Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Southern Union Co. (NYSE:SUG)

Q1 FY08 Earnings Call

May 9, 2008, 09:00 AM ET

Executives

John F. Walsh - VP of IR

George L. Lindemann - Chairman, President and CEO

Eric D. Herschmann - Senior EVP

Richard N. Marshall - Sr. VP and CFO

Robert O. Bond - Sr. VP, Pipeline Operations

Analysts

Harry Mateer - Lehman Brothers

Brooke Glenn Mullin - JPMorgan

Lasan Johong - RBC Capital Markets

Faisel Khan - Citigroup

Becca Followill - Tudor Pickering Holt

Zach Schreiber - Duquesne Capital Management

Operator

Good day ladies and gentlemen and welcome to the First Quarter 2008 Southern Union Company Earnings Conference Call. My name is Shanel and I will be your coordinator for today. At this time our participant are in a listen-only mode. We will facilitating a question-and-answer session towards the end of this conference. [Operator Instructions].

I would like to turn the presentation over to your host for today's call Mr. Jack Walsh Vice President of Investor Relations, please proceed sir.

John F. Walsh - Vice President of Investor Relations

Thank you Shanel and welcome to Southern Union's First Quarter 2008 Earnings Call and webcast. Presenting in today's call will be George Lindemann, Chairman, President and CEO; Eric Herschmann, Senior Executive Vice President; Rick Marshall, Senior Vice President and CFO; and Rob Bond, Senior Vice President of our Pipeline Operations. A replay of this call will be available for one week by dialing 888-286-8010 and entering passcode 19378937, a replay of the webcast will be available through our website at www.sug.com

Today we will be discussing results for the first quarter of 2008, significant events and outlook. Last night, we issued a press release announcing our first quarter results which are available on our website. Following our presentation, we will be happy to address your questions. If you have any further questions at the bend of the call please contact me directly at 212-659-3208.

Before beginning I would like to remind everyone that the information discussed on today's call pertains to the financial results of Southern Union Company, certain amounts and various explanation for the transportation and storage segment may vary compared to Panhandle Eastern Pipeline Company's standalone financial statements due to consolidating adjustments. I would also like to caution you that many of the statements contained in our call may be based on management's current expectations estimates and projections about the industry in which the company operates.

These statements are not guarantees of future performance and involve risks. Company undertakes no obligations to update publicly any forward-looking statements as a result of new information future events or otherwise. Such statements are intended to be covered by the Safe Harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. I would also refer you to the cautionary statement regarding forward-looking information in our earnings release. Any discussion during this call of a proposed MLP shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offers, solicitations of offers to buy, or any sales of securities will only be made in the accordance with the registration requirements of the Securities Act of 1933 or in exemption there from. This announcement is being issued pursuant to and in accordance with rule 135 of the Securities Act of 1933.

I would now like to turn the call over to Mr. George Lindemann. Mr. Lindemann.

George L. Lindemann - Chairman, President and Chief Executive Officer

Thank you and good morning. This morning I would like to discuss our first quarter earnings and update you on some of the key items since our last call. To start we are very pleased to have reported strong earnings of $0.64 per share. This represents a 21% increase, compared to adjusted earnings of $0.53 per share in the prior year.

We are also pleased to reaffirm our annual earnings guidance for '08 of a $1.80 to a $1.90 per share. We are very happy with the strong performance of all of our business segments during the quarter. We are especially pleased that our gathering and processing segment, Southern Union Gas Services, has continued to show quarter-over-quarter improvements since last year.

We believe that the operational issues that we encountered during the first half of '07 are largely behind us and we expect solid performance from the business going forward. We are currently working on several projects, including the completion of an asset gas injection well, which will position us to bring additional high margin volumes into our North system. We expect this project to be completed this fall.

Additionally, we are happy to report that we have continued to add positions in our hedging program at SUGS. The remainder of '08, we are now fully hedged approximately 75% of our commodity exposure. We have also added selective positions to our '09 program. Rob Bond will discuss our hedge in greater detail in a few minutes.

When we are through with our prepared remarks, we will address any questions you might have. I'd now like to turn the call over Eric Hershmann, Eric.

Eric D. Herschmann - Senior Executive Vice President

Thank you George and good morning. We are excited to announce that we are making significant progress on the Florida gas transmission Phase VIII expansion. We currently have approximately 75% of the expansion capacity contracted for 25 years and expect to sign additional contracts prior to the filing of the first certificate in the fall. We believe this project believe this project will create significant long-term value for our company and its shareholders. I want to emphasize one point regarding the financing of this project, Southern Union does not expect to issue any common equity to finance this project.

We are also making strides on the infrastructure enhancement project at Trunkline LNG. This project remains on track for a second quarter 2009 in service date. Rob Bond will go into greater details on both projects in a minute. These organic growth projects are a good representation of how we believe we can create value for our shareholders over the long term. We feel that investing in organic projects with the enterprise value to EBITDA multiples of 7.5 times or less would be accretive to the value of our company.

We are continuously pursuing growth opportunities both organic and in the market to profitably grow our company and reward our shareholders. To the extent that we determine that these projects are not available when we realize our expected growth and cash flow, we will look to return value for our shareholders to increase dividends.

To reiterate George's earlier comments, we are very pleased with the performance of all of our business segments this quarter. We are also optimistic that we have positioned Southern Union to achieve its 2008 earnings guidance and we look forward to continue growth and success in to the future.

With that I would now like to turn the call over to Rick Marshall our CFO to give an overview of the numbers, Rick.

Richard N. Marshall - Senior Vice President and Chief Financial Officer

Thank you Eric and good morning, for the quarter ended March 31, 2008, Southern Union reported EBIT of $171 million, compared with adjusted EBIT of $147 million in the prior year representing an increase of 16%. All references to adjusted EBIT and adjusted net earnings remove the impact of selected non-recurring items.

Our earnings release issued this morning sets forth a selected items for 2007 and in accordance with Reg G contains a reconciliation of EBIT to adjusted EBIT as well as EBIT to net earnings. For the quarter, net earnings available to common stockholders were $79 million, or $0.64 per diluted share, this compares to adjusted net earnings of $64 million, or $0.53 per share in 2007.

Net earnings increased by 21% year-over-year. In terms of segment results, transportation and storage, including our investment in Citrus, had EBIT of $109 million for the quarter, compared with adjusted EBIT of $101 million during the same quarter last year, representing an increase of $8 million or 8%. This increase is primarily attributable to an $18 million increase in operating revenue at Panhandle Energy, partially offset by a $5 million increase in operating expenses and a $4 million increase in depreciation expense.

Our gathering and processing segment generated $29 million in EBIT for the quarter, compared to $9 million in the same period last year. The marked improvement was driven by a combination of higher operating efficiencies resulting in increased equity volumes as well as higher realized commodity pricing offset partially by $5 million increase in operating expenses and $1 million increase in depreciation.

Our distribution business generated EBIT of $30 million for the quarter as compared to $33 million in the prior year. The $3 million decrease is primarily a result of an increase in operating expenses coupled with a change in the company's residential customer class rate structure to straight fix variable rate design that has the effect of normalizing margin throughout the year.

Interest expense decreased $2 million, compared to the prior year. The decrease was due primarily to higher capitalized interest costs related to increased capital expenditures, lower LIBOR based borrowing rates on floating rate debt, and lower outstanding balances at Southern Union, offset somewhat, by higher outstanding balances at Panhandle Energy.

During the quarter, we invested approximately $207 million in our operations. Gross capital accounted for $151 million and maintenance capital was $56 million. Broken down by segment, our transportation and storage segment invested $182 million, $138 million for growth and 44 million for maintenance including compressor monetization, compliance and integrity investments.

Our gathering and processing segment invested $17 million, $10 million for growth and $7 million for maintenance. At our distribution segment, we invested a total of $6 million, $2 million for growth and $4 million for maintenance. Our corporate and other segment invested $1 million of growth capital.

As many of you have already seen in March, we issued our 2008 outlook which included annual EBITDA and capital expenditure guidance. We are reaffirming that information and it is available under the presentation section of our website for your review.

I'll now turn the call over to Rob Bond who will discuss our gathering and processing and transportation and storage segments.

Robert O. Bond - Senior Vice President, Pipeline Operations

Thank you Rick, I would like to begin by talking about our gathering and processing segments Southern Union Gas Services. We are pleased to report that the first quarter of 2008 was our best operational and financial quarters, since we purchased the business in 2006.

As Rick mentioned, we posted EBIT of $29 million for the quarter, this shows consistent improvement over the last several quarters. From an equity volume perspective, we averaged 40,000 MMBtu per day of natural gas liquids and 4,000 MMBtu of residue gas during the quarter. As you recall, our equity volume guidance for 2008 is for 40,000 to 45,000 MMBtu per day of natural gas liquids.

As it relates to our hedging program, we have been active in the market over the last several weeks. For the remainder of 2008, we are now fully hedged on 30,000 MMBtu per day at a net price of $15.02. We have arrived at this price through a combination of put options and floating to fixed swap contracts on natural gas and processing spreads. Also for 2008, we have entered into an additional processing spread swap on 10,000 MMBtu per day at $7.10.

For 2009, we have entered into floating-to-fixed natural gas swap on 10,000 MMBtu per day at $8.19, and have recently entered into processing spread swaps on 15,000 MMBtu per day at $6.76. We continue to watch the market and expect that we will enter into additional hedge positions, on our equity volumes for 2009 as market conditions permit.

I'd like to talk about the transportation and storage segment or our business, our infrastructure enhancement project at Trunkline LNG continues to progress with an in service date of sometime in the second quarter of 2009. The cost of this project, which is fully contracted to BG LNG Services for 20 years is approximately $365 million excluding capitalized interest. We expect the project to generate EBIT of $50 million to $55 million and EBITDA of $60 million to $65 million on an annualized basis.

Finally, I'd like to talk about the Florida Gas Transmission Phase VIII project. As you may know we have a 50% interest in Florida Gas Transmission through our investments in Citrus Corp. Our partner in Citrus is El Paso. The project current... as the project currently stands, we expect to add approximately 580 miles of pipeline and 217,000 horsepower of compression to increase FGT's delivery capacity into Florida by approximately 800 million cubic feet per day.

We are currently contracted for approximately 75% of the expansion capacity with 25-year terms. We will continue to negotiate with other potential shippers to determine the ultimate scope and cost of the project. Based on our current expectation for the project, it is estimated a cost of approximately $2.1 billion and generate operating income of $230 million to $250 million, and EBITDA of between $270 million and $290 million.

As Eric mentioned earlier, Southern Union does not expect to issue any common equity to fund this project as we further develop and refine the skill for the project we will make sure that we keep you all updated.

With that I'd now like to turn the call back over to George. George.

George L. Lindemann - Chairman, President and Chief Executive Officer

Thank you Rob. At this point we would like to open the meeting any questions you might have.

Question And Answer

Operator

[Operator Instructions]. And your first question comes from the line Harry Mateer of Lehman Brothers. Please proceed sir.

Harry Mateer - Lehman Brothers

Hi guys. Couple of questions for you in the financing side. Back in late 2006, you issued those junior subordinated hybrid securities and despite the fact that credit markets obviously has been very volatile and that market might not be there for you right now. How do you think about potential future hybrid issuance as it pertains to financing as well as capital spending plans and related to that those hybrids are callable in 2011 as in stands right now what is your thought process around potential extension there or calling them to maintain access to the market going forward?

Richard N. Marshall - Senior Vice President and Chief Financial Officer

Well the first part of your question, we are not looking to... currently looking to the hybrid markets in the short term to refinance... as a refinance vehicle for any of our debt is coming due or for or to finance, any additional capital expenditures we have at Southern Union Company. I want to think about that a little bit as we move forward into the permanent financing that gets put in place for at FGT and Citrus, but right now we're not looking to the hybrid markets.

One of the reasons is that as a percentage of our overall capitalization is $600 million is bumping up against the level that the rating agencies basically allow you to have in order to get the equity credit that we currently receive with respect to the issuance that are outstanding. As far as callability, they're supposed to be refinanced in 2011, I don't know that they are callable and we have a replacement capital covenant included in connection with that transaction that in 2011 would require us to issue a security that has the same or a greater than or equal to the equity credit content that we currently have.

Does that answer your question?

Harry Mateer - Lehman Brothers

It does, then looking it right now obviously given where LIBOR is and the step up, it does not look all that punitive to extend so I was really just trying to get a sense for it.

Richard N. Marshall - Senior Vice President and Chief Financial Officer

That's right, that correct, and I would say we are not ruling them out completely but right now this is our focus.

Harry Mateer - Lehman Brothers

Okay and in terms of the debt you have coming due later this year, I noticed in your 10-Q, the expectation there is to refinance in the bond market or the bank market?

Richard N. Marshall - Senior Vice President and Chief Financial Officer

That's correct I mean we have $300 million of Panhandle Eastern Pipeline Company notes coming due in August of this year and we plan to refinance those in the bond market.

Harry Mateer - Lehman Brothers

Good, and then last --

Richard N. Marshall - Senior Vice President and Chief Financial Officer

$25 million that we have coming due we have liquidity, currently have liquidity to refinance those with borrowings under our bank facilities.

Harry Mateer - Lehman Brothers

Okay, and then last just on the credit ratings, can you just markets to market on where your discussions with the agency stand right now and any progress on getting those negative outlooks with Moody's and S&P turn around I guess related to that is really where you currently stand on the MLP process because I think that's the focus?

Richard N. Marshall - Senior Vice President and Chief Financial Officer

That's part it, I think... last this week we have met with rating agencies already this year and I think what they are focused on is execution in 2008. I think once we show some... we remove some of the volatility that we have in our business that relates to the gathering and processing segment complete the refinancings that we have currently outstanding and show progress through 2008. We can make a good argument to get those negative outlooks out there, but I think based on our conversations that we have an understanding with the agencies as to our future financing plans and our future business model and we are comfortably... comfortable with the investment grade rating that we currently have.

Harry Mateer - Lehman Brothers

Thank you very much.

Operator

And your next question comes from the line of Brooke Glenn Mullin of JPMorgan. Please proceed.

Brooke Glenn Mullin - JPMorgan

Yes. Thank you. You guys obviously had a good response to the FGT Phase VIII is there any potential to upsize that expansion?

Robert O. Bond - Senior Vice President, Pipeline Operations

I think as we mentioned we continue to negotiate with potential shippers and to the extent that there is sufficient demand and I think there is an opportunity to upsize the project, but that will be a function of the timing of when we can get those commitments and when those, and when those volumes would ramp up but yes there is an opportunity to upsize the project.

Brooke Glenn Mullin - JPMorgan

And also how are you looking to protect yourself from inflation are you starting to buy a pipe now, now do you have the 75% commitment?

Robert O. Bond - Senior Vice President, Pipeline Operations

Yes we are in the negotiation process right now on our pipe orders and expect to also be negotiating with potential construction companies' pipeline contractors in the next in the next month or so.

Brooke Glenn Mullin - JPMorgan

Okay and then just separately on Panhandle the compression monetization and the Eastern expansion I guess replacement of the Eastern are you... is that some thing you think you have to go back and to get rate relief to your cover or how are you thinking about those dollars?

Robert O. Bond - Senior Vice President, Pipeline Operations

No it will just go... it will go in to our current rate base any decisions that we make as to whether or not to follow rate case would be really kind of independent of those two individual investments, but we have seen our rates on Panhandle increase in our negotiated rate or our discounted rate transactions have which in the rates increase across Panhandle.

Brooke Glenn Mullin - JPMorgan

Okay great thank you.

Operator

And your next question comes from the line of Lasan Johong of RBC Capital Markets, please proceed.

Lasan Johong - RBC Capital Markets

Yes thank you. George can I ask you a kind of a global macro question. There is lot of discussion about the LNG flows in the market potentially going from a demand pole to a supply push market do you see that happening, when do you see that happening and how does Southern benefit from that?

George L. Lindemann - Chairman, President and Chief Executive Officer

I am not sure we benefit taking it in reverse because our facility is totally contracted out to British Gas. Now that if a lot of ships, a lot of LNG comes in we gain something in the offloading on to our pipes, but on the amount they comes in to the facility we do not gain. And as far as projecting how much LNG is going to flow in to America, I think it's impossible, if Europe has a cold winter, they will out pay us, if Japan, Korea and China need gas and are willing to pay more, we are not to get any. So I think that's a hard question to answer.

Lasan Johong - RBC Capital Markets

Well what about during the summer when they cannot take the cargos?

George L. Lindemann - Chairman, President and Chief Executive Officer

No there is a lot of gas in this country and I don't know what the rate that was used during the winter of this year in reserves and how much fill up there is? Rob you've got any indication of gas yet?

Robert O. Bond - Senior Vice President, Pipeline Operations

I think our expectation for 2008 is that we will receive very few cargos. I think it looks brighter in 2009, as some of the liquefaction projects around the world get completed, but I don't expect to see a high utilization rate at Lake Charles during 2008.

Lasan Johong - RBC Capital Markets

Okay that's fair enough. Next question is on SUG, the MLP situation there is a little tenuous at this point, but I was wondering if you guys are thinking about may be selling the SUG business to an MLP and taking limited partnership shares in SUG as a plan B to forming your own MLP?

Eric D. Herschmann - Senior Executive Vice President

It's Eric. I think that currently we are not considering that, as you know we had negotiated potential opportunities with other parties and the issue that we look towards was the evaluation that we would receive from an MLP, the GP interest that we would receive. Obviously their assets and their liquidity of their units and how they were trading. And after doing a thorough analysis we believe that when the market conditions improve, even with our own MLP with a portion of SUG's.

Lasan Johong - RBC Capital Markets

Is it my understanding that the attractiveness of having the MLP structure in your portfolio is that, you can receive incentive payments on the GP interest, is that kind of what I'm hearing?

Eric D. Herschmann - Senior Executive Vice President

Yeah we wouldn't be able. We to grow the asset and given to the higher splits controlling our own destiny, than what we look at... going in with other parties.

Lasan Johong - RBC Capital Markets

And the other parties would not allow you to split the GP interest with them is that what you are saying?

Eric D. Herschmann - Senior Executive Vice President

Well no they would allow us to split the GP interest. It's a question of where they were on the splits and how they were evaluating their assets compared to ours.

Lasan Johong - RBC Capital Markets

I see.

Eric D. Herschmann - Senior Executive Vice President

That we saw it... how quickly we saw, we can grow into the highest list.

Lasan Johong - RBC Capital Markets

I see so, it was with relative to the new MLP that was still in the low end of that split that would be something that you would consider?

Eric D. Herschmann - Senior Executive Vice President

I think each deal stands by itself and we did a fair amount of due diligence and consultation with our financial advisors that yet came to the conclusion that we would be better off doing it alone.

Lasan Johong - RBC Capital Markets

Understood. On the Trunkline expansion program, I missed the CapEx number on that and on the Phase VIII of the FGT it sounds like it was slightly it would... sounds like it didn't change, is that right?

Eric D. Herschmann - Senior Executive Vice President

Yeah that's right. The CapEx on IEP project remains the same at $365 million and the Phase VIII project is... has not changed.

Lasan Johong - RBC Capital Markets

Great, thank you.

Operator

And your next question comes from the line of Faisel Khan of Citigroup. Please proceed.

Faisel Khan - Citigroup

Hi Faisel, good morning. On your CapEx number for this quarter, how much of that CapEx was related to the IEP?

Richard N. Marshall - Senior Vice President and Chief Financial Officer

I have that in front of me Faisal. Could you just give me a second?

Faisel Khan - Citigroup

Okay.

Richard N. Marshall - Senior Vice President and Chief Financial Officer

It's about $50 million related to the IEP project.

Faisel Khan - Citigroup

Is that going to be kind of consistent throughout the next six quarters, kind of $50 million a quarter until...

Richard N. Marshall - Senior Vice President and Chief Financial Officer

No I don't believe so, no should start to tail down. We should next six quarters.

Faisel Khan - Citigroup

All right it comes on in the second quarter of '09.

Richard N. Marshall - Senior Vice President and Chief Financial Officer

It does but the good portion of the remaining CapEx that be spent will be spent in 2008.

Faisel Khan - Citigroup

Okay got you. And on FGT with some of the rising prices in iron ore and continued increase in steel prices, you still feel comfortable with the project cost of around $2.1 billion?

Robert O. Bond - Senior Vice President, Pipeline Operations

Yes Faisel we do, we are watching that very closely as well and are working as diligently as we possibly can to get our steel and pipe order secured so that we can take that exposure off the table.

Faisel Khan - Citigroup

Okay. When should we except you guys to kind of lock in those materials cost?

Robert O. Bond - Senior Vice President, Pipeline Operations

Hopefully within few weeks.

Faisel Khan - Citigroup

Okay got you, and on the processing side just looking at the volumes quarter-over-quarter kind of 440,000 million cubic feet a day in a first quarter '07 down to 408,000 million cubic Btus a day, in 2008 any reason for that, that lower processed volume quarter-over-quarter?

Robert O. Bond - Senior Vice President, Pipeline Operations

It's primarily from the Atoka field that we gathered from it's a field largely developed by Chesapeake and Anadarko and there has just been... there is been some decline there and some reduced drilling on their part all though, I think there is still plenty of acreage there for them to drill that that is leaner gas in general and so while it does show a decrease to us in process gas it really hasn't reduced our liquid recovery significantly.

Faisel Khan - Citigroup

Okay and I also noticed there your NGL sales volumes were up pretty substantially quarter-over-quarter what was the result of that?

Richard N. Marshall - Senior Vice President and Chief Financial Officer

Yes on some of the transport downstream transport its done through a buy sale and I think that's why you see it looks like the volumes are higher.

Robert O. Bond - Senior Vice President, Pipeline Operations

Yes this is Rob. I think another reason was that we had some producers that we were receiving in kind liquids that have actually flipped over in to a percent of proceeds arrangement.

Faisel Khan - Citigroup

Okay and the swap agreements you guys have entered into for the processing spread those are all net of the costs of those swaps is that correct?

Robert O. Bond - Senior Vice President, Pipeline Operations

It is correct.

Faisel Khan - Citigroup

Okay, thank you guys for the time.

Operator

And your final question comes from the line of Becca Followill of Tudor Pickering. Please proceed.

Becca Followill - Tudor Pickering Holt

Good morning. Two questions for you on the midstream side of the business. Are you guys still looking for someone to help that out and head that business, where does that stand?

Eric D. Herschmann - Senior Executive Vice President

Becca the answer to that is yes, we are continuing to talk to potential candidates.

Becca Followill - Tudor Pickering Holt

Okay any timing to get somebody onboard?

Eric D. Herschmann - Senior Executive Vice President

We are not prepared to announce any timing, but we are looking forward as we speak in.

Becca Followill - Tudor Pickering Holt

Okay, and then just if I am clear on where you stand with the gathering and processing business, is the plan at this point just to await and see what happens with the MLP markets and just run the rest of the business, status quo and look for growth opportunities that just kind of wait for the MLP market to return?

Eric D. Herschmann - Senior Executive Vice President

I think, until recently we are not seeing any improvement, liquidity of the market as it related to the new MLP offerings. As I'm sure everyone knows Western Gas partners to gathering and processing business of Anadarko priced at $309 million or from at yield 7.3%. That's a good data point for us from our limited knowledge of the assets that were placed into the MLP. We understand that they were predominantly fee based long-term contracts and were largely supported by Anadarko's equity production, but we are working with our financial advisors to review this offering, just try to determine how it correlates to our specific assets and what the strategy will be going forward.

George L. Lindemann - Chairman, President and Chief Executive Officer

I want to add that we are also looking to increase our midstream business both in capital cost and we will look at acquisitions in our area.

Becca Followill - Tudor Pickering Holt

In West Texas?

George L. Lindemann - Chairman, President and Chief Executive Officer

Yes.

Becca Followill - Tudor Pickering Holt

Okay, thank you.

Operator

And your next question comes from the line of Rob Mullin of Dakwin Capital [ph].

Zach Schreiber - Duquesne Capital Management

Hi, it's Zach Schreiber from Duquesne Capital Management. Hi, guys thanks for your time. Just a quick question on the LNG imports, I recognized that spreads between Europe, UK national balancing point and the U.S. are negative now, and I feel the way for the foreseeable future and the strong Asian bid but these things can change quickly, what has to change and by how much and by when in order to sort of change the situation as you see it with respect to LNG imports into the U.S. specifically your terminals. And do we need to have some sort of $0.50 or $0.75 premium to UK European prices in order to cover the transportation and freight and I guess at the higher risk of diverting cargos to the U.S.?

Robert O. Bond - Senior Vice President, Pipeline Operations

I think couple of things were driving it this year in particular and one is that there are for several liquefaction projects that have been delayed in getting online. So I think there was an expectation that there will be more LNG suppliers available this year than they are actually have been. But there is also been the Far East is buying a lot of LNG. They buy typically on an oil basket and you can imagine what the oil basket looks likes with crude over a $120 a barrel. So I think it looks brighter in the future but I... as I said earlier on the call, I don't think that we should expect to see things improved dramatically in 2008.

Zach Schreiber - Duquesne Capital Management

How about specifically through the end of October, do you... if there is an improvement in 2008 will it be beyond summer injection season and more sort of November, December or would it be latter part of the summer?

Robert O. Bond - Senior Vice President, Pipeline Operations

Well, I don't think the U.S. is typically a strong market in the winter. I mean George was right earlier when he said that it's very difficult to compete with Europe and Japan and Korea when in the winter. So where we primarily been a summer market for LNG and I just don't think that we are going to see that this summer.

Zach Schreiber - Duquesne Capital Management

Are the things behind it, structural or are they sort of one-off when you have the Japanese nukes issue, you have the Korean nukes, you have some coal disruptions, so some of that appears one-off but then you have part of that appears sort of structural and on going, and we are having difficulty understanding what is ongoing versus what is one-off, I'll be curious on what your view is?

Robert O. Bond - Senior Vice President, Pipeline Operations

I think you are just going to have to get some of these liquefaction projects completed and online and see the supply increase, but at the end of the day, I think some of it is one-off. I think you are definitely right that the demand in Japan and Korea is been driven by nuke turnarounds and what have be, but its fundamentally going to be a supply I think that supply driven event to get us back to where we need to be.

Zach Schreiber - Duquesne Capital Management

Great, thank you.

Robert O. Bond - Senior Vice President, Pipeline Operations

I guess, I'd like to reiterate what George said earlier in the call and that we're off straight fixed variable right design at T-LNG so ultimately at the end of the day in 2008 it won't impact our financial performance. We do... if we have a purpose we certainly have a preference toward receiving those cargos but it does give us opportunities on the downstream pipelines, but I don't think its going to impact our performance whatsoever.

Zach Schreiber - Duquesne Capital Management

Great, thanks so much.

Operator

There are no further questions. I would now like to turn the call back over to George Lindemann. Please proceed.

George L. Lindemann - Chairman, President and Chief Executive Officer

I just want to thank you all for getting up and being here so early in the morning to listen to us and we hope next quarter is even better, and you will all be back again to see us, so thanks again.

Operator

Ladies and gentlemen that concludes the presentation, again thank you for your participation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Southern Union Co. Q1 2008 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts