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PVR Partners, L.P. (NYSE:PVR)

Q4 2013 Earnings Call

February 13, 2014 11:00 am ET

Executives

William H. Shea - Chief Executive Officer of Penn Virginia Resource GP LLC, President of Penn Virginia Resource GP LLC and Director of Penn Virginia Resource GP LLC

Robert B. Wallace - Chief Financial Officer of Penn Virginia Resource GP LLC and Executive Vice President of Penn Virginia Resource GP LLC

Mark D. Casaday - Executive Vice President of Penn Virginia Resource Gp Llc and Chief Operating Officer—Midstream of Penn Virginia Resource Gp Llc

Keith D. Horton - Co-President of Coal - Penn Virginia Resource GP LLC and Chief Operating Officer of Coal - Penn Virginia Resource GP LLC

Analysts

James Spicer - Wells Fargo & Company

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Operator

Good morning, and welcome to the PVR Partners Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Bill Shea, President and Chief Executive Officer. Mr. Shea, please go ahead.

William H. Shea

Thanks very much. Good morning, everyone. Welcome to the PVR Partners fourth quarter and full year 2013 earnings call. With me today is Rob Wallace, Executive Vice President and CFO; Bruce Davis, EVP and General Counsel; Mark Casaday, COO of our Midstream Group; Keith Horton, Chief Operating Officer of our Coal and Natural Resource Management business unit; and Steve Milbourne, who heads up our Investor Relations function, as you all know.

Let me just start, a couple of brief things. As previously announced, the Board of Directors of PVR GP, LLC the GP of PVR, declared a quarterly distribution of $0.55 per unit, which actually is payable today, February 13, to the common unitholders of record as of February 7, 2014.

Again, before discussing our financial performance let me update you on our merger with Regency Energy Partners. On February 10, we announced that a record date of February 18 had been established, and a meeting date of March 20, 2014 has been established for a special meeting of our unitholders with the purpose of voting on the previously announced proposed merger with Regency Energy Partners. The merger will close soon after the March 20 meeting, subject to closing conditions, including receipt of the PVR unitholder approval of the merger. 50% plus 1 vote are needed for approval which, of course, we support and fully expect to get.

Okay. Let me go ahead and start with our financial performance. For the full year, 2013, adjusted EBITDA was up 31.6%, to $314.5 million, from $239 million in 2012. Distributable cash flow was up 36.6%, to $199.5 million. Our natural gas throughput for both the Midcon and the Eastern system was up 80% to 1.8 Bcf from 1 Bcf in 2012. And our coal royalty tons were down 20% to 25.1 million tons, reflecting of course the tough market for coal as it exists today.

In the fourth quarter, our adjusted EBITDA for 2013 was $82.4 million, which is up 21.5% versus the fourth quarter of 2012, and is up 3.1% versus the third quarter of 2013, where we earned $79.9 million. Distributable cash flow was $51.1 million, up 25.6% from 2012, and up 3.2% from the third quarter of 2013, when we earned $49.5 million of DCF. Natural gas throughput was 2 billion cubic feet a day in 2013, versus 1.4 Bcf per day in 2012, so that's up 42.9%, and up 11% from the third quarter of 2013, when it was 1.8 Bcf per day.

Coal tons were 6.1 million tons in 2013 in the fourth quarter versus 6.6 million tons in 2012, that's down 7.6%, actually, up 7% from the third quarter of 2013, when 5.7 million tons were produced.

Looking at the results on a segment basis. In the Eastern segment, our adjusted EBITDA for the full year -- I'm sorry, for the quarter was $49.9 million in 2013 versus $33.1 million in 2012, that's an increase of 50%, and it's about a 14.7% increase over the third quarter of 2013, when we earned $43.5 million of adjusted EBITDA. The volume in the fourth quarter averaged 1.6 Bcf on the Eastern system, that's up 60% from the fourth quarter of 2012, and it's up 14% from the third quarter of 2013 when it was 1.4 Bcf a day.

In the Midcon, our adjusted EBITDA was $14.7 million, that's up a little bit from 2012, about 3.2%, down 14% from the third quarter of 2013. Volume was down versus 2012 to 361 million cubic feet a day, that's 14.3% and down about 5% from the third quarter of 2013.

On the coal side, our adjusted EBITDA was $17.8 million, that's down 13% from the $20.5 million that we earned in 2012 in the fourth quarter, and down 8% from the $19 million that was earned in the third quarter of 2013. Our royalty per ton was $3.45, down $0.02 a ton from 2012 and down $0.21 a ton from the third quarter of 2013 or 5.7%.

Looking at the dollars that were invested into the business. In the fourth quarter, we had internal growth CapEx of $60.5 million, of which the Eastern business segment accounted for 85% of that or $51.2 million. For the year, we expended $338.4 million, again, 85% of it was spent in the East, that's $286.2 million. In September and October, we issued 6.1 million common units, that includes the over allotment that was exercised. Net proceeds were about $138 million after expenses. And in December, we redeemed $127.4 million of our 8.375% senior notes. As a result, we incurred a $13.7 million charge related to the call premium and the write-off of unamortized debt issuance costs.

As of 12/31/13, we had borrowings of $562.5 million under our $1 billion revolving credit facility. And with that, at this time, I'm going to open up the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first call or first question, excuse me, comes from Mr. James Spicer of Wells Fargo.

James Spicer - Wells Fargo & Company

Just have a couple of quick questions for you. First of all, the drawback on the bonds you did, the $127.4 million, what was the reason for not doing the full 35%?

Robert B. Wallace

Because of the -- and Bill, I can take that, I'm sorry. It's Rob Wallace. And the reason for that is that we can only use the equity proceeds from the equity offering. So we used the maximum amount.

James Spicer - Wells Fargo & Company

Okay, okay. That makes sense. Secondly, I don't believe you've given any guidance at this point around 2014 CapEx. Is there any commentary that you can provide, either specifically or directionally, on what we should expect in terms of capital spending on the various assets in 2014?

William H. Shea

Rob, you want to take that one as well?

Robert B. Wallace

Well, I'll take a quick stab at it. And the reason we haven't provided the guidance on the capital spending for this year is, as a result of the merger, we figured that it would be tied into Regency's numbers when the merger goes through. So -- and it's -- a lot of that spending, well, not a lot of it, but a good portion of that spending is going to be up to Regency to decide upon, even though we've reviewed our capital expenditure budget with them. So we felt that it would probably be better if it waited until after the merger. But directionally, Bill, if you'd like to give a direction as to -- I think that our capital -- our internal growth capital budget for the year is still going to be fairly robust, I guess I can say that. We have a lot of opportunities to fund.

James Spicer - Wells Fargo & Company

Okay, okay. And is there a portion of that that's already committed in terms of something that even if Regency decided that they wanted to pull back in specific areas, there is a certain amount that you have already, sort of, or allowed for?

Robert B. Wallace

On the capital, there is some that is committed to projects that we will have to follow through on, but there's enough flexibility, I think, in what we've provided Regency that they'll be able to do. But I have to admit that anything that we've approved or we think is a good project and meets our hurdle rates, for the most part, has also met the hurdle rates for Regency as well. So they're good projects.

James Spicer - Wells Fargo & Company

Okay. Okay, great. And any guidance or any commentary you can provide on the proportion of CapEx in 2014 that would be going towards your Utica buildout?

Robert B. Wallace

Let me just do a quick calculation. Now again, it's going to depend on Regency and assuming they approve our entire budget or our capital projects, but it would be -- Mark do you have an idea of what the capital is expected to be in the Utica for this year? I'm sorry, I want to say 140, is that around the right number?

Mark D. Casaday

That is.

Operator

Our next question comes from Michael Blum of Wells Fargo.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

I guess, maybe just start with coal for a minute. Has the San Juan reserve now been fully depleted and should we expect to see the -- and I guess if it's not, would we expect to see the contribution in Q1, and how does that sort of play out over the rest of 2014?

Keith D. Horton

This is Keith Horton. The San Juan reserves have not yet been depleted. We are targeting about the end of the first quarter for the depletion of those reserves and we posted revenue for the first quarter from San Juan basin.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Okay. And then just on the coal business kind of, I guess, more qualitatively. But where you are sitting now in terms of the quarterly EBITDA run rate, is that -- would you consider that a bottom, I mean, or do you think this is kind of where we're going to be or do you see that going lower or higher? Just directionally, trying to get a feel for where you see that business going in 2014?

Keith D. Horton

I don't think there'd be a lot of variability in '14 from where we are today. It looks to be pretty much static and about 90% of our East production is committed under contract. So I don't see a lot of variability there. I think it will just be somewhat steady-state, if you will.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Okay, great. And then in the Midcon, have those operations recovered or are you still being impacted by weather here in the first quarter?

William H. Shea

Mark, you want to take a stab at that?

Mark D. Casaday

Yes, David, we had -- December had a big weather impact with freeze offs and stuff like that. But so far, in January through to date, the weather impact in the Midcon operations has been minimal.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Okay, great. And then last one for me, Rob, looks like it pushed you a little bit more, I don’t know if you'll give me the answer or not, but -- so your 2014 CapEx, at least, the way you would have set it up, your budget would be robust. Is it going to be, I mean, is it going to be better than 2013, less than 2013, substantially more? Just trying to get a little more feel for what that looks like.

Robert B. Wallace

I would think if -- I would think that it would, at least, be comparable to last year.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like now to turn the conference back over to Mr. Shea for any closing remarks.

William H. Shea

Well, thanks, everyone, for joining in today. And this may be the last call for PVR, but we've enjoyed it. And well, I'm sure we'll be seeing and talking to you all more in the future. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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