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Executives

Alison McLean – Director, Investor Relations

Rolf Gafvert – Chief Executive Officer

Jamie Buskill – Chief Financial Officer

Analysts

Sharon Lui – Wells Fargo

Stephen Maresca – Morgan Stanley

[Yves Siegal – Credit Suisse]

Ross Payne – Wells Fargo

[Ryan Greener – Harvest Fund Advisors]

Ross Haberman – Haberman Funds

John Edwards – Morgan Keegan

[Adam Rothenburg – Zimmer Lucas Partners]

Darren Horowitz – Raymond James

[Robert Cashwish – Burnham Securities]

[Jeremy Tom – UBS]

Boardwalk Pipeline Partners LLC (BWP) Q2 2009 Earnings Call July 27, 2009 9:00 AM ET

Operator

Welcome to the second quarter 2009 Boardwalk Pipeline Partners LP earnings conference call. (Operator Instructions) I would now like to turn the presentation over to Alison McLean, Director of Investor Relations.

Alison McLean

Good morning everyone and welcome to the second quarter 2009 earnings call for Boardwalk Pipeline Partners LP. I'm Alison 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 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 fact are forward-looking statements.

These statements are based on management's beliefs and assumptions using currently available information and expectations. Actual results achieved by the company may differ materially from those projected in any forward-looking statements. The company expressly disclaims any obligation to update or revise any forward-looking statements made during this call.

I'd also like to remind you that during this call today, we may discuss certain non-GAAP financial measures such EBITDA. With regard to such financial measures, please refer to our earnings release for reconciliation to the most comparable GAAP measures.

Now, I'd like to Mr. Rolf Gafvert.

Rolf Gafvert

Thank you Alison and good morning everyone. I hope all of you have had a chance to review the press release we issued this morning. We have made substantial progress on our pipeline anomaly remediation efforts and our base business continues to perform as expected.

As a result, last Thursday we declared a second quarter distribution of $0.49 which is a half a cent increase from the previous quarter. Since becoming a public company in 2005, we have increased our distribution each quarter.

As we indicated during last quarter's earnings call, net income for the second quarter was negatively impacted by pipeline anomalies on our expansion pipeline projects. During the second quarter we had month long shutdowns of portions of the expansion pipelines and operated the remainder of these projects at reduced operating pressures which would reduce through put and revenue.

Over the last three months we have made substantial progress addressing the anomalies on the East Texas pipeline, Southeast and Gulf Crossing expansion projects. In April, we entered into an agreement with the Pipeline and Hazardous Material Safety Administration known and PHMSA which modified each of our special permits that define the testing protocol and remediation efforts for these pipelines including replacement of certain pipe joints that contain anomalies.

We have been working diligently to remediate those anomalies and to gain authority to increase operating pressures on our expansion projects.

As we stated in our press release, the Gulf Crossing pipeline was shut down for remediation during June and as a result effective July 1, Gulf Crossing received authority from PHMSA to operate at normal operating pressures of 72% of SMYS.

We are performing additional tests and working with PHMSA for authorization to operate Gulf Crossing at 80% of SMYS. However, we cannot predict whether or when we will receive this authorization.

In May and July portions of the Southeast pipeline and the East Texas Pipeline were shut down for anomaly remediation. We expect to complete remediation on these pipelines and subject to PHMSA approval, plan to operate these pipelines at normal operating pressures of 72% of SMYS by August 1. We continue to work with PHMSA for authorization to operate these pipelines at 80% of SMYS. Again, we cannot predict whether or when we will receive that authorization.

While our 42 inch pipeline projects combined, Southeast, East Texas and Gulf Crossing, there are approximately 96,000 pipe joints. Each joint is approximately 40 feet in length. Out of 96,000 joints, less than 200 joints were found to have anomalies. By August 1 we expect the remediation efforts on all these projects to be complete and we anticipate no further outages for anomaly remediation will be necessary. We also expect to meet substantially all of our current contractual obligations at this time.

Now I'll give an update on the 36 inch pipeline projects, the Fayetteville and Greenville laterals. We are continuing to test the Fayetteville and Greenville laterals for anomalies. We have run a high resolution tool on approximately 200 out of the 260 miles of these laterals and we planned to run the deformation tool on the final 66 miles out of Fayetteville lateral and plan to analyze the results in the near future.

Out of approximately 26,000 joints inspected to date, approximately 230 joints or slightly less than 1% appear to have anomalies. Fayetteville and Greenville will continue to operate at lower than normal operating pressures until anomaly remediation work is completed.

We are working with PHMSA on a remediation protocol to be adopted to return these pipes to standard operating pressures. We expect that anomaly remediation could begin as soon as September and may take one to five months to complete.

During that time, portions of the laterals may be shut down for remediation and Boardwalk will attempt to schedule repairs in a manner which will maximize the amount of gas that can flow. These time frames remain tentative until the remediation protocol for the Fayetteville and Greenville laterals have been developed and we have received PHMSA approval.

Based on the remediation work we have performed on our 42 inch expansion pipelines, and the information we have obtained to date for the Fayetteville and Greenville laterals, we anticipate that our estimated capital expenditures budget for all the expansion projects which we have announced over a year ago, will be more than adequate to cover the cost of completing the projects including additional costs associated with remediating anomalies.

Jamie Buskill, our CFO will discuss our capital spending in greater detail in a few minutes.

As a result of operating our pipeline projects at reduced levels including temporary shutdowns, during the second quarter our transportation revenues from these projects under firm contracts, excluding fuel were approximately $58 million lower than expected.

Our revenues and net income for the remainder of 2009 will continue to be negatively impacted by shutdowns of portions of expansion pipelines and the operation of these lines at reduced operating pressures.

We cannot predict the impact of our revenues and net income for the third and fourth quarters; however, we believe that the magnitude of the lost revenue will lessen each consecutive quarter as we complete additional pipeline remediation efforts.

Now I'd like to give you a recap of where we stand on our other projects. We filed the formal PERC application for our Haynesville project in May. As mentioned previously, we have signed agreements for .4 Bcf per day at a weighted average contract life in excess of 11 years and expect to be in service by late 2010.

We have received PERC approval for the Gulf Crossing, Fayetteville, Greenville compression expansion projects. We expect to complete both projects in 2010.

By adding compression, we expect to increase our peak day delivery capacity to 1.7 Bcf per day for Gulf Crossing, 1.3 Bcf a day for Fayetteville and 1 Bcf per day for Greenville subject again to PHSMA approval.

The final portion of our Western Kentucky stores expansion project is on schedule and we expect to be in service on November 1, 2009. This project is sold out on a firm basis with market base rates. These other projects are anticipated to be completed at or below our disclosed cost estimates, reflecting the improved pricing environment for labor and materials.

Now I would like to provide an update on our Parking and Lending business. As we mentioned last quarter, we continue to see favorable pricing spreads between the spot price of natural gas and the futures market and anticipate higher parking and lending revenues in 2009 when compared to 2008.

That concludes my overview for Boardwalk. I would now like to turn the call over to Jamie who will share with you the financial results for the quarter, and we'll also provide further detail on our capital and financing plans.

Jamie Buskill

Good morning everyone. Operating revenues for the second quarter 2009 were $201 million which is an increase of $11 million or 6% from $190 million for the comparable period in 2008. The increase was driven by transportation revenues from our pipeline expansion projects and higher storage and park and loan revenues which were approximately $5 million above last year due to favorable natural gas spreads and the Western Kentucky storage expansion.

However, as Rolf mentioned, excluding fuel, our transportation revenues were approximately $58 million lower than expected, reflecting shut downs for pipe remediation and operating at reduced operating pressures.

Operating expenses for the second quarter 2009 were $148 million, an increase of $39 million or 36% from $109 million from the comparable period in 2008. The increase was driven by higher depreciation and property tax expenses related to the expansion projects, higher operating and maintenance costs from maintenance projects and expansion of operation, and approximately $4 million of expense related to remediation efforts on our East Texas pipeline.

In addition, the 2008 period was favorably impacted by $15 million gain from the sale of storage gas related to our Phase 3 Western Kentucky storage project.

Net income for the second quarter of 2009 was $20 million, a decrease of $45 million or 69% from $65 million for the comparable period last year. The decrease was driven by the revenue and expense drivers previously discussed and higher interest expense resulting from lower capitalized interest associated with placing expansion projects in service and increased debt levels in 2009.

EBITDA in the second quarter of 2009 was $105 million, a decrease of $8 million or 7% from $113 million for the comparable period of last year. EBITDA was unfavorably impacted by approximately $62 million due to the shut down, pressure reductions and remediation related to pipe anomalies.

In addition, second quarter 2008 EBITDA was favorably impacted by gains of $19 million from gas sales and mark to market activity related to certain derivatives associated with the expansion projects.

In the second quarter we invested another $180 million into our pipeline projects including $10 million for pipeline remediation, bringing our total investment to $3.2 billion and with factoring in our East Texas project, our total investment stands at $4.2 billion.

As Rolf previously stated, we anticipate the expansion projects will come in below the budgets that we established for these projects well over a year ago. We currently estimate the total cost to remediate the anomalies on our 42 inch pipeline projects, including Southeast, East Texas and Gulf Crossing to be approximately $55 million.

We are still testing portions of the Fayetteville lateral and developing a remediation plan with PHMSA for the 36 inch pipe.

During the second quarter, we issued $150 million in equity to a subsidiary of Loews Corporation and borrowed $200 million under a subordinated debt agreement from the same Loews subsidiary.

We used the proceeds from these issuances to fund a portion of the cost of the expansion projects and to reduce borrowings under our revolving credit facility. As a result of these transactions, we ended the quarter with $704 borrowed against our revolver with available commitments of $246 million and a cash balance of $72 million.

To complete our expansion project into 2010, including our Haynesville project, we anticipate that we will utilize cash generated from operating activities, borrowings on our revolving credit facility and a total of approximately $350 million of debt and equity financing.

As Rolf mentioned, during the second quarter we have made significant progress on the pipe anomaly remediation and completing the construction of our pipeline projects. We will continue to work with PHMSA in remediating the pipe anomalies and obtaining the necessary approvals to operate these projects at normal operating pressures as well as the higher operating pressures under the special permits, and as a result, we expect the earnings impact of the pipe anomaly issue to diminish quarter over quarter during the remainder of 2009.

PHMSA maintains the discretion as to whether to grant or to maintain in force authority to operating any of our expansion pipelines at normal operating pressures at 72% of SMYS or at higher operating pressures at 80% of SMYS.

To further understand the risk and uncertainty surrounding our expansion projects, 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 the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sharon Lui – Wells Fargo.

Sharon Lui – Wells Fargo

I was wondering if you could give a breakdown of the loss revenues by pipeline.

Jamie Buskill

No, Sharon, we're not going to provide it by pipeline since we haven't provided projections there on a pipeline basis. We're not going to provide that.

Sharon Lui – Wells Fargo

Is it reasonable to assume the bulk of it perhaps came from Gulf Crossing?

Jamie Buskill

We did have Gulf Crossing for the whole month of June while we repaired the anomalies. If you look at East Texas and Southeast, we were down part of the month of May for that as well as, we took the other half of those projects down in July. So from a second quarter standpoint, Gulf Crossing was down the longest of any of the projects. Now remember, the other projects were operating at reduced pressures.

Sharon Lui – Wells Fargo

In terms of getting the approval to operate at 80%, what are the necessary steps that you need to take right now? Are you pretty much just waiting for PHMSA or do you need to provide additional information?

Rolf Gafvert

Yes, we have to provide additional information. We are still conducting tests on some of the sample pipe that we removed and we expect those tests to take several weeks. And then once we have all of that data, we can submit that to PHMSA and plan to go to 80%.

Operator

Your next question comes from Stephen Maresca – Morgan Stanley.

Stephen Maresca – Morgan Stanley

Thanks a lot for the detail on the pipelines. Is it something you figured out how this happened, it's a small amount relative to the number of total pipe joints, but is it something where you have any recourse or is something that was done at the manufacturer, or how it happened and maybe in the future is it something that can be prevented?

Rolf Gafvert

We still don't have a final root cause analysis on it. We're continuing to work on that with a lot of help from folks that are knowledgeable in this area. But as far as what we would do in the future, I think everything we did in terms of the type of pipe and the specs that we ordered that pipe under, certainly met all of the requirements of industry standards.

So we're still not sure why this happened, but we'll certainly in the future try to look even more closely at what we could do.

Jamie Buskill

One thing worth noting is, we've conducted over 2,000 individual laboratory tests to date and with that we still haven't identified a root cause for all the anomalies.

Stephen Maresca – Morgan Stanley

A couple of clarification questions, Gulf Crossing as of right now as of July 1, is running at 72% so that is normal, and that is what's expected so you're getting the revenues that you should be getting from Gulf Crossing right now?

Jamie Buskill

We are running at 72%. Our systems are designed to get to the 80% and that's really where we need to be. But that's really a bigger issue when the compression comes on late this year, early 2010.

Stephen Maresca – Morgan Stanley

And the same thing for Southeast and East Texas, although it's August 1 when you think you'll get to that normal 72%. Is that right?

Rolf Gafvert

Yes.

Jamie Buskill

One thing to clarify is on July 1, because we received notice so late in June, we allowed our customers to be invoiced on a volume metric basis. For the month of July, it's a one part rate we call it where the demand component and the commodity component will be charged based on flow. We just didn't think it was fair to implement the demand portion with such a later notice.

Stephen Maresca – Morgan Stanley

On the CapEx and liquidity details which you gave, which again thanks, so going forward through 2010, you plan to use cash borrowings under your revolver and an additional $350 million of debt and equity through the end of next year to get this done. Is that correct?

Jamie Buskill

That is correct. If you look at to date we've financed a little over $4.2 billion. We have liquidity of just over $300 million from cash and what's available on our revolver, and then as you pointed out, we plan to either issue equity or debt for an additional $350 million.

Operator

Your next question comes from [Yves Siegal – Credit Suisse]

[Yves Siegal – Credit Suisse]

On the anomaly remediation, could you elaborate on what you actually do? Is it replacing pipe, or if you don't replace the pipe, how can you cure the anomaly?

Rolf Gafvert

We actually go in and physically remove the actual joint of pipe, roughly 40 feet, cut it out and then weld a pre-tested piece of pipe that we know is good and weld that back in place, and just do that over and over again. So it's a fairly standard procedure. That's essentially what we've done.

[Yves Siegal – Credit Suisse]

In terms of the rate design on the projects, were they predicated on operating at 80%? I guess the way I'm thinking about it, in order to make the returns that you anticipated making, do you really need to operate it at 80%?

Jamie Buskill

There's two questions there. There's the right design, and the right design is what it is. It's based on the investment and the facilities and your operating costs. From a contractual standpoint yes, it's set up based on an 80% SMYS.

[Yves Siegal – Credit Suisse]

What are the variable costs? When you think about losing $58 million of revenue and losing $62 million of EBITDA, is the $4 million differential the increased expense related to remediation? Can you help me understand the bottom line impact or the cash flow impact?

Jamie Buskill

That's really the dilemma we're in. We're incurring most of the expenses and yet the revenue is slower coming on than expected. The biggest expense that you'll have that's not reflective on the current financials will be fuel expense, but basically there will be an offsetting item in the revenue line for the fuel revenues. So from an EBITDA impact, that's not going to have much of an impact.

As we come on with compression and other things, you'll see a little bit more in your impacts and a little bit in operating expense. That's the lion share of where those expenses are hitting now.

[Yves Siegal – Credit Suisse]

Turning to Parking and Lending, as you look through the second half of the year, is there any way to ball park how much capacity you have in terms of how big the revenue contribution might be in the second half of the year?

Jamie Buskill

One thing as we've said in the past, it's very difficult to model what Park and Lending revenues may be. If you look at the last five years and you average in the two extremely high years that we had back in 2006 and 2007, our average Park and Lending has been roughly $25 million to $30 million. Again, that factors in those high years.

As Rolf mentioned, the Park and Lending business looks like its going to be really strong this year, much stronger than last year and so that's about the most guidance we can give you.

Rolf Gafvert

We have some capacity left to sell and we're just continuing to monitor the market and we will sell whatever remaining capacity we have when the market looks favorable.

Operator

Your next question comes from Ross Payne – Wells Fargo.

Ross Payne – Wells Fargo

What was the debt number at the end of the quarter?

Jamie Buskill

Debt number at the end of the year was right at $3 billion and equity was about $3.3 million, so we're at about 48% debt at the end of the quarter.

Ross Payne – Wells Fargo

So those were quarter end numbers?

Jamie Buskill

Yes.

Ross Payne – Wells Fargo

For you $350 million in additional financing that's needed, looking at Loews had committed prior to, are you expecting about $150 million in additional debt from Loews as a part of that, or what's your thinking?

Jamie Buskill

There's really two questions there. If you go back to the original commitment, Loews said they would backstop up to $1 billion. They've completed about $850 million of that, so there's an additional $150 million that's there. Ideally, we'll be able to go to the public market for that.

As far as remaining financing, it's hard to say at this point whether it's going to equity debt or a combination thereof. If you look at our liquidity position right now, we're really in much better shape today than we probably were at the first quarter. We have just over $300 million of liquidity when you look at the revolver capacity.

So with that, that gives us some flexibility and a lot's going to depend on when we do the financing and the cost of the financing.

Ross Payne – Wells Fargo

If you can comment on your reaction to S&P's outlook that came out a week ago.

Jamie Buskill

You're referring to the negative outlook S&P came out with last week. I can really only tell you what's in that presentation because what they had in their presentation is basically what they told us. In the end, I think they're looking for us to come in at or below budget on these projects and to have the revenues start coming in as promised.

Again, we think we've made a lot of progress there with Gulf Crossing on July 1, and we're hopeful by August 1, the other 42 inch projects will be coming in online with the normal operating pressures.

Ross Payne – Wells Fargo

And that's at 80%, right?

Jamie Buskill

No, normal would be 72% and then we will be working to get to the 80%.

Operator

Your next question comes from [Ryan Greener – Harvest Fund Advisors]

[Ryan Greener – Harvest Fund Advisors]

What's your debt EBITDA covenant?

Jamie Buskill

The covenant on our revolver is debt really to an adjusted EBITDA and it's five times. And the way that works is we receive EIBTDA credits for our expansion projects based on the percent invested on those projects.

[Ryan Greener – Harvest Fund Advisors]

Are your creditors allowing you to exclude expenses associated with the anomalies from your EIBTDA calculation?

Jamie Buskill

The adjusted EBITDA factors in the impact of one time type items.

Operator

Your next question comes from Ross Haberman – Haberman Funds.

Ross Haberman – Haberman Funds

Could you repeat when you expected to have all the pipelines back up to full capacity? I didn't quite understand it. I got on a little late.

Jamie Buskill

What Rolf mentioned was that we expect all the 42 inch pipelines to be at 72% on August 1, which will substantially be serving all of our current contract demands at that point. And then we're working with PHMSA to get to the 80% level.

For our Fayetteville/Greenville, we're still analyzing that data and we really don't have a timeline yet as to when we may return to the 72%.

Ross Haberman – Haberman Funds

Any sense of how long it might take you to get to the 80% you mentioned?

Jamie Buskill

No. We're working closely with PHMSA. We were encouraged at how quickly PHMSA allowed Gulf Crossing to go up to the 72% once we completed the remediation and as I mentioned, we've done over 2,000 laboratory tests with PHMSA involved in looking at those results, so we're really working with them to get t here as soon as possible.

Ross Haberman – Haberman Funds

The total amount of share equivalents at the end of the quarter were what?

Jamie Buskill

In total we had the number of units issued was approximately 184 million issued, and that includes roughly 23 million as a class B unit.

Operator

Your next question comes from John Edwards – Morgan Keegan.

John Edwards – Morgan Keegan

Can you talk a little bit about how your volumes were impacted during the quarter? You mentioned you had Gulf Crossing down for one month and you had the other two pipelines down for a partial month. If you could translate that at all into volumes, that would be appreciated.

Jamie Buskill

Obviously the largest share of the revenue comes from the demand charges so you collect those whether you're flowing the volumes or not, as long as your system is operating as designed. If you look at our through put, in the second quarter we moved approximately 523 TBtu versus second quarter of 2008 it was 425, so we're up about 23% for the quarter.

If you look year to date, we're at 1,062 TBtu versus 857 which again is about a 24% increase from last year.

John Edwards – Morgan Keegan

Okay, but if you're taking the pressures down, you're not able to collect your full demand charges, right?

Jamie Buskill

That's right. That's where we give the demand credit and that's what makes up what Rolf mentioned, the $58 million lower for the quarter and if you look for the year, it's about $70 million in lower revenues due to those credits.

John Edwards – Morgan Keegan

Do you have a sense, you haven't given any indication of when you think PHMSA is going to approve, but is there some kind of a typical time frame? I realize this is not really a typical issue, but can you give any insight there as far as potential timing that could possibly be helpful to us.

Rolf Gafvert

As I stated earlier, we still have some additional testing to do on the pipe itself that we've taken out and we expect that to take a few more weeks, and this is on the 42 inch pipe. Once that's finished, then it's a matter of working with PHMSA to demonstrate that the pipeline is ready to go to 80%. We still have a few weeks of testing left, and then after that, there's a period of time that we will be working with PHMSA. It's hard to exactly know.

John Edwards – Morgan Keegan

Would it be fair to say you expect to build; you'd be up to 80% by the beginning of the fourth quarter or would by the end of the year be a more realistic assumption?

Jamie Buskill

We're not going to speculate on that. As Rolf mentioned, we're working very closely and diligently and as quickly as possible, but we can't control the outcome there, so it would be, we're just not going to speculate.

Operator

Your next question comes from [Adam Rothenburg – Zimmer Lucas Partners]

[Adam Rothenburg – Zimmer Lucas Partners]

I wanted to follow up; the $62 million impact to EBITDA, so that does imply that it's a $4 million OpEx impact and a $58 million impact?

Jamie Buskill

Yes. $58 million revenue, $4 million in expense and our expenses as you recall in our East Texas project that was completely in service and running at 80% for about a year. That project was completed so to come back and do some of the work there for accounting purposes, we had to expense it rather than capitalize.

[Adam Rothenburg – Zimmer Lucas Partners]

So when I take your $104.8 million of EBITDA for the quarter and add in the $62 million, I get to $166.8 million so that would have been your normalized EBITDA for Q2?

Jamie Buskill

That's a fair statement, yes.

[Adam Rothenburg – Zimmer Lucas Partners]

And would I add back the $10 million of remediation on East Texas or is that already in there?

Jamie Buskill

That's really capital, is that what you're looking at, the capital piece? The $10 million is capital expenditures. That's the $55 million we were talking about that we expect that will end up costing on the 42 inch. That's the capital cost.

[Adam Rothenburg – Zimmer Lucas Partners]

From your inception to date on Southeast expansion you're $744.1 million. Is that basically the final cost on Southeast including all remediation?

Jamie Buskill

No, we expect Southeast right now coming in about $755 million. What happens, although taking out the compression on Gulf Crossing and Fayetteville that's being completed the later part of this year, early 2010, there is a certain lag you get on invoices and then there's also just your normal clean up and negotiating of disputed items you may have with the contractor. So it's not unusual for it to take several months before you get the final invoices agreed to and paid.

[Adam Rothenburg – Zimmer Lucas Partners]

So the $755 million on Southeast and then what's the number for Gulf Crossing?

Jamie Buskill

Approximately, we spent about $1,582 million and we're looking at somewhere around $1,765 million.

[Adam Rothenburg – Zimmer Lucas Partners]

$1,765 million, does that include the expansion?

Jamie Buskill

That includes the compression, yes.

Operator

Your next question comes from Darren Horowitz – Raymond James.

Darren Horowitz – Raymond James

When you're looking at interruptible service charges relative to that of firm capacity reservation charges for the composition of your revenue next year, how does that break down look?

Jamie Buskill

If you look at total 88% of our revenue is from firm related contracts. About 12% right now is running from interruptible pipe services. That's going to go up as these projects start coming on to their full capacity, because you're not really increasing you interruptible Park and Lending capabilities, and all these projects are sold out on a firm basis.

So it's going to go up, but I'm not going to provide a number. But it will be higher.

Operator

Your next question comes from [Robert Cashwish – Burnham Securities]

[Robert Cashwish – Burnham Securities]

How widespread is this anomaly problem in the industry?

Rolf Gafvert

We don't really know. I think it's something that the industry is going to work through over some period of time, so at this point it's too early to really comment on that.

[Robert Cashwish – Burnham Securities]

Are you aware of it existing within any other companies?

Jamie Buskill

We're not going to comment on other company's. We will say though that the fact that SMYS has put out an industry wide bulletin and we can tell you there's been several industry wide meetings with different groups to talk about the issue. I'll let you know that it's something the whole industry is looking at.

[Robert Cashwish – Burnham Securities]

I'm going to make an assumption and then ask a question. Assuming that all of the large pipe projects are operating and that you're also operating Greenville and Fayetteville in 2010, my question is how much of a percentage increase and revenues might we expect in 2011 from the capital spending that you'll be completing to take up the utilization of your capacity of these various projects? What effect might that have on revenues in 2011 assuming 2010 is functioning on a normalized basis?

Jamie Buskill

We do not provide guidance as far revenue forecasts. I will tell you that all of these projects are sold out and because of when these projects come on line, for example the compression related to these projects, is designed to come on in the first part of 2010. When you add in our Haynesville project which is designed to come in the later part of 2010, you'll see revenue growth as those projects come in up through 2011, becomes the first year when you start seeing a full year impact from all these projects. I'll just have to leave it there.

Rolf Gafvert

Also, to note what I mentioned earlier is the fact that all these projects are coming in under our original forecast budget. So in terms of the return of those projects, they ought to be better.

[Robert Cashwish – Burnham Securities]

Might we also expect you to engage in additional expansion activities in 2011 assuming all of this is functioning properly?

Rolf Gafvert

We don't necessarily see any opportunity for really major construction projects right now. With obviously lower gas prices which also will lower rig counts at the supply push that we've seen for the last couple of years is probably going to moderate somewhat. So we're focused more on optimizing the overall footprint that we have right now.

To the extent that something is out there, we'll certainly look at competing for that kind of opportunity.

Jamie Buskill

To Rolf's point, we feel like we have a very good footprint in the market and projects like the Haynesville project is a good example of where we can lever our resources and our footprint. And those are really the type of projects we'll be focused on.

Operator

Your next question comes from Ross Payne – Wells Fargo.

Ross Payne – Wells Fargo

The $104 million EBITDA, does that include the unrealized mark to market of what I calculate to be about $19 million in the quarter? You gave a six month number on the mark to market.

Jamie Buskill

We had a gain in 2008, for six months we had mainly about a $6 million hedge gain related to pad gas that we used for one of our expansion projects and that is included in our reported EBITDA number for 2008.

Ross Payne – Wells Fargo

And nothing for the '09 quarter I guess.

Jamie Buskill

No, there isn't anything in 2009.

Operator

Your next question comes from [Jeremy Tom – UBS]

[Jeremy Tom – UBS]

A question on the operating cost expenses, could you give a little detail on the net loss on disposal of operating assets and related contracts, that $5.5 million expense?

Jamie Buskill

Most of that is related to our East Texas project. Because that project was already in service, when we go in and cut out the sections of pipe that Rolf was mentioning, for that East Texas project only, we have to retire those costs and write that off and that's what most of that represents. It's really a non cash cost because the investment was made some time ago.

Operator

Your next question comes from [Robert Cashwish – Burnham Securities]

[Robert Cashwish – Burnham Securities]

The effect of lower gas prices, other than on the Park and Lending business, is there any effect this has on your pipeline revenue business?

Rolf Gafvert

No. Jamie mentioned, we're essentially sold out on all of our pipes, so we don't really see any issues.

[Robert Cashwish – Burnham Securities]

What about on contract renewals? Does it have an effect there in terms of your negotiating ability?

Rolf Gafvert

Contracts don't come up for renewal on the new projects for, most of them around 10 years.

[Robert Cashwish – Burnham Securities]

I'm thinking the old projects, the old contracts.

Rolf Gafvert

Again, we're completely sold out on our existing legacy systems and those contracts have a weighted average life of about six years. So the answer is no. We don't necessarily see any near term impact.

Operator

This concludes today's question and answer session. I would now like to turn the call back to Alison McLean for closing remarks.

Alison McLean

Once again, I'd 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.

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Source: Boardwalk Pipeline Partners LP Q2 2009 Earnings Call Transcript
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