Niska Gas Storage Partners CEO Discusses F3Q2014 Results - Earnings Call Transcript

Jan.30.14 | About: Niska Gas (NKA)

Niska Gas Storage Partners LLC (NYSE:NKA)

F3Q2014 Earnings Conference Call

January 30, 2014; 09:00 a.m. ET

Executives

Simon Dupere - President & Chief Executive Officer

Rick Staples - Executive Vice President

Vance Powers - Chief Financial Officer

Jason Dubchak - Vice President, General Counsel & Corporate Secretary

Analysts

Shneur Gershuni - UBS

Darren Horowitz - Raymond James

Ted Durbin - Goldman Sachs

Selman Akyol - Stifel

Tom Nowak - Advent Capital

David Jones - CIBC

Gaurav Babbar - Nomura Securities

Operator

Good day ladies and gentlemen and welcome to the Q3, 2014, Niska Gas Storage Partners LLC earnings conference call. My name is Emily and I will be your operator for today.

At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes.

I’d now like to turn the call over to Simon Dupere, President and CEO. Please proceed.

Simon Dupere

Thank you Emily and thanks everyone for joining us this morning. On our call today we’ll discuss our results for the three and nine months ended December 31, 2013, and provide an update on our current business environments.

Speaking on the call with me will be Rick Staples, our Executive Vice President who will provide a market update and Vance Powers, our Chief Financial Officer, who will provide financial details. Following our prepared remarks we will open the call to questions.

But first, Jason Dubchak, our Vice President, General Counsel and Corporate Secretary, will read the customary cautionary statements.

Jason Dubchak

Thank you Simon. Before we begin, I’d like to advise everyone that we may make statements on the call that could be considered forward-looking statements as defined by the SEC. Future financial performance and operational results are subject to numerous contingencies, many of which are beyond our control.

Any forward-looking statements we may make are qualified by the risk factors and other information set forth in our Form 10-K filed in June and the Form 10-Q, which we will file shortly with the SEC.

Additionally, in discussing our results, we will refer to the financial measures adjusted EBITDA and cash available for distribution, which are non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measure, net earnings, is included in the press release we issued this morning and is available on our website at www.niskapartners.com.

With that, I’ll hand things back to Simon.

Simon Dupéré

Thank you Jason. As you saw in our press release earlier this morning, our adjusted EBITDA for the quarter ended December 31, 2013 was $37 million and cash available for distribution was $20.5 million compared to $15 million and a negative $1.6 million respectively for the prior year’s comparable period.

On a year-to-date basis adjusted EBITDA was $84.4 million and cash available for distribution was $35.7 million, compared to $104 million and $55.3 million respectively in the prior year.

Although challenging market condition persisted throughout fiscal 2014, we were able to capitalize in the fiscal third quarter on some weather related opportunities in our U.S. markets, which complemented our near term opportunities seen in our Canadian market earlier in the year during the summer.

The ability to take advantages of these opportunities which presented themselves in different markets underscore the importance of the geographical diversity of our assets and our portfolio approach in allocating capacity between fee-based and optimization activities. Accordingly, we are maintaining our previous guidance for fiscal year ending March 31, 2014, the adjusted EBITDA of $125 million to $135 million and cash available for distribution of $60 million to $70 million.

During this quarter we also remain active in our growth efforts and continue to make progress on our proposed nine million barrels of Starks, NGL storage facility in Louisiana. We are working on the requisite permits and we continue to advance discussions with potential customers to market liquid storage capacity in the region.

Also this morning we declared a quarterly distribution of $0.35 to unit holders of record on February 10, 2014. The distribution remains unchanged from the previous quarter and will be payable on February 18, 2014.

As you may remember in August we implemented a DRIP or a Distribution Reinvestment Plan and I’m pleased to announce that the Carlyle/Riverstone Equity and Power Fund II and Carlyle/Riverstone Equity and Power Fund III, which collectively own about 50.4% of the outstanding common units, have indicated they again intend to reinvest all proceeds from this quarter’s distribution in the DRIP program.

As we look ahead to fiscal 2015, seasonal storage spreads are increasingly challenging and are currently narrower than at this time in prior years. These market conditions affect the prices that we are able to charge for our contracted storage services, as well as the amount realizable by us in our optimization activities.

If the market condition persists, our revenues could be adversely impacted to a material extent. However, natural gas markets are typically most dynamic at this stage in the storage year and we continue to evaluate each of our storage markets and related commercial strategies.

I want to point out that our largest volumetric customers is party to a storage agreement, which contains an option to terminate by either party, every five years with one year's notice. This option is exercisable at the end of fiscal 2014 and it is unclear at this time whether the customer will exercise its option.

If the contract is terminated and a new contract is negotiated, we would expect that the terms of the new contract would be more favorable to the customer than the current terms. If the customer were to exercise its option to terminate the contract, it would be subject to a substantial early termination fee. Because of the requirement of the one-year notice, any adverse effect of the termination would not impact the results of our operation until fiscal 2016.

When we look longer-term, we believe that a number of factors will reinforce the need for, and value of natural gas storage. These factors include exports of North American liquefied natural gas or LNG, construction of new gas-fired power plants with sustained coal-to-gas switching, and overall increases in economic activity, which drive base-load industrial demand. While we can’t predict the timing or impact of these factors on natural gas market conditions, we are confident that they will reinforce the critical nature of Niska’s storage services and enhance the value of our assets.

With that, I’ll turn the call over to Rick to discuss our commercial environment and operations.

Rick Staples

Thanks Simon and good morning everyone. We experienced a quite market throughout most of October and early November; however, as Simon alluded to earlier, the natural gas markets were significantly impacted by a harsh cold front that began in late November and lasted for most of December.

Extremely cold weather settled in over much of North America from the Pacific through the Midwest and into the Eastern Seaboard. At one point, natural gas exports from Alberta to the West cost were largely consumed in the lower main land of British Columbia and the U.S. Pacific Northwest, leaving very little gas available for consumption in Northern California.

At the same time the cold weather was responsible for a large number of production fees out in the Rockies, which adversely affected another major gas supply region for the California market. As a result, for several days natural gas storage in Northern California where Wild Goose is located, was the primarily source of incremental supply available to serve demand spikes in portions of the Northern California market. The operational flexibility of our Wild Goose facility, coupled with our portfolio approach to capacity utilization, allowed us to satisfy all customer demands during this winter weather system.

Over the past few months we experienced record or near record withdrawals on certain days at all of our facilities. In fact, the U.S. set two consecutive records for the largest weekly withdraw from storage; first, in December and then again in January. As a result of these conditions we experienced favorable short-term optimization opportunities at all of our locations.

Again, the operational flexibility of our facilities, the geographical diversity of our assets and our portfolio approach to capacity, allowed us to capitalize on this volatility and deliver additional revenues to the business. These events serve to partially offset the weak spread environment that we encountered in the U.S. for the most of this last summer.

As we look forward, we continue to see increasingly challenging market conditions, as storage spreads remain very weak in the near term and it’s unclear how long these depressed near term storage spreads might last. However, storage spreads are wider as you look several years out on the forward curve, particularly in the AECO market.

In the past we typically contracted between 60% and 70% of our capacity under fee based contracts and have allocated 25% to 40% of our capacity for optimization activities. As you recall, we normally capture more value with optimization than with our contracting strategies.

In this current environment, we are evaluating a number of options for next year, including increasing the amount of optimization we used in our portfolio, as well as potentially increasing the length of our longer term contracts to extract additional value from the wider spread environment further out on the forward curve. To this end, we’ve recently secured approximately 25 Bcf of contracts, averaging almost five years in duration, at prices that are significantly favorable to shorter-term contracts.

With that, I’ll turn the call over to Vance for a financial overview.

Vance Powers

Thank you Rick and good morning everyone. As Simon discussed, our adjusted EBITDA for the quarter and nine months ended December 31 was $37 million and $84.4 million, compared to $15 million and $104 million in the same periods last year. Cash available for distribution was $20.5 million and $35.7 million for the three and nine month periods ended December 31, 2013, compared to negative $1.6 million and $55.3 million in the same three and nine month period last year. I would note that last year’s three and nine months results include benefits of $11.4 million and $17.8 million respectively, from prior inventory write-downs.

Niska’s net loss during the quarter ended December 31, 2013 was $13.4 million, compared to net earnings of $10.4 million in the same quarter last year. For the nine months ended December 31, 2013, Niska’s net loss was $13.3 million, compared to a loss of $42.3 million for the nine months ended December 31, 2013.

Loss per common unit was $0.37 for both the three and nine months ended December 31, 2013. These amounts compare to earnings of $0.15 and a loss of $0.61 in the corresponding periods last year. Earnings or loss per unit in this year’s three and nine-month periods include approximately 35 million common units, whereas these amounts in the respective periods last year included 68.3 million common and subordinated units. The subordinated units were eliminated in our equity restructuring effective April 2, 2013.

Fee-based revenue for the quarter was $30.5 million compared to $41.3 million last year. On a year-to-date basis these revenues were $95.2 million, compared to $109.3 million in fiscal 2013. The lower amount this year reflected lower rates and less capacity allocated to fee base revenue strategies and were in line with expectations.

Realized optimization revenues for the quarter and nine months ended December31, 2013 were $24.3 million and $47.2 million, compared to negative $9.5 million and $36.3 million in the same periods last year. The increase compared to Q3 of last year mostly represented incremental gains, realized from the short term opportunities related to cold weather in our U.S. markets that Simon and Rick mentioned. Year-to-date realized optimization revenues also increased due to short-term opportunities in our Canadian markets that occurred earlier in the year.

Operating expenses for the three months ended December 31, 2013 were $8.4 million, about flat with last year. Year-to-date operating expenses were $27.7 million compared to $25.3 million last year, largely driven by increased fuel and electricity costs, which were occurred in Q1 and Q2.

General and administrative costs for the three and nine months ended December 31, 2013 were $9.4 million and $30.2 million respectively compared to $8.4 million and $26.3 million in the respective prior-year periods. On a quarterly basis, increases mostly resulted from higher professional fees; while on a full year basis the changes also reflected compensation accruals related to Niska’s long-term compensation plans.

Interest expense for the three months ended December 31, 2013 was $17.1 million compared to $17.3 million in the three months ended December 31, 2012 and was $49.7 million on a year-to-date basis, compared to $15.5 million last year. Lower interest rates combined with reduced utilization of our credit facility that drove decrease, which were partially offset by the absence of capitalized interest recorded in the prior year.

On the balance sheet, we had $9.2 million of cash-on-hand and $127 million drawn on our revolver at December 31. This amount compares to $65 million outstanding at March 31, 2013 and $124 million outstanding at this time last year. Revolver drawings principally fund our optimization strategy.

At December 31, 2013 we had about 56 Bcf of proprietary inventory compared to approximately 64 Bcf at that time last year. As of today we have about $135 million drawn on our revolver and $7 million in letters of credit, leaving us about $258 million available on our revolver. Our fixed-charge coverage ratio was 2.44 to 1 at December 31, 2013 on a trailing 12-month basis.

And with that, I’ll turn the call back to Simon.

Simon Dupere

Thank you Vince. Just want to take a quick moment to summarize this quarter. Last few months we’ve made significant progress in achieving our financial and operational goals for fiscal 2014. Our diverse geographic footprint allowed us to benefit from the extreme weather patters that affected most of North America. We also had excellent operational performance from our facilities and delivered on all other customer and optimization needs, despite record level of withdrawals.

As I said, we continue to face challenges as we look forward to fiscal 2015, but remain confident that our core strategies of customer focus, operational excellence, geographical diversity and portfolio revenue approach will help us in addressing these challenges. The addition of the 25 Bcf of new contracted capacity over the longer term, at prices significantly favorable to shorter term contracts is indicative of the initiative we are taking to maximize value for current market conditions.

The current cold winter is a reminder of the crucial role storage plays to meet the market demand, even when supply is normally plentiful. Storage remains the best option for bridging the gap between steady supplies and variable demand.

As you’ve noticed, volatility has resurfaced lately, which fits very well with Niska's optimization strategy. We will continue to navigate this difficult market environment and position our portfolio to provide value for our investors.

With that, I’ll turn the call over Emily for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And your first question comes from the line of Shneur Gershuni with UBS; please go ahead.

Shneur Gershuni – UBS

Hi, good morning guys.

Simon Dupéré

Good morning.

Vance Powers

Good morning.

Shneur Gershuni – UBS

Just a couple of quick questions here. First and foremost you talked about the contract activity that you’ve just done with the 25 Bcf of favorable contract activity. Kind of curious if that’s going to increase, I guess the fee based volumes relative to optimization or whether the margins just improve on fee based revenues and has no impact on what you’re doing on the optimization side.

Rick Staples

All right, at this point in time -- thanks for the question. At this point in time we are evaluating what we are going to be doing with our portfolio for next year. As Simon has mentioned, it’s a very challenging environment that we find ourselves in. So what we do know is that by contracting those longer-term contracts, we can capture some of the value from forward years and bring it into next year and so we feel that’s a very prudent thing to do.

Does it mean that we’re going to increase the amount of capacity we allocate to longer-term contracts? I would say at this point we are still reviewing that, because the other thing that we’re looking at is our optimization activities bringing us superior value to our long term and short-term contract values. So we are assessing how much capacity do we allocate to optimization next year and how much do we contract. So I would say at this point that’s still under review.

Shneur Gershuni – UBS

Okay, and there’s a couple of quick follow-ups in connect to that question. You sort of highlighted in your prepared remarks about the risk of potential re-contracting with some longer-term contracts coming up next year. From that perspective, the activity that you did in the re-contract that you just did recently, does that mostly offset the potential risks that they were mark-to market down or is it still a very sizable risk relatively speaking.

Rick Staples

When we look at the contract that has a potential to be terminated and what I would say there is that those negotiations are still ongoing. So there is no guarantee that that will be terminated, but as almost severed and apart from that is this long term contracting activity that we’ve undertaken. Already that’s focused on bringing forward value into this next year and basically stabilizing our revenue stream for the next few years, and it just also happens to in size be a very significant capacity that we contracted for the long term within these five year contracts, that are very significant when weighted against the other contract that may be terminated.

Shneur Gershuni – UBS

Got it. The recent volatility in weather here in the U.S., has that sort of made people rethink their views about storage in general with that and has it made it easier to have these types of discussions now that you’ve got gas above $5 for example. But just the volatility in general, does that help or do you think we need to see more of that before we see an impact?

Rick Staples

Well, I think that what you’re seeing is two things that are already happening. Obviously the volatility is the big driver, but it seems to being led by a dramatic up-swing in prices, so we’re seeing a couple of things going on.

Firstly, we are noticing that with the large storage withdrawals related to this cold weather, its obvious to us that the market has become much more sensitive to cold weather than it has been over the past three years. We are seeing larger storage withdrawals, upper heating degree-day than what we’ve seen in the past and so we think that’s great news for storage.

Obviously this market is more relied on storage and as you’ve pointed out, the volatility has increased dramatically as well. So there’s no question that when we’re valuing contracts, we are factoring volatility into our models and we are quite certain that our sophisticated counter parties are doing the same.

Shneur Gershuni – UBS

Great, and just one final question. Beyond Starks are there any opportunities out there where you would think about converting some storage, certain natural gas storage into NGL storage or is that kind of the focus at this point right now.

Simon Dupéré

I would say for Starks, if I understand your question correctly, for Starks we are not looking for gas storage for Starks, but we’re looking for liquid storage and basically our primary target that Starks are our two key products we have (inaudible) and Y-grade NGL product for Starks.

Shneur Gershuni – UBS

I meant beyond Starks, were you looking to convert any of your existing capacity to NGLs?

Simon Dupéré

No, if you look at our current capacity, the reservoirs are what we call depleted reservoirs and they are not really prone usually for that type and if you look at where we’re located, AECO, Wild Goose, Salt Plains, they are – and again this year I think it really shows that those locations are very critical to meet market demand and the storage capacity for gas, therefore no, there is no reason for us to do anything there…

Shneur Gershuni – UBS

All right, great, thank you very much.

Simon Dupéré

Welcome.

Operator

Thank you for your question. Your next question comes from the line of Darren Horowitz for Raymond James; please go ahead.

Darren Horowitz - Raymond James

Good morning guys. A couple of quick questions. The first, Vance, if you could, could you just give us a little bit more color around some of the short term spend opportunities for wheeling gas around AECO, and in particular I’m looking at some of the flows on alliance in the Northern border and GTN and I’m just wondering if in the short term that could create some additional opportunity for you?

Ricky Staples

Darren, its Rick here; maybe I’ll fill that question. So what we’re seeing right now obviously is – there’s a lot of volatility in natural gas markets across North America and as you know AECO is located in Western Canada. We’re located on the TransCanada Alberta system and that’s just a series of a number of markets across North America.

In terms of wheeling opportunities, what I would say is that by serving the AECO market we’re able to serve the markets in Eastern Canada down into Chicago to alliance in Northern Border, but I wouldn’t necessarily characterize those as being wheeling opportunities.

Alberta is essentially a hub and AECO is a very strategic cornerstone asset within that hub and that hub as a whole serves all of those markets. So we are very well positioned to serve the market, wherever we see spiking gas prices and so against that backdrop, yes, we are well positioned. I wouldn’t characterize it as wheeling opportunities.

Darren Horowitz - Raymond James

Rick, do you guys see specifically on that TransCanada mainline, any opportunity for short-term interruptible service or possible sport movements, even if it’s for a short distance?

Ricky Staples

Why, I look at that from two perspectives. Obviously I’m not going to comment on what kind of assets that we would take. So for example with this capacity available, would we take that capacity? I wouldn’t reply on what our strategies would be. What I would say is that, under the current toll structure on the TransCanada mainline, TransCanada is able to adjust those short term tolls to respond to market conditions and that creates both opportunity and challenge at times for us in the AECO markets, and we’re very well positioned to respond very well to whatever opportunities arise as a result of that activity.

Darren Horowitz - Raymond James

Okay, and then my last question; I appreciate the color. I’m just curious, with regard to your comments around the fixed charge coverage ratio and the fact that the revolver balance obviously increases to the extent that you add more proprietary inventory, how do you think about the balance between adding more proprietary inventory and like you mentioned earlier, possibly a structural shift in terms of long term fixed contracts versus other opportunities across the forward curve.

I mean obviously there is some margin variability in there, but then also you’ve got to look at the seasonal swings in the business and what that does from a leverage metric perspective, so any additional color there will be helpful. Thank you.

Ricky Staples

Darren, that’s a great point and we do carefully measure the balance between the increases and opportunities in optimization versus the additional costs that you have from utilization of the revolver. In short, you have to buy the gas in order to realize the optimization opportunities.

I would say that the terms of our renegotiated revolver are pretty favorable and that we have been especially vigilant in minimizing the balances that we have outstanding under our revolver. So what we found is that particularly over the last, lets say 18 months, the increase of the interest expense associated with fluctuations and optimization activity, we’ve been able to manage that. So we do balance it for sure.

The other thing is that while we did carry a ton of inventory two years ago in the extraordinarily long winter, our strategy more recently are much more oriented towards getting in during the storage periods and getting out at the end of the storage periods, so that the balance does actually go up and down and when you’ve realized those optimization opportunities, then your out and those balances are back down low again.

Darren Horowitz - Raymond James

Okay. Thank you very much.

Operator

Thank you for your question. Your next question comes from the line of Ted Durbin from Goldman Sachs; please go ahead.

Ted Durbin - Goldman Sachs

Thank you. Just thinking about the distribution here, if you’re going to do your guidance of $65 million of the mixed plant for cash available, it should pan out about $49 million. What are the per-health coverage ratios? Are there any thoughts or is there anything in the distribution or are you just going to wait to see how the market shakes out with some of the headwinds that you discussed on the worst ever winter spreads and what not?

Vance Powers

Ted, we often get questions about, can you give us any forward look with respect to distribution policy and where that might be headed and our consistent answer is that the board evaluates distributions on a quarterly basis, based on the facts and circumstances at that time and there’s no change to that policy.

Ted Durbin - Goldman Sachs

Maybe I’ll ask in a different way. If your going to add a lot more optimization and I’m not sure I followed exactly how much we’re going to add, but does that make you think your maybe one run higher coverage in order to the other question, lower leverage or what not?

Vance Powers

I would say that we always – I’ll go back to what I said in response to Darren’s question, is that we managed the revolver pretty prudently, associated with the specific revenue strategies and optimization and I think we probably don’t connect those particular dots between our optimization strategy and coverage that you have on ECS.

Simon Dupéré

To add Ted, I would ask you to be a bit patient and when we’re going to provide guidance in May of this year, I think that’s what we’re always targeting and providing guidance and then we’ll provide more colors on the split between optimization and fee base at that point.

Ted Durbin - Goldman Sachs

Got it. And then just the small one here, but you had obviously a very strong quarter on optimization here in the fiscal third quarter. Is that versus sort of the last couple of years where that was a loss making quarter? Is that something we should think of as kind of we got paid a little bit earlier versus what you’d normally have a very strong fiscal fourth quarter, maybe you drew gas a little faster than you normally would?

Ricky Staples

Teddy, its Rick here. I think the way I would respond to that is I think that you’ve captured it pretty well. Certainly you know the cold weather that we experienced in our third quarter allowed us to take gas out a little bit earlier than we normally would and as a result of that your seeing more recognition of earnings, and that combined with where we see the market going for the rest of this year has allowed us to maintain our earnings guidance of $125 million to $135 million for this year.

Simon Dupéré

Yes, I would just say that we still see cold weather as we speak, therefore we should have a nice quarter as well.

Ted Durbin - Goldman Sachs

Okay, I’ll leave it there. Thank you.

Operator

Thank you for your questions. Your next question comes from the line of Selman Akyol with Stifel; please go ahead.

Selman Akyol - Stifel

Thank you. Most of my questions have been asked, but just one follow-up. In terms of additional demand in the cold weather, the recent environment, people reevaluating, are you seeing increased interest from LDCs or is it just really should we think about this as marketing customs.

Ricky Staples

Again, it’s Rick here. We typically see both. I mean obviously the LDCs are always assessing what is their risk exposure. I would say that LDCs may take a little longer to make that decision, so we may see more interest and demand from them in the coming months. Marketing companies, the merchants tend to be a little more mobile and nimble and as they look at these markets they would assess what’s coming up for the coming years and would have more interest in storage.

At this point as always, we have a variety of market segments in our portfolio and I would say there is no greater interest from one segment versus another at this point and we expect to have this, you know a similar mix going forward.

Selman Akyol - Stifel

All right, thanks.

Operator

Thank you. Your next question comes from the line of Tom Nowak with Advent Capital; please go ahead.

Tom Nowak – Advent Capital

Hi, good morning.

Simon Dupéré

Good morning Tom.

Tom Nowak – Advent Capital

So it just feels like last quarter and this quarter you’ve had two very favorable one-time events happen, but yet you’ve maintained and not increased your guidance in the last quarter, just looking from your lease.

Your available short-term market opportunities in the AECO market had a significant positive impact on optimization revenues. I believe that was from the sudden changes on the mainline and then this quarter your talking about their patterns and short-term opportunities benefiting financial results to-date. So maybe can we just have – one has to wonder what would EBITDA for the full year have been without these events?

Vance Powers

Tom, the way I would characterize this is by the making of few observations. The first of which is when we approach a year, we always factor in some expected level of volatility and opportunity and with our portfolio on regional diversity we are welcome and positioned to capture whatever may come to us.

Against that backdrop, when you take a look at what’s actually happening in this past summer and I’ll start there, you are absolutely right. We saw wonderful and outstanding opportunities in our AECO markets; however, when you take a look at what happened south of the border, those, some of the winter spreads were extremely challenging. At times they were dipping very close to zero.

So the opportunities that we saw at AECO were essentially, partially offsetting the challenging market environments that we saw there in our U.S. assets. As we fast forward into the winter, we’ve enjoyed without question, good opportunity across the portfolio, but the real opportunity was focused more in the U.S. than at AECO.

As I mentioned in answer to an earlier call or to an earlier question, the volatility that we might otherwise have expected in our AECO market during this winter cold snap was somewhat muted, because of the activities of the short term contracting practices on the TransCanada mainline. So you got sort of puts and takes and at the end of the day we’re still looking to maintain guidance of $125 million.

Tom Nowak – Advent Capital

Yes, that, just without a one in a hundred year winter across the multiple year, I guess I’m just wondering what should the dollar would have been. I really can’t – I feel like you don’t do that math, but I mean this order of magnitude, I mean we have to wonder what the normalized – every normal winter that we can expect.

Simon Dupéré

Tom, I would like to add on this. If you look in the past, many years storage, because we’re not located in only one location, we’re at diverse locations, we’re very diversifying in terms of storage and every year we see those type of relativity. Sometimes it’s at one location, sometimes it’s at another, at different times. It doesn’t have to be a big event and sometimes it’s a very, very small event, but they occur every year and that’s the way the storage business with the acquisition and our fee base worked.

Tom Nowak – Advent Capital

Okay. So can you quantify the early termination fee for the customer that you referenced?

Vance Powers

That’s a confidential term. Unfortunately, sir no, we cannot at this time.

Tom Nowak – Advent Capital

Okay. Can you identify the EBITDA from the single customer?

Vance Powers

Again, that’s a confidential contract term, so, no we cannot.

Tom Nowak – Advent Capital

Okay. And last one, with my recollection in the past, as you guys were fairly upfront about the fact that you were – I thought so we’re aggressively looking for acquisitions and I don’t, maybe I missed, but I don’t think that was referenced today. Is that process still ongoing? Is that something your still pursuing? Can you give us an update on what’s going on there?

Vance Powers

Yes, we did not mention anything on this call, but yes, we’re still active at something that we are pursuing and as we mentioned, we still like storage and it’s a great, great opportunity nowadays, but we’d like to diversify as well and therefore we are opened for other opportunity and we’re actively looking.

Tom Nowak – Advent Capital

Okay, how close are you? I mean is this – yours always comfortable on being opportunistic and looking at things or is this something that’s actually been close to being consummated or is there something we can expect in the near future.

Vance Powers

I would say that I cannot really comment on any activity we have on acquisition here.

Tom Nowak – Advent Capital

Okay, thanks.

Operator

Thank you for your question. Your next question comes from the line of (inaudible); please go ahead.

Unidentified Participant

Yes hi, thank you. This is actually [Shakthi] (ph) and I work with [Barack] (ph) here. I guess my question is, when you look at the forward curve as you guys correctly pointed out, its pretty flat even in AECO, also in the U.S., the hub. I mean if you were to actually look at your EBITDA, if those forwards realize; what would that be? So currently your EBITDA is – you mentioned you expected to have around $130 million at the midpoint. How much do you expect that to change if the forwards realize?

Simon Dupéré

This is Simon. Basically as we said in the call, we’ll provide guidance for next year in May and therefore I will ask you to be patient and this is always what we do. We’re targeting May, because at this time of the year, its always the worst time or the worst thing is always an inflection point very often in the storage, therefore we always like you to wait and we’ll do the same this year. Therefore stay tuned for the May guidance.

Unidentified Participant

Thank you. A couple of quick questions; with respect to storage assets, is there a market for – is the market for exposing of storage assets available. Are you guys able to, if you didn’t like storage currently in gas, if you liked it in NGLs, could you sell your gas storage and continue to hunt for other storage assets.

Simon Dupéré

There is always a market for storage asset. I would say that even when spread environment are low, the storage assets are always at the premium, but there is always a market. I would say this year’s probably been very quite on that front, but there is always…

Unidentified Participant

Do those values -- so those values in the market are sort of at a premium to what you have in your balance sheet or at discount.

Vance Powers

I wouldn’t characterize whether you could sell them at a gain or a loss. We’ll just say that there is a market for them and it hasn’t been particularly active lately, but there is always a market for them.

Unidentified Participant

Okay, final question is, would you guys be willing, as part of the terms of your revolver, are you guys able to draw down your revolver to meet distributions?

Vance Powers

Very broadly speaking and sort of from just the legal point of view, the answer is yes, that the required, the covenant, the principal covenant that we have under our revolving credit agreement is a fixed charge coverage ratio okay. So when you’re above two times, that permits you to incur new and incremental debt, when you are above 1.75 times, you are permitted to pay distributions without restrictions.

If you are below 1.75 times, you become restricted in your ability to pay distributions, but you have a basket of about $75 million that you will still be permitted to pay. So the narrow answer to that question is yes, but I’ll go back to the question that we had before, the board decides that on a quarter-by-quarter basis.

Unidentified Participant

Okay, thank you.

Operator

Thank you for your questions. Your next question comes from the line of David Jones with CIBC. David, please go ahead.

David Jones – CIBC

Hi, good morning. Regarding your natural gas storage inventories that you currently own, how comfortable are you with the current storage levels? Do you expect that inventory to kind of move around, it’s really over the course of the year or you expect it to come down as we exit the winter season.

Ricky Staples

David, good morning. By the way it’s Ricky Staples here. With respect to our proprietary gas inventories, we’re very reluctant to release any information with respect to those levels, because as you can appreciate, that’s extremely market sensitive information. But what I can tell you is that we certainly position those inventories to make sure that we are able to capitalize on market opportunities as they arise and if we’ve capitalized on quite a few of those through the course of the remaining months, then you might find us putting more gas back in to storage next year.

David Jones – CIBC

Right, right. So would we expect as we exit the winter that some of those inventories would decrease dramatically and there will be an increase in reduction in working capital needs or you liquidate the inventory and you’ll get cash from it.

Ricky Staples

Sure. I mean those can be two very different questions. Just because of the flexibility that we have in our portfolio, we have the ability to basically draw down or bring our revolver down significantly, without a significant change in our inventories within our facilities. So I think that that’s probably where I’ll leave that answer. We can do both.

David Jones – CIBC

Okay, great. And one more question separately. Are you currently evaluating the possibility of refinancing the company’s senior notes? They are first [callable] (ph) this March as you may be aware off.

Vance Powers

That’s right. This is Vance Powers. We are very well aware that the first call is March 15, 2014 and we’re continually evaluating the markets and determining the optimal thing for Niska to do, but no decisions have been made at this point.

David Jones – CIBC

Okay, great. And do you think you’ll come to a decision at some point within the next three months.

Vance Powers

I wouldn’t want to comment on timing or resolution of what it is we want to do.

David Jones – CIBC

Okay, great. Thank you for the answers.

Simon Dupéré

You’re welcome.

Operator

Thank you for questions. Your next question comes from the line of Gaurav Babbar from Nomura Securities. Please go ahead.

Gaurav Babbar - Nomura Securities

Yes hi. A couple of quick questions. In the distributable cash flow estimate that you provided, what’s the level of maintenance CapEx that’s included in there?

Vance Powers

Maintenance CapEx is $1 million to $1.5 million, $1.7 million.

Gaurav Babbar - Nomura Securities

Okay, and have you provided any guidance in terms of overall CapEx for the year?

Vance Powers

Yes, I would say that at this point we are looking at about $5 million overall for this fiscal ‘14.

Gaurav Babbar - Nomura Securities

I mean, is it okay to assume that that’s the level of CapEx that would continue in the future or is there some pick up expected from Starke in the next fiscal year?

Simon Dupéré

I would answer on this one. Be patient, we’ll provide a guidance in May for fiscal ’15 few months down the road.

Gaurav Babbar - Nomura Securities

And then on the revolver, if the storage pattern plays out the way its expected to, would we expect the revolver balance to be down to zero at the end of the storage season, at the end of the withdrawal season, is that how…

Vance Powers

I’ll roll back to Rick’s answers from before that would say we don’t want to comment on where we think the inventories are going to end at the end of the year, because that tends to be market sensitive information. I will point out that last year we liquidated a substantial portion of our inventories, because it was pretty cold in the latter half of the year, so we liquidated our inventories.

We actually reduced the revolver balance down to zero and in fact had about $40 million or $50 million of cash on the balance sheet. That cash appeared in April and May last year, okay. So you didn’t see it at the end of March and you didn’t see too much of it in June in the company’s financial statements, but during that dip we had quite a but of cash.

So I’ll tell you, if the inventories were to be liquidated down to similar amounts that we had last year, which I think were about 25 Bcf, then yes, you would probably liquidate the revolving credit facility and actually put some substantial cash on the balance sheet.

Gaurav Babbar - Nomura Securities

Got it. So I guess that was my last question, if we’re looking at the working capital sources, it’s coming from the past that you have on the balance sheet and then the remainder of $125 million is the working capital. So as you kind of cycle this working capital, you should be able to build some cash back onto the balance sheet.

Vance Powers

That’s correct.

Gaurav Babbar - Nomura Securities

And then the last question I had was on the last comment with regards to the senior notes. I mean when you say you are looking at the optimal decision, can you just give us one or two points on like what are optimizing around? Is it the flexibility around covenants? Is it cost of financing; what are the decision drivers here?

Vance Powers

I would say all of the things that you would normally think about would be the things that we would consider. We would want to consider our flexibility of the arrangement, we would want to consider the overall cost, we would want to consider the appropriate tenor for the facility and we would want to consider future plans for the business. All of those things we want to be considering when we make a decision like that.

Gaurav Babbar - Nomura Securities

Okay guys. Thank you.

Operator

Thank you for your questions. I would now like to turn the call over to Simon for closing remarks.

Simon Dupéré

Thank you Emily and thank you everyone for joining us on the call today. We hope you enjoy the rest of this cold winter, hopefully its going to warm up a bit and we look forward to updating you in May. Thank you very much.

Operator

Thank you for joining today’s conference. This concludes the presentation. You may now disconnect and have a very good day.

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