of the Fayetteville has as well.

John Edwards - Morgan Keegan

Okay. I mean I was just trying to get an idea of how much in terms of anomaly, in effect, as of the end of the first quarter you have a $13 million hit. So, about how much of the process was complete then and are there going to be other anomaly? How much other anomaly hits can we expect in the second or third quarter? It sounds like your saying you don’t really now.

Jamie Buskill

Well John, a couple of things. First of all, as Rolf went throughout all the projects, they’re all operating at a lower pressure because of the anomaly. So, we’re realizing the impact of the lower operating pressures now.

As far as the expense of running the tool, that’s only related to the East Texas project, because that project was completely in service. Any other cost related to the anomaly tool runs on the other projects will be capital. The issue you’ll deal with in the second and potentially third quarters will be when you have to shutdown sections of pipe completely in order to replace the pipe. As far as the reduction and volumes, we’re realizing that on all the projects right now.

John Edwards - Morgan Keegan

In terms of the reduced volumes, so what’s your expected EBITDA hit from that?

Jamie Buskill

Again I can’t give you any guidance there other than what happened in the first quarter and again, the first quarter has the noise from just the normal start up process that you have with the project, but as Rolf mentioned, on East Texas we’re flowing about 1.1 a day versus the 1.4; on South East we’re flowing 0.5 Bcf a day and ultimately that will get up to 1.9 and we’re flowing about 0.7 Bcf on Gulf Crossing, eventually that will be up to 1.4 and when we add compression it’ll go to 17. Then on the Fayetteville we’re flowing about 0.7 a day anticipated to be at 0.8 and then once all the compressions on, it’ll go to 1.3.

Operator

Your next question comes from Steve Maresca - Morgan Stanley

Steve Maresca - Morgan Stanley

My question is, is it reasonable to think or are you hoping that we can get up to full capacity on these lines that Rolf went over, at some point in 2009?

Rolf Gafvert

Yes, I think we’re hopeful that we can return to full capacity at the higher operating pressures.

Steve Maresca - Morgan Stanley

But it’s just the exact timing of that; it’s just a process and right now difficult to say whether that’s third quarter or fourth quarter.

Rolf Gafvert

Yes, I think some pipes will go in as quick as they can. In other words we have a work plan that we’re actually developing and we’ll attack the easiest pipes to get back-up first, but at this point we really can’t say exactly when it will be at full capacity.

Steve Maresca - Morgan Stanley

Okay and a question just in general on construction costs, how are you seeing them these days in light of the economic environment. Have they come down at all?

Rolf Gafvert

Yes, on some of the compression projects we’re seeing a lump sum bid now from the contractors, which takes a lot of the construction cost risk off of us. So, that’s certainly been a change, which is obviously due to the economic conditions.

Steve Maresca - Morgan Stanley

Finally, realizing that it’s a small amount, but in light of the fact that you’re potentially going to have weaker volume revenues in 2009 from these anomalies, can you discuss the decision to raise the distribution even though again, I realized its not wasn’t huge, but just your thoughts behind that?

Jamie Buskill

The issue we’re dealing with is really a start-up issue of just starting the projects up and not a permanent type issue. So when we look at distributions, we look at the long term cash flows of the company and what we project occur and that’s why we are comfortable raising by the $0.5.

Operator

Your next question comes from Ross Haberman - Haberman Funds.

Ross Haberman - Haberman Funds

Jamie, I just have two quick questions. Can you specify exactly, how much is going to cost you to find and fix these issues? I know you talked about revenue and costs in the first quarter, but have you felt out a dollar of cost?

Jamie Buskill

No, we haven’t Ross, not at this time. Again, we’re still working through the issues and identifying the work plan as Rolf mentioned. So, it’s hard right now to pinpoint what that cost would be, but again looking at a high level and looking at where we are on the spin to-date and the amount of contingency, we are comfortable at this point to say that we can do with our cost estimates that we gave a year ago.

Ross Haberman - Haberman Funds

Which were?

Jamie Buskill

Which was $4.8 billion; what I call the core projects plus the added compression.

Ross Haberman - Haberman Funds

So, any cost to correct the issue will be included with that?

Jamie Buskill

Yes.

Operator

Your next question comes from Brian Burge - Legal and General.

Brian Burge - Legal and General

Just to clarify; the $500 million capital that you are looking for; its 2010 and 2011 and not 500 in 2010 and then another 500 in 2011?

Jamie Buskill

No, the 500 plus 200 for Haynesville, 700 it’ll be in 2009, 2010. We really haven’t specified how much a year.

Brian Burge - Legal and General

So, but it’s a total number, okay. As far as the equity raise for Loews, why go the sub-debt route, why wouldn’t it be a permanent equity?

Jamie Buskill

Well, there is a lot of factors that we go into, looking at our financing. As we talked about earlier as to where our balance sheets stands, we’re weighted a little more heavily right now to the equity side. We feel like debt is the right answer at this point and that’s entered into the decision.

Brian Burge - Legal and General

Okay and it’s as far as debt as a percent of equity, but as far as debt levels as a percentage of EBITDA and things of that nature, I mean it’s obviously sometime that I assume the rating agencies are looking at. Have you ever had any conversations with the agencies prior to this release on some of the anomalies?

Jamie Buskill

First of all, we stay in constant contact with the rating agencies, but you are correct, debt-to-EBITDA is an important factor to us, but again we look at things on the projected EBITDA contribution going forward that the projects will add; because again, this is a startup issue related to the projects, not what we view as a permanent difference.

Brian Burge - Legal and General

Okay and I guess the final question is the leverage covenant, is there one in the bank line?

Jamie Buskill

There is on the revolver; it’s a debt-to-EBITDA five times, but the EBITDA does give credit for the EBITDA contribution on the projects based on the percent of capital invested in the projects.

Brian Burge - Legal and General

Will it be possible to get a more detailed description of that covenant if I contact the Investor Relations?

Jamie Buskill

Yes.

Operator

(Operator Instructions) Your next question comes from [Adam Rosenberg - ZLP].

Adam Rosenberg - ZLP

My first question; for Gulf Crossing, it’s flowing at 0.7 Bcf per day. Approximately, when during the quarter did that come online?

Jamie Buskill

I have to go back and check. I believe it’s some time in February, but I’m sure of the exact day.

Adam Rosenberg - ZLP

Okay and I apologize I missed the first two minutes of the call. You are checking your whole systems for anomalies and so far where have you found them?

Rolf Gafvert

We found them pretty much on all of our systems to varying degrees, all of our expansion.

Adam Rosenberg - ZLP

Okay so as of the 10-K, you guys have found them on East Texas and now we’re saying Gulf Crossing as well and Southeast Expansion, Fayetteville, Greenville Laterals.

Rolf Gafvert

Yes, we haven’t checked all of the Fayetteville and Greenville systems yet, but on all of our expansions we found some incident of expansion.

Jamie Buskill

And Adam I don’t know if you were on the call, but Rolf mentioned in his presentation that it represents less than 1% of the total pie.

Adam Rothenberg - ZLP

Okay and have found that where you’re finding the anomalies that this pipe is coming from, let’s say the same mill or same contractor?

Jamie Buskill

We’re not going to comment on that.

Adam Rothenberg - ZLP

Okay and what’s the timeline for fixing these anomalies after you find them? Can we expect that it will be all fixed by the end of ’09?

Rolf Gafvert

I think that’s what we indicated. We certainly are hopeful that we will have these anomalies repaired by the end of’09

Operator

Ladies and gentlemen that concludes our question-and-answer session. I would now like to turn the meeting over to Allison McLean for closing remarks.

Allison Mclean

I would like to thank everyone for joining us this morning. We appreciate 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

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.

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