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Executives

Rolf Gafvert – Chief Executive Officer, President, and Director

Jamie Buskill – Chief Financial Officer, Senior Vice President, and Treasurer

Allison McLean – Director of Investor Relations

Analysts

Sharon Liu – Wells Fargo

Barrett Blaschke – RBC Capital Markets

Adam Rothenberg – Zimmer Lucas Partners

Scott Felgerman – Morgan Keegan

Boardwalk Pipeline Partners LP, (BWP) Q2 2010 Earnings Call July 26, 2010 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2010 Boardwalk Pipeline Partners, LP earnings conference call. My name is Tahisha and I will be your operator for today. (Operator instructions.) Also, this call is being recorded for replay purposes.

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

Allison McLean

Thank you, Tahisha. Good morning, everyone, and welcome to the Q2 2010 earnings call for Boardwalk Pipeline Partners, LP. I’m Allison McLean, and I’m pleased to be joined today by Mr. Rolf Gafvert, our CEO, and Mr. Jamie Buskill, our CFO. If you’d like a copy of the earnings release associated with this call please download it from our website at www.bwpmlp.com.

Following our prepared remarks this morning we will turn the call over for your questions. We 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 facts are forward looking statements. These statements are based on management’s beliefs and assumptions using currently available information and expectations. Actual results achieved by the company may differ materially from those projected in any forward looking statement. The company expressly disclaims any obligation to update or revise any forward looking statements made during this call.

I would also like to remind you that during this call today we may discuss certain non-GAAP financial measures, such as EBIDTA and distributable cash flow. With regard to such financial measures, please refer to our earnings release for a reconciliation to the most comparable GAAP measures.

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

Rolf Gafvert

Thank you, Allison. Good morning, everyone, and thank you for joining us today. I hope all of you have had a chance to review both the press releases we issued earlier this morning. We are pleased to announce a quarterly distribution to unit holders of $0.51 per unit, a ½ cent increase over last quarter. Distributions to unit holders have increased each quarter since our initial public offering in 2005.

I will now provide an update on our business, and then Jamie will discuss our financial performance in greater detail. I discussed in April that basis spreads between differing receipt and delivery locations on our systems had narrowed, affecting the transportation rates we were able to charge in certain markets. These trends have negatively impacted our contract renewals, and revenues from our interruptible and short-term firm transportation services, and future revenues may continue to be negatively impacted.

Capacity available on a short-term basis will decrease as long-term capacity commitments on our recently-completed pipeline expansion projects increase over the next 12 to 18 months. However, our contract renewals remain subject to basis spread volatility, and some of our capacity will continue to be available for sale on a short-term or interruptible basis, and that capacity will also be dependent upon basis spreads.

Turning to the progress we are making on our growth projects, our Haynesville and Clarence projects, both driven by supply growth from the Haynesville shale, are proceeding as planned and we anticipate these projects will be placed in service on time and within budget. The Haynesville project has been approved by the FERC and is under construction with a Q4 2010 anticipated in-service date. The Clarence compression project, which remains subject to FERC approval, has an anticipated in-service date of late 2011.

The Eagle Ford shale is an emerging supply source located approximately 50 miles from our pipeline system in south Texas. As I mentioned last quarter, due to the high content of natural gas liquids that accompany the gas stream in the Eagle Ford, many producers are focused on the area. In June we announced that Southcross Energy and Boardwalk plan to leverage existing assets in south Texas in order to provide infrastructure solutions to natural gas producers in the Eagle Ford. As part of that project, we plan to modify an existing section of Gulf South’s 30” pipeline from Refugio, Texas, to Fort Bend County, Texas, so that condensate-rich Eagle Ford shale gas can be accepted into that pipeline segment.

In addition, Boardwalk continues to pursue other Eagle Ford growth opportunities. We’re also pursuing opportunities to grow our transportation storage business. Today Boardwalk serves approximately 40 natural gas-fired power plants in ten states. We are currently pursuing opportunities to serve power generators who are replacing old, inefficient coal plants and simple cycle, gas-fired combustion turbines with highly efficient combined-cycle gas generation.

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 Q2.

Jamie Buskill

Thanks, Rolf, and good morning, everyone. Operating revenues for the Q2 of 2010 were $257 million, an increase of $56 million or 27% from $201 million from the comparable period in 2009. The increase was driven by transportation revenues from our pipeline expansion project, partially offset by lower interruptible and short-term firm transportation services due to lower basis spreads, and a ramp up of firm agreements.

Our 2009 transportation revenues from expansion projects were lower than expected due to operating those pipelines at reduced pressures and temporary shutdowns following the discovery and remediation of anomalies in certain joints of pipe.

Turning now to operating expenses, we posted operating expenses of $165 million for the quarter, an increase of $17 million or 11% from $148 million for the comparable period in 2009. The increase, net of fuel cost, was driven by higher depreciation and property taxes resulting from an increase in asset base due to expansion assets being placed into service, and higher operations and maintenance expense due to increased maintenance activities.

Net income for the quarter was $54 million, an increase of $34 million, or 168% from $20 million for the comparable period last year. Net income for the quarter was impacted by the revenue and expense drivers previously discussed, as well as increased interest expense of $5 million, resulting from increased debt levels in 2010.

EBIDTA for the quarter was $146 million, an increase of $41 million or 39% from $105 million for the comparable period in 2009.

Year-to-date we have invested $118 million in growth capital expenditures. For the reminder of 2010 and for 2011 we expect to invest approximately $225 million for growth capital expenditures, primarily for our Haynesville and Clarence compression projects, and for post-construction activities related to our major expansion projects already in service.

From a liquidity standpoint we ended the quarter with approximately $84 million in cash and $272 million available on our revolver. We generated $110 million of distributable cash for the quarter, and $244 million year-to-date.

In conclusion, our Q2 results continue to build on the strong financial performance achieved during the past two quarters. 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 the line of Miss Sharon Liu from Wells Fargo. Please proceed.

Sharon Liu – Wells Fargo

Hi, good morning. I was wondering if you could maybe quantify what was the revenue impact from the narrowing basis differentials.

Jamie Buskill

Well, really I thnk what you’re asking would be related to the interruptible and short-term firm services. If you look year-to-date we’re down just over $16 million from last year.

Sharon Liu – Wells Fargo

Okay. And I guess I was surprised with the revenue numbers this quarter, and I guess I was expecting some contributions from the Fayetteville and Greenville laterals. Did you see…

Jamie Buskill

I think there’s a couple things to remember when looking at revenues. One is the contracts do ramp over time, through basically 2011, and because of the narrowing basis spreads we didn’t generate as much on the interruptible and short-term firm revenues as expected.

The other thing is, don’t forget to some extent the seasonality, particularly related to distributable cash flows. Like we discussed last quarter, anywhere from 60% to 70% of our distributable cash is earned in the Q1 and Q4.

Sharon Liu – Wells Fargo

Do you still anticipate a number of $65 million to $70 million for the year?

Jamie Buskill

In total we expect to spend the same amount in maintenance projects. You may recall we talked last quarter that depending on the accounting treatment, some of those projects end up as expense, some are capital. I anticipate our capital will actually come in below the $65 million to $70 million but it’ll be offset with higher operation costs, as some of those projects will end up being expense projects.

Sharon Liu – Wells Fargo

Okay, great.

Jamie Buskill

And if you look at the first six months we’re running about, on the expense maintenance projects about $3 million higher than last year.

Sharon Liu – Wells Fargo

Okay. Thank you, Jamie.

Jamie Buskill

Thank you.

Operator

Your next question comes from the line of Barrett Blaschke from RBC Capital Markets. Please proceed.

Barrett Blaschke – RBC Capital Markets

Hi guys, just a quick question on contract rollovers. When do you have contracts that are rolling at this point? What’s the risk of re-contracting at the current rates?

Jamie Buskill

Really, there’s not much to update this quarter. You may recall last quarter we said the remaining contracts to be renewed primarily occur in the Q4. And we did see in the Q2 basis spreads actually improved slightly, and we had a few renewals a little better than what we saw in the Q1, but generally speaking the Q4 is when the remaining contracts are.

Barrett Blaschke – RBC Capital Markets

And could you comment on about how much revenue that represents?

Jamie Buskill

We said last quarter for the full year we had about $100 million of contracts up for renewal and we had, we’ve re-contracted roughly 75% of those.

Barrett Blaschke – RBC Capital Markets

And that number hasn’t changed?

Jamie Buskill

Excuse me?

Barrett Blaschke – RBC Capital Markets

Has that number changed at this point?

Jamie Buskill

No, there hasn’t been significant movement in that number.

Barrett Blaschke – RBC Capital Markets

Okay, thank you.

Operator

Your next question comes from the line of Adam Rothenberg from ZLP. Please proceed.

Adam Rothenberg – Zimmer Lucas Partners

Hi, good morning. Is there any way to separate out between the $16 million of interruptible was lower, how much of that is short-term firm that you’re expecting from the expansion projects and what portion is from lower basis differentials?

Jamie Buskill

No, there really isn’t, Adam. And you know, a couple things in looking at that number, as contracts ramp theoretically there’ll be less capacity to do interruptible and short-term firm. However, interruptible depends as much on utilization of those firm agreements. You could have your pipeline completely sold out on the firm basis and if the firm customers aren’t using 100% of that capacity we can go out then and sell that on an interruptible basis. So it’s very hard to quantify that number, but theoretically the capacity to do that shrinks as these contracts ramp up.

Adam Rothenberg – Zimmer Lucas Partners

Great. And then generally what portion of your, let’s say 2010 revenue is from interruptible, and then what portion of your 2012 do you expect to be interruptible as things ramp?

Jamie Buskill

Well, if you recall, 90% of our revenues are generated from firm-related services; 10% is generated from interruptible-type services, which includes the park and lend business. We anticipate that number will go up slightly as these contacts fully ramp up, but generally speaking you’re in a 90/10 split.

Adam Rothenberg – Zimmer Lucas Partners

Okay, and then stripping out the park and loan it’s really a flexible number. Okay, thank you very much.

Operator

And your next question comes from the line of Scott Felgerman with Morgan Keegan. Please proceed.

Scott Felgerman – Morgan Keegan

Hi, good morning, Jamie. Just a real quick housekeeping item. What was total throughput for the quarter?

Jamie Buskill

Okay, for the quarter our throughput was 551 TBTU. And year-to-date that puts us at 1191 TBTU.

Scott Felgerman – Morgan Keegan

Okay, great. That’s all I had. Thank you.

Operator

And we have no more questions at this time.

Allison 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.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect.

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