Niska Gas Storage Partners' (NKA) CEO Bill Shea on Q1 2015 Results - Earnings Call Transcript

Jul.31.14 | About: Niska Gas (NKA)

Niska Gas Storage Partners LLC (NYSE:NKA)

Q1 2015 Earnings Conference Call

July 31, 2014 9:00 AM ET

Executives

William H. Shea, Jr. – Chairman, President and Chief Executive Officer

Vance E. Powers – Chief Financial Officer

Jason A. Dubchak – Vice President, General Counsel and Corporate Secretary

Rick J. Staples – Executive Vice President and Chief Commercial Officer

Analysts

Adam Leight – RBC Capital Markets LLC

Owen Douglas – Robert W. Baird & Co., Inc.

Michael J. Blum – Wells Fargo Securities LLC

David Neuhauser – Livermore Partners LLC

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Amy Stepnowski – Hartford Investment Management Co.

Operator

Good day ladies and gentlemen, and welcome to the Q1 2015, Niska Gas Storage Partners LLC, Earnings Conference Call. My name is Catherine 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 call is being recorded for replay purposes.

I would like to turn the call over to Mr. Bill Shea, President, CEO and Chairperson. Please proceed sir.

William H. Shea, Jr.

Thank you, Catherine and thanks everyone for joining us this morning. On our call today, we will discuss our results for the quarter, year ended June 30, 2014 and provide an update on our current business environment.

Speaking on the call with me today will be Vance Powers, our Chief Financial Officer. Following our prepared remark, we have the broader Niska management team including Rick Staples, our Chief Commercial Officer, Mark Casaday, Chief Operating Officer, and Rob Wallace, VP, Finance and Corporate Development available for questions.

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

Jason A. Dubchak

Thank you, Bill. 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 make are qualified by the risk factors and other information set forth in our Form 10-Q to be filed shortly.

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 measures, 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 Bill.

William H. Shea, Jr.

Thank you, Jason. As you saw in our press release earlier this morning our adjusted EBITDA for the quarter was $35.8 million and cash available for distribution was $24 million. These amounts reflect the one-time recognition of $26 million in long-term contract revenue associated with the termination and renegotiation of the storage services contract with TransCanada, which we discussed during the fiscal 2014 Q4 earnings call.

Overall our results for the quarter were in line with our expectations, as we anticipate the majority of revenues being realized in the second half of the fiscal year, particularly in our fiscal fourth quarter. Also today we declared a quarterly distribution of $0.35 per unit to unitholders of record on August 11. The distribution is unchanged from the previous quarter and will be payable on August 19. We are pleased to announce that Riverstone has agreed to reinvest 100% of the distribution associated with their $18.7 million units again this quarter. This marks the fifth consecutive quarter that Riverstone has reinvested 100% of their distribution for an aggregate reinvestment amount of approximately $32 million over the last year.

Additionally, Riverstone has committed to reinvesting at least 50% of their distributions for the next three consecutive quarters. As you saw on our press release this morning, we have decided to adjust our fiscal 2015 guidance ranges for adjusted EBITDA from $120 million to $140 million, to $90 million to $110 million, and cash available for distribution from $65 million to $85 million, down to $35 million to $55 million.

Taking into account Riverstone’s commitment to reinvest this distribution for fiscal 2015, cash distribution coverage will exceed one times across the revised guidance range. These adjustments are due to the very challenging storage conditions we find ourselves in currently. We’ve seen seasonal spreads narrowed considerably during the first quarter in the market regions in which we operate. And we have seen natural gas prices decline by a $1 over the past 6 weeks. With strong natural gas production growth and cool summer weather in the East have translated into better than expected storage builds this summer after last winters considerable dry down, we had the opposite experience in our operating regions.

Western Canadian inventories are significantly behind last year. The pace of restocking has been slow, it’s unlikely that outlook will fill by the end of the injection season.

Cash in summer basis have remained strong in this market, which is negatively impacted the seasonal spreads. In California, a combination of hot weather and strong utility base storage injections have supported higher summer natural gas prices, and narrowed the seasonal spreads advantages.

And while we expect increase gas price volatility as we look forward into the following winter. Our expectation into the storage year was spreads to be supported with potential upside. These events potentially reduce the market opportunities that we can capture with this storage cycle. And thus we feel prudent to revise expectations accordingly.

Also during the quarter, we’ve recorded a non-cash depreciation charge of $28 million, related to estimated cushion gas migration at one of our facilities in Alberta. After experiencing unprecedented deliverability requirements throughout the fourth quarter of fiscal 2014, we undertook an evaluation of facility performance, cycling capabilities, and costs associated with maintaining those capabilities going forward. As a result of this evaluation, we determined that approximately 2.6 Bcf of cushion gas, which carried a book cost of $9.85 per Mcf had migrated at our Countess facility and no longer provided effective pressure support.

We believe this migration was detected as a result again, of the record wins that withdraw the facility. Accordingly, we have recorded the $28 million depreciation charge as the best estimate of migration using information currently available. We continue to gather additional engineering data to evaluate performance capabilities at the facility.

With that, I’m going to turn to Vance Powers, our CFO.

Vance E. Powers

Thanks Bill. Fee-based revenues for the quarter were $42.8 million, up from $31.5 million last year. As Bill mentioned, these amount include the $26 million one-time termination payment from TransCanada. excluding this payment, fee-based revenues were down approximately $12 million, primarily due to lower capacity allocated to fee-based revenues along with lower rates, realized optimization revenues were $13.8 compared to $5.6 million last year, principally due to the timing of settlement of financial hedges.

Operating expenses for the quarter were about $11 million, compared to $10.4 million. The increase was the result of maintenance costs, associated with the substantial delivery requirements experienced during the fourth quarter of fiscal 2014. General and administrative expenses were $10 million, about $1.2 million, lower than last year, primarily due to lower compensation costs.

Also during the quarter, we incurred $12.3 million in interest expense, compared to $16.2 million last year. The decrease resulted from lower principal balance and interest rate on our senior notes. And these benefits were partially offset by higher utilization of our revolving credit facility.

Using the midpoint of our guidance range, our adjusted EBITDA of $100 million, our fixed charge coverage ratio will be 1.88x. Assuming Riverstone reinvests 100% of their distributions this quarter and then reinvests the minimum 50% committed for the next three distributions, our coverage ratio will be 1.3x.

As distribution coverage ratio want to fully cash pay basis would be 0.9x. At June 30, we had $214.5 million outstanding under our revolving credit facility and $5.4 million in letters of credit outstanding. Today, we have $200 million outstanding on our revolver with letters of credit outstanding of $60 million, or availability of about $140 million. The reduction in availability reflects additional gas purchase to date, which represents about 60% of our expected optimization inventory. We anticipated completing 100% of the purchases required to reach our optimization inventory target.

With that, I will turn the call back to Bill.

William H. Shea, Jr.

Thanks, Vance. As you’ve heard the current environment is in fact very challenging. We’ve stated before and we still believe that volatility will increase as the fiscal year progresses, and we are positioned to take advantage of that volatility and capture the margin opportunities as they present themselves. We also continue to evaluate other mid-stream opportunities that will reduce our reliance on storage, EBITDA, and DCF in the future.

Finally, we resumed commitment to DRIP at least 50% of their units through the end of the fiscal year provides the LP owners great support during this period of market conditions that are very, very challenging.

With that Catherine, that’s the end of our prepared remarks and we are ready to accept questions.

Question-and-Answer Session

Operator

(Operator Instructions) And please standby for your first question, which is from the line of Adam Leight from RBC Capital Markets. Please go ahead, Adam.

Adam Leight – RBC Capital Markets LLC

Hi, good morning, everybody.

William H. Shea, Jr.

Good morning, Adam.

Adam Leight – RBC Capital Markets LLC

Bill or Rick, could you just answer two questions first on the revised guidance. Can you give us some idea, the framework for long-term firm, what’s happened to contract situation there and where you expect that to go in the second half?

Rick J. Staples

No problem, Adam. On the LTF contract, as we mentioned in previous call, we’ve entered this year with less contract in place than previous year. So that’s really different contract in very narrow straight environment that we – we’ve got ourselves and coming into the year, we had over 37% of our capacity under long-term contracts and balance that we get using LTF and authorization as for the balance of the capacity.

Adam Leight – RBC Capital Markets LLC

I’m sure I got quite all that in terms of what your revenue assumptions might be in terms of your guidance?

William H. Shea, Jr.

Sorry, would you say that again, please.

Adam Leight – RBC Capital Markets LLC

Just trying to give a sense of what your revenue assumptions are for the long-term plan that has been into your guidance?

Rick J. Staples

We already made that assumption; we basically provide the guidance based on EBITDA, very stable.

Adam Leight – RBC Capital Markets LLC

And with regards to this cushion gas migration, can you talk a little bit about what your alternatives might be, whether there are potentially significant expenditures to the facility, whether you moved to repurchase gas and what’s early – again, what’s the range of possibilities?

William H. Shea, Jr.

We have a variety of possibilities Adam, certainly brings it into one alternative, but we also have the ability to cooperate that capacity into (indiscernible) longer-term weakness. So we have a variety of alternatives, we haven’t landed on any one though we can survive the alternatives at this point.

Adam Leight – RBC Capital Markets LLC

So I mean, is it safe to say that – is anything safe say, but is it possible it is going to require a significant expenditure, or do you think you have these alternatives that will mitigate that?

William H. Shea, Jr.

Well, I think it’s our view and we’re going to have the alternatives to mitigate it Adam, and really purchasing the gas outright at this time is kind of the last resort. In fact I believe in part, it depends on what the withdrawal requirements are for the facility as to when and when that – when and where, or what time and how much it has to be replaced. So I think that’s kind of an ongoing issue for us, as we experienced the withdrawal requirements through the end of the year and beyond.

Adam Leight – RBC Capital Markets LLC

Okay, great. thank you. and then lastly…

Vance E. Powers

Excuse me, Adam. this is Vance, I’d like to – I think that we can tell you that LPF revenue for the current fiscal year would be in the range of $55 million to $60 million. And that is – I mean we contract for the upcoming year, we are pretty much complete with LPF contracting by the beginning of the storage year. And so if you look at the run rate in the first quarter, excluding the TCPL settlement and you multiply by four, you’re pretty much going to get your number in that $55 million to $60 million.

Adam Leight – RBC Capital Markets LLC

That is great. thank you.

Vance E. Powers

I would also – I’ll interject now. this isn’t part of your question. I may have misspoken at the end of my prepared comments, when I said about optimization inventory. We have about 60 Bcf of gas; it’s not 60% of optimization inventory. we have about 60 Bcf of gas owned today and we do not think it will go about 70 Bcf. So I just wanted to clarify that independently.

Adam Leight – RBC Capital Markets LLC

That’s also great. thank you. And if you can provide a little bit of color on your attempts to diversify thoughts on the M&A landscape as to whether buying an existing cash flowing asset is possible, or likely in this environment, or whether you’re thinking more about some form of Greenfield development?

William H. Shea, Jr.

Yes, Adam. I think as you’ve see and you’ve noticed over the recent period of time, the acquisition market in the multiples that are being paid for midstream assets are pretty robust. And so as we come across one that is to be appropriate multiple and has existing stable consistent cash flow, that’ll be fantastic. the alternative is to allow and develop the Greenfield opportunities or opportunities that have already begun to be developed and then take them over. Those are opportunities that we have and have been looking at. we’d love to find that midstream acquisition at 5x multiple levels.

Adam Leight – RBC Capital Markets LLC

Great. Thank you. I’ll let some body else.

Operator

Thank you, Adam. The next question is from the line of Owen Douglas from Baird. Please go ahead, Owen.

Owen Douglas – Robert W. Baird & Co., Inc.

Hi, guys. thanks for taking the question. Just wanted to better understand a little bit more about the cushion gas state. so you mentioned that you’re evolving some alternatives right now, but essentially it sounds like you do need to replace that gas, raising just a question of how you’re going to finance it.

William H. Shea, Jr.

Well again, I think we’re under the – we’re evaluating that as to how much of it has to be replaced, and when it has to be replaced. a lot of it depends on the deliverability requirements of that particular reservoir. So I think it’s going to be something that’s going to kind of unfold over the next period of time whether there’s one quarters, or two quarters, or one year or two years as to how much of that gas has to be put back in place in order of the permeability to be there to meet the customer requirements. That’s what we’re investigating and evaluating right now.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay. I see, and just make sure, how this number is right, you said roughly 50 Bcf to 70 Bcf and you’re allocating to the optimization strategy?

William H. Shea, Jr.

That’s correct.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay. And that sounds like a little bit lower than you guys think we’re talking about the past having about 60% fee-based in average and up 40% where that numbers 60 to 70 sounds like that’s more about 25% of your capacity. What is driving the view with regards to how you allocate your capacity?

Rick J. Staples

It’s Rick Staples here. What we identify to our investors here last quarter, when that couple of narrows start environment, we were catching what we though were adequate fees for a lot of contract and yields, and given our circle earnings, the proprietary optimizations and FTS strategy. We’ve got, we deliver much better value for the shareholder decision to those strategies. so we’re going back on track getting back to the 37% that you see now. And the balance of that, we’ve taken into the proprietary organization and section of our strategy.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay. But that’s 36%, sorry, that’s 50 BCF that is referring to what exactly, would that be proprietary authorization or is the fee based?

Rick J. Staples

That’s the proprietary authorization. And so I think what Vance is pointing to was very simply that we have 60 BCF of proprietary inventory that we want today. I think that’s the standpoint.

Vance E. Powers

What I was trying to say is that we typically use optimization for 20% to 30% of our overall capacity allocation and at 70 BCF that would be about 25% of the 260 BCF allocation. And so the balance of the capacity will be split between LTF and STF, which means you are going to use a larger percentage to STF transactions for your capacity allocation.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay, okay, I see. And as far as thinking about, so it sounds like you are saying that you enter with a little bit lower in the form of LTF. So should we think about that delta is being really that you guys are very heavily skewed to the STF contract at the moment.

William H. Shea, Jr.

That’s correct between proprietary and STF that’s correct, we’re more wins for STF and proprietary together.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay, I see. And can you just talk to me a little bit about through the first half of this calendar year, how are you seeing the STF contract rates develop?

William H. Shea, Jr.

I’m sorry, the first half of the calendar year.

Owen Douglas – Robert W. Baird & Co., Inc.

Yes, and just trying to understand a little bit and as we sort of have that extreme cold weather at the beginning of the calendar year through now, where you have much more muted demand environments. Just want to understand what you are seeing in the STF contract, Bill.

William H. Shea, Jr.

I think you captured very important period of time. So the first quarter this calendar year was characterized by very wide in fact related, call it STF spreads, but in that kind of an environment there is a lot of degradation and a lot of opportunity to capture some pretty significant STF as we move into the injection, which is really the second quarter of the calendar year. That’s been characterized by much narrow spread opportunity to the STF market. So there is really been a transition that migrate from very strong growth season into a very robust season.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay. And I remember a few years ago you guys took advantage of some pretty low natural gas pricing to carry some inventory into the next fiscal year. How do you view that as a possible strategy to employee at this time around?

William H. Shea, Jr.

We are still a long way from that; there is still a fair amount of dilapidation when you take a look at prices for winter 2015 versus summer of 2015. There is still a lot of dilapidation in acquiring. So while we see natural gas price is still up by approximately $1 over the past six weeks as Bill pointed out.

Lot of that has been in fiscal 2015, and we haven’t seen those results in future periods. But we still have pretty significant dilapidation between this coming winter and the following summer. So I don’t really see that opportunity to current inventory in this year and next. What that has to happen is just the balance of the summer injection season and entire winter before we get to that position.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay, okay. Thanks. And final question, if I can squeeze in one more, I just want to understand, what do you think it would take, I mean, just given the lower EBITDA, and DCF guidance, what would it take for guys to perhaps spend or lower your distribution to equity?

Vance E. Powers

Well, what we disclosed this morning was, that Riverstone has committed to – they drift all of their units yet again this quarter and they’ve committed to dripping a minimum of 50% of their units over the next three fiscal quarters. So, part of the – support for the public common unitholders is that Riverstone’s consistence and substantial support over a long period of time and they’ve recommitted with this new commitments. So, what I would say is that, things have to deteriorate pretty significantly in order for the public unitholders to not feel good about that because Riverstone has to this point shown pretty substantial support for the distribution.

Owen Douglas – Robert W. Baird & Co., Inc.

Okay, thank you. I’ll pass now.

Operator

Thank you. And the next question is from the line of Michael Blum from Wells Fargo. Please go ahead Michael.

Michael J. Blum – Wells Fargo Securities LLC

Thank you, good morning everybody. Just two questions from me, one just trying to understand the guidance, it sounds like you do think that at least the Canadian market is setting up for increase volatility later this year, but, if I’m reading the guidance correctly you’re not really giving yourself credit for saying the guidance for capturing some of that volatility to be optimization. In other words, potentially if it does materialize, you would capture it and that would sort of be above and beyond what’s the sort of baked into guidance, I just want to make sure to understand that correctly.

William H. Shea, Jr.

Michael, I think you’ve captured pretty well, and it’s kind of a both end scenario. we still believe that that volatility potential is very strong and very real in the AECO market and in particular, the largest NOL gives for the coming winter, leading to a potential for the balance of the summer, the sounds you have always that first off the Jason team, we’ve experienced narrowing spreads. And so our guidance is really a very good play. What we’ve seen happened in the current spread market in the past quarter and how we see with the marketing showing it today. And we still have that to be prudent forecast. I expect to capture of volatility up to next two to three quarters.

Michael J. Blum – Wells Fargo Securities LLC

Okay. And then from a strategic standpoint, you saw the Lodi gas facility transact at a price, is that the going to be impacting the way you view the value of your storage and the potential, either even potentially to sell one of your facilities, or the entire business, or just kind of get a sense of what’s going on from your perspective in the gas storage M&A markets?

William H. Shea, Jr.

Michael, this is Bill. I think to me that storage facility is not a storage facility, is not a storage facility. They all have individually unique kind of capabilities and the levels of performance. So we see Buckeye selling Lodi that was kind of a one-off business line for them. Gas storage is our business today. We are trying to diversify into other midstream assets. So I’m not sure you can compare the value of Lodi versus the value of our storage.

And so we just optimize, and we try, and generate as much of EBITDA and DCF from what we’ve got, and we also saw recently another storage facility in the (indiscernible) that was a not-for-sale. So I mean those are prices of kind of one-off facilities that their owners were deciding to get out of that business, or reduce our exposure. We’re in the storage business. We are the largest storage operator in Alberta; Wild Goose is a great facility and has much better performance capability than Lodi does in our opinion. And so we’re satisfied with what we’ve got, not if anybody else wants to add to that.

Michael J. Blum – Wells Fargo Securities LLC

That’s great.

William H. Shea, Jr.

Exactly.

Michael J. Blum – Wells Fargo Securities LLC

Thank you. thanks a lot guys.

William H. Shea, Jr.

You’re welcome.

Operator

Thank you, Michael. The next question is from the line of David Neuhauser from Livermore Partners. Please go ahead, David.

David Neuhauser – Livermore Partners LLC

Hey, good morning, gentlemen.

William H. Shea, Jr.

Good morning,

Vance E. Powers

Good morning,

Rick J. Staples

Good morning, David.

David Neuhauser – Livermore Partners LLC

And most of my questions have been answered. but Bill, maybe you could just touch on again, in terms of some other midstream assets that eventually, you may look to acquire to reshape the company moving forward and to lower the volatility of cash flows. Could you give us a sense as to what geographic areas you are looking at this point in time?

William H. Shea, Jr.

Sure. Our recent experience at PVR gave us great success and experience in the Marcellus and in the Utica. We still see tremendous opportunities there to build infrastructure to produce the tremendous volumes of gas that are being discovered there, which by the way of course the whole shale revolution has impacted the storage business in a negative way recently.

So until all the infrastructure is built out and the gas is headed in the right directions. There is going to be that kind of issue going forward, but we see the Marcellus and Utica as being a great interest to us. Again, our experience would say that we could look in the Mid-Con, which we think is very competitive and not as a high potential for us. We like the Permian Basin, which we think is growing as everybody knows is growing so rapidly, but is also – got a lot of opportunity for smaller players to come in and develop gathering a processing systems for E&P companies that may have started their own system, but would rather put money into the drill bit rather than building pipelines and processing facilities.

So we continue to look throughout the lower 48, I would also say we would look at midstream opportunities in Alberta and western Canada, I mean its right in our backyard we’ve got the AECO facility that ought to be able to be use to increase the value of any midstream system in Alberta. So I think if you look at the Marcellus, the Utica, western Canada and possibly the Permian would be the areas that we would focus on more significantly.

David Neuhauser – Livermore Partners LLC

Okay. And also you touched on – you said that obviously the valuations for a number of these current operations are and always have been relatively high, given the cash flow generation abilities. You also described some Greenfield projects that others may have started. Are you seeing actually those opportunities where you think you can comment that really been sort of planned out and just need financing? Is that a way of getting involved with for the potential lower cost initiative at least up front. Are you seeing those opportunities?

William H. Shea, Jr.

Yes, we are. And I would say that any system that is being – I shouldn’t say any system. The systems that we've looked that are being developed by E&P companies aren’t necessarily systems and a lot of times our direct well connects to the nearest interstate pipeline or nearest gathering system. What we would like to be able to do is take a look at the entire drilling plan that these company may have and develop a true system to get their gas to not just one but maybe two or three outlets. So that they have optionality to sell their gas. So we take a bit more of an inclusive, look at building a true system for these players the E&P players.

David Neuhauser – Livermore Partners LLC

Okay and then in terms of – I know you touched on backwardation in the AECO markets so far for this coming year. Where do you see volatility, I know you cant look into your crystal ball, but I mean where do you see volatility, you think its going to be coming form weather related issues like last year or L&G potential. How do you look at when you see the shale revolution how are you judging where you see potential volatility to sort of normalize spreads in the next few years?

William H. Shea, Jr.

So there are few questions kind of embedded in that but I think if you want to just tackle sort of the near to long-term sort of beyond the end of fiscal 2015, we see a number of developments. Obviously you mentioned L&G. L&G is quite a ways out still so we certainly do expect that that’s going to add to volatility, its going to increase the demand for natural gas storage, but you are really talking about something out in the sort of 2018 to 2020 timeframe.

So bringing it back just a little bit closer what we do see is continued growth in oil sands developments and growth in domestic demand in western Canada, especially in the industrial side and a lot of that is driving the demand for gas, and so I think that that in itself is driving a fair amount of the spread opportunity that we see at AECO.

When you do look beyond this year, we are seeing spreads in the order of say $0.40 as you look two and three years out which is much better than what we are seeing for this year. So we think that’s reflective of the markets spreads should be for the next two to three years. And it’s a lot better than it is today.

David Neuhauser – Livermore Partners LLC

Yes, I think I agree with that premise, in terms of again back to the sort of acquisition or growth or midstream asset, how would you look at the potential on your EBITDA basis. How would you like to break that out, do you like to have it, again this is look out a few years, I know you haven’t even executed an agreement on any types of structure, but if you look out a few years where would you like to see the ratio of storage versus midstream asset, is it 70/30 or 80/20 or 50/50 so that we see a more value enhancing sustainable cash flow distribution ongoing where we can get a lot more focus on where we see cash flow coming form the company in years forward.

William H. Shea, Jr.

Yes I would think at a minimum 50-50 and I think over time we definitely would like to be at 75% or 80% midstream non-storage related EBITDA and DCF. How long it takes to get there, but that would be the goal.

David Neuhauser – Livermore Partners LLC

Yes. I mentioned that because obviously, we’ve these calls and we’ve a difficult environment on spreads in the past two years. And many other questions on concerns on the call have to deal with the sustainability of the distribution. And so obviously, when you can get off your yield I should say in terms of operations and get more into a position of growth where you could actually see distribution growth increased in the units over time. I think when people can really capture that story. That’s where we are going to see further our performance in the unit growth, when people start to not have to focus on whether or not you are going to make your distributions for the quarter up coming year.

William H. Shea, Jr.

Very good. Thanks, David.

Unidentified Analyst

I appreciate it, guys. Thank you.

Operator

Thank you, David. The next question is from Selman Akyol from Stifel. Please go ahead.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Thank you, good morning.

William H. Shea, Jr.

Good morning.

Vance E. Powers

Good morning.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

On the base gas migration you guys talk about you didn’t provide effective pressure to support. Do you guys now have enough pressure to support you current needs and what you see for the upcoming, can you make you turns without additional pressure et cetera. Does it doesn’t impact operations and where I guess may feature...

Mark D. Casaday

No, this is Mark. Our injection season our pressures are right in line with all of our expectations and historical terms.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Okay. And then, on the fixed charge coverage ratio if I remember correctly below 2.0 times you cannot issue new debt. I guess it doesn’t restrict access to the revolver and I think about that correct.

Vance E. Powers

That’s exactly right. It does not above two times you can issue new debt below two times used under all circumstances, you still have full access to your revolver, you can expand the revolver under in feature that’s built into the existing revolver as well. So operations of the business are not impacted under any circumstances there.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

All right. And then, below 1.75 times there become distribution restrictions. Can you just talk about what that restrictions are?

Vance E. Powers

Yes, it’s below 1.75 times, it become restricted in your ability to pay distributions and there is a general basket built into both the credit facility and the indenture of $75 million, and on a full pay basis, that would be like six quarters of additional distributions and on the assumption of our Riverstone reinvestment is even longer than that.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Okay. so either way, even if you’re below that, you still think you have the ability to pay for at least six quarters if I interpret you correctly?

William H. Shea, Jr.

That’s correct.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Okay. and then lastly, when does your revolver renew?

William H. Shea, Jr.

It will – it renews in June of 2016, as we renewed in June of 2012 and it’s a four-year deal.

Selman Akyol – Stifel, Nicolaus & Co., Inc.

Great. Okay, thanks very much.

Operator

Thank you, Selman. (Operator Instructions) Thank you. The next question is from the line of Amy Stepnowski from Hartford. Please go ahead.

Amy Stepnowski – Hartford Investment Management Co.

Hi, thanks for taking the question. Obviously, there is something very supportive reinvesting its distribution. Has there been, you just spent there for a quarter, but have there been discussions with them with regards to other potential portfolio companies that you could work with going forward? And then just as the second question, you’ve been there for a quarter. Can you maybe speak to any larger issues that not to use that word surprise, but we’re different from what you may have expected when you first come into the company if there is anything?

William H. Shea, Jr.

To the first question, this is Bill, for the question, I’ve been around the Riverstone group for 10 years now. They always try and involve their other portfolio companies where it’s appropriate and either developing business amongst the portfolio companies, or if there are assets within a portfolio company that might be better suited to be within Niska as an example.

So they are very active that way. and it’s a great for us to be able to look at the potential opportunities what they may have for us. Of course, we got to remember that they are private equity firm. and so they are not going to drop them down, or not going to sell them to it inexpensively, it’s going to be whatever the market would bear for those assets, but they are groups of assets that could be available to Niska, given the right price in circumstances.

And in terms of whether or not there has been any larger issues or things that have surprised me. I think that’s really surprised me of the fact of the spread environment has gotten worse since May 7 or 8 or whenever the first day I started with. I don’t think I anticipated that issue to have – I was hoping anyway. So that issue would not have occurred. So I think that’s been a bit of the surprise, I guess we’re laid into that is that when I first came on in May, I think the expectation was with the still storage refill would maybe lead to 3 Bcf from the 3.8 Bcf of last year. Now it appears it’s going to be quite a bit more than that and close to may be kind of historic average of 34, 35 something like that. So I mean I think it’s the macro issues more than anything that have deteriorated I guess since May 7 or 8.

Amy Stepnowski – Hartford Investment Management Co.

Okay. If I could follow-up, with regards to Riverstone, can you characterize any of the conversations that’s been active right now with regards potential work with any of the other companies.

William H. Shea, Jr.

We don’t comment on that now.

Amy Stepnowski – Hartford Investment Management Co.

Okay thank you.

William H. Shea, Jr.

Sure.

Operator

Thank you, Amy. I would now like to turn the call over to Mr. Will Shea for closing remarks. Please go ahead.

William H. Shea, Jr.

Thanks Catherine. Thanks everyone for participating today we appreciate it and we will talk to you at the end of the next quarter. Thanks very much.

Operator

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

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