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

Boardwalk Pipeline Partners, LP (NYSE:BWP)

Q2 2008 Earnings Call

July 28, 2008 9:00 am ET

Executives

Petra Tabor - Manager, Investor Relations

Rolf Gafvery – Chief Executive Officer

Jaime Buskill - Chief Financial Officer

Analysts

Ross Payne - Wachovia Securities

Sharon Lui - Wachovia Capital Markets, LLC

John Edwards - Morgan Keegan & Co.

Wyatt McCormick - Raymond James

Robert [Schriek - Burham] Security

Omar Jama - Owl Creek

Noah Lerner - Hartz Capital

Yves Siegel - Aroya Capital

Dennis Coleman - Bank of America Securities

Operator

Welcome to the Q2 2008 Boardwalk Pipeline Partners, LP earnings conference call. (Operator's instructions) I will now to turn the presentation over to your host for today's conference to Petra Tabor, manager of Investor Relations.

Petra Tabor

Welcome to the second quarter 2008 earnings call for Boardwalk Pipeline Partners LP. I am Petra Tabor from Investor Relations and I am pleased to be joined today by Rolf Gafvert, CEO and Jaime Buskill, Chief Financial Officer.

If you would like a copy of the earnings call 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 EBITDA. With regard to such financial measures, please refer to our earnings release for reconciliation to the most comparable GAAP measures.

Now, I would like to turn the call over to Rolf Gafvert.

Rolf Gafvert

I hope all of you have had a chance to review the press release we just issued this morning. The second quarter was a very good quarter both in terms of financial results as well as the progress on our expansion projects. We are pleased to announce that we are increasing our second quarter distribution to $0.47 per unit. This increase is driven primarily by the contribution made by our expansion projects.

Since our IPO, we have increased our distributions each quarter. Jamie Buskill will describe our financial performance in greater detail. In June, we announced the completion of the third and final compressor station on our East Texas to Mississippi expansion. This compression was timed to coincide with the in service date of the pipeline portion of our southeast expansion. This Texas to Mississippi project is not complete and the cost of the project is $960 million which is in line with our estimate presented last quarter.

During the second quarter of 2008, we also announced the commencement of service on our southeast expansion. This project has an initial peak-day transmission capacity of 1.2 Bcf per day. The project will be expanded to the addition of compression facilities to 2.2 Bcf of peak-day transmission capacity during the first quarter of 2009 to coincide with the commencement of our Gulf Crossing project. We are making deliveries to both gas pipelines which provide our customers enhanced access to markets in Florida and Transco station 85 in Alabama.

We have completed the Delhi Compressor and are currently commissioning Harrisville Compressor and expect to have a final compression and destined to come on line in the first quarter 2009. As of June 30, we have invested $554 million in this project out of an expected total investment of $775 million. I am pleased to announce that on our Gulf Crossing project, we have originally entered into a firm ten-year agreement at 300 million cubit feet per day which will increase our commitments on this project to 1.7 Bcf a day. In the second quarter, we started construction on this project and anticipate having the initial 1.4 Bcf per day in service during the first quarter 2009.

In order to meet our new contractual obligations, we will be adding additional compression which will be in service by the year 2010 and an estimated cost of approximately $110 million. As of June 30, we have invested $505 million out of an expected investment of $1.8 billion. Our Fayetteville and Greenville project is now under construction and we expect the first 60 miles of the Fayetteville Lateral to be in service during the third quarter 2008 and the remaining pipeline portion of this expansion to be in service during the first quarter 2009. We recently announced additional long term commitments that will allow us to increase the Fayetteville Lateral capacity to 1.3 Bcf per day by construction of compression which is expected to come online in the second quarter of 2010.

As of June 30, we have invested $261 million out of an expected project cost of $1.3 billion including the cost of compression which we estimate to be approximately $215 million. All of our pipeline expansions projects are currently sold out. This indicates that these expansion projects are in the right place at the right time and provides good footprints for the future. We had an exciting second quarter and we are pleased that we have met our construction deadlines and that our cost estimates remain unchanged except for the incremental expansions that I just discussed.

Now I like today to give a quick update on our Midland base three-storey projects. We are in the construction phase of this project as well and anticipate the first 5 Bcf storage capacities to be in service during the fourth quarter of 2008. As of June 30, we have invested $15.8 million related to this project. The final project cost will be dependent on the ultimate size of the expansion which could be as much as 8.3 Bcf. In conclusion, our core business is performing well and when combined with our new projects, we believe we will have created a premier pipeline system to move gas and long line shale place including the rapidly developing Haynesville Shale which will give us significant opportunities for future growth.

That concludes my review for Boardwalk. Now, I would like to turn the call over to Jamie Buskill our CFO who will share with you the financial results for our quarter.

Jaime Buskill

Operating revenues for the second quarter of 2008 were $190.3 million which is an increase of $39.8 million or 26% from $150.5 million for the comparable period in 2007. The increase was driven by a $28.0 million increase in gas transportation revenues excluding fuel driven primarily by our East Texas to Mississippi and South East expansion projects. For the quarter, overall system throughput was 425 TBTu versus 307 TBTu for the comparable period 2007. A $16.9 million increase in fuel revenues due to a higher throughput as a result of our expansion projects in higher natural gas prices, a $3.1 million increase in gas storage revenues primarily due to an increase in storage capacity from our Western Kentucky storage expansion projects. These increases were partially offset by $8.2 million of lower parking and lending (NYSEMKT:PAL) revenues. As we have cautioned in previous earnings calls, market condition impacting this service can be very volatile and we can currently anticipate that conditions will continue to be a challenge for the remainder of the year.

Turning now to operating expenses. For the second quarter 2008, we reported operating expenses of $109.3 million which is an increase of $3.1 million or 3% from $106.2 million for the comparable period in 2007. The increase was driven by a $17.0 million increase in operation and maintenance expenses due primarily to increased fuel cost related to our expansion projects in higher natural gas prices. A $13.9 million increase in depreciation and property taxes due to an increase in our asset base driven by our expansion projects. These increases were offset by a $13.3 million gain recognized on the sale of a portion of the storage gas in our Western Kentucky storage complex related to the expansion of that facility.

In addition, the 2007 period was unfavorably impacted by $14.7 million impairment related to our Magnolia storage facility. Year to date, our operating revenues were $387.6 million which is an increase of $48.9 million or 14% from $338.7 million for the comparable period in 2007, the increase was driven by a $45.2 million increase in gas transportation revenues excluding fuel, driven primarily by our expansion projects in higher firm transportation rates on our existing asset. A $19.1 million increase in fuel revenues due to the expansion projects in higher natural gas prices, a $6.1 million increase in gas storage revenues related to an increase in storage capacity associated with our Western Kentucky storage expansion projects. These increases were partially offset by $21.5 million of lower parking and lending (PAL) revenues.

Turning now to operating expenses, year to date operating expenses were $205.1 million which is an increase of $3.1 million or 2% from $202.0 million for the comparable period in 2007. The increase was driven by a $25.4 million increase in depreciation of property taxes driven primarily by our expansion project, a $21.0 million increase in fuel related cost due to higher usage primarily driven by our expansion projects in higher natural gas prices. These increases were offset by $15.4 million gain recognized on the sale of a portion of the storage gas in our Western Kentucky storage complex related to the expansion of that facility and an $11.2 million gain from the settlement of a contract claim. In addition, the 2007 period was unfavorably impacted by the $14.7 million impairment related to our Magnolia storage facility which I noted previously.

Turning now to financing. On our expansion projects, we have approximately $2.5 billion of investment remaining. As of June 30, we have approximately $500 million in cash on hand and access to nearly all of the capacity under our $1 billion revolver. In closing, we are starting to see the impact of our completed expansion projects on our financial results which are being offset in part by an unfavorable park and lend market. As discussed, our East Texas to Mississippi project is completed. The pipeline portion of the southeast project is operational and excluding the incremental expansion, our estimated construction cost and in-service dates are unchanged from what we reported to you last quarter.

Although we are pleased with the progress today, we do face significant ongoing challenges including completing these projects on time and within budget in securing the necessary financing. As we have stated, our cost and timing estimates for these projects are subject to a variety of risk and uncertainties and I refer you to our 10K and 10Qs for description of those risks.

That concludes my remarks and I will now turn the call over for questions.

Question-and-Answer Session

Operator

(Operator's instruction) Your first question comes from Ross Payne - Wachovia.

Ross Payne - Wachovia Securities

Jaime, can you give us a rough debt number or an exact one if you already got that.

Jaime Buskill

Yes, our debt at the end of the quarter was $2.1 billion. And that is all fixed right long-term debt. There was nothing borrowed on the revolver.

Ross Payne - Wachovia Securities

Okay, you might have already given this out or maybe you have not but can you speak to the type of EBITDA numbers that you expect from all these projects? An overall number for that that you have disclosed or that yet been announced?

Jaime Buskill

No, Ross. We have not disclosed it. It is our policy not to provide any guidance on EBITDA.

Ross Payne - Wachovia Securities

Okay and last, can you guys can just talk to the park and lending, what is going on there fundamentally and when you see any kind of material change to that environment thing?

Jaime Buskill

It is starting to change from the previous years. We have had the opportunity to lend or actually to park gas from summer to the next summer and that simply means that the gas price in '08 would be lower than '09, but in this case, we look at it, the current prices are actually higher than they are in 2009 so we just simply do not have that opportunity to make that park.

Rolf Gafvert

Yes, Ross and one thing to point out, this tends to be cyclical that it peaks and valleys. If you go back historically for example, park and lending was only $21 million in 2005, if you look at '06 and '07, it is $49 million in '06 and roughly $43 million in '07 so it does have some material swings. I think the important thing to note is as we add these expansion projects on a larger portion of our revenue streams, it is going to be associated with firm agreement so the impact that this swings can have in park and lending will be smaller on the percentage basis because it is going to be a smaller part of our revenue stream.

Operator

Your next question comes from Sharon Lui - Wachovia.

Sharon Lui - Wachovia Capital Markets, LLC

I am just looking at the interest expense for the quarter and it just seems a bit low. Is there still capitalized interest from the East Texas projects included in the second quarter?

Jaime Buskill

There would be some in the second quarter for the East Texas related to the compression stations that were put in and also, you really have southeast going on and you got start up for Gulf Crossing and the Fayetteville projects so you really, this is the midpoint, if you will, to the expansion projects where everything is going on at the same time.

Sharon Lui - Wachovia Capital Markets, LLC

Okay, so I guess in terms of interest expense run rate, would you expect this to be pretty level with the second quarter going forward until the..?

Jaime Buskill

If you look at our fix rate debt to $2.1 billion we discussed with Ross earlier, the annual interest cost on that is about just under a $118 million so that how much we are committed to today whether you are expensing it or capitalizing it.

Sharon Lui - Wachovia Capital Markets, LLC

Okay, can you also talk on maintenance CapEx because that number was below like this quarter too? Is it just that timing?

Jaime Buskill

It is primarily timing as we stated in the past, we look for maintenance capital to run low to mid $50 million range. Now, once all of these projects are up and running that number will increase slightly. It will be more in the low to mid 60s.

Operator

Your next question comes from John Edwards - Morgan Keegan.

John Edwards - Morgan Keegan & Co.

Are you seeing any kind or any relief at all on your construction cost?

Rolf Gafvert

We have seen others make those comments, I think at this point, it is probably stabilizing but I do not know that we have seen it receding or falling back yet.

John Edwards - Morgan Keegan & Co.

Okay, the 22.9 million units that you mentioned in the press release that went to lows. That will, I guess, you will start allocating July 1, will they be participating in distributions as well?

Rolf Gafvert

Starting on July 1, they will not participate in the $0.47 that we announced last week and again when they do start participating on July 1 that will be cap at a 4% return which equates to $0.30 to quarter.

John Edwards - Morgan Keegan & Co.

Okay, so that will start, that will go with the third quarter declaration, correct?

Rolf Gafvert

Right, it will be, yes, base on third quarter results which will be declared some time in October.

John Edwards - Morgan Keegan & Co.

Okay and I think you said you got a billion on the revolver. Is that correct?

Rolf Gafvert

That is right. We still have a little bit remaining on some letters of credit related to pipeline orders. That is coming down and eventually those will zero out as all the pipe comes into the projects.

John Edwards - Morgan Keegan & Co.

So, effectively your liquidity available is $1.5 billion per year, $2.5 billion investment remaining and then just for this year in '08, your remaining growth capital you expect to spend this year is what?

Rolf Gafvert

Well, if you look back to the original four or five, that is really what we planned to have invested by the end of the first quarter of '09 and we have invested as we announced in our release, we had $2.3 billion of that invested at the end of the second quarter so you basically have another $2.2 billion to invest between now and the first quarter of '09. Most of those add-on projects that we have announced, those capital dollars will be spent later part of 2009 and 2010.

Operator

Your next question comes from Wyatt McCormick - Raymond James.

Wyatt McCormick - Raymond James

Are you currently running a full capacity on your East Texas to Mississippi line?

Rolf Gafvert

Yes we are.

Wyatt McCormick - Raymond James

Okay, great and currently, what percentage of your revenues are capacity reservations and maybe what do you expect this to be exiting 2008?

Jaime Buskill

Well, if you look at the end of '07 because that is the last number we probably provided, we were running about 82% of our revenues from our firm agreements. Now, 65% of our revenues roughly came from the demand charge, the other 17% came from the commodity charge associated with those firm agreements. We have not provided any guidance as to what that percentage will be once all the projects are on but again a larger percentage in what we saw in '07 will be tied to firm agreements. So, again things like park and lending will have a less of an impact on the percentage basis it has today.

Wyatt McCormick - Raymond James

Okay and then finally, is there anything that can be done to increase the revenue from the park and lending?

Rolf Gafvert

That is really market driven at least for the significant portion that we are talking about today so it is going to be a bulk of component.

Operator

Your next question is from Robert [Schriek] with [Burham] Security.

Robert [Schriek - Burham] Security

You have a billion dollars that needs to be financed at this point, your last public equity offering weighed heavily in the marketplace. That is to say that you could not do more equity offering at this price point. I wonder if you would comment as to your thinking as to how you will finance these million dollars that you are going to need.

Jaime Buskill

The question is related to the remaining financing basically that needs to take place in the market. First of all, we really do not provide any guidance as to our financing plans. What I will say is what we are trying to do is stay ahead of that curve so we have flexibility. If you look, we have again $500 million in cash and we have a billion dollars on the revolver so we do feel like we have the liquidity that carry over the near term. We will assess the market and then when it makes sense, we will make that decision.

One thing I want to point out too, you mentioned the remaining billion dollars to finance, from a cash flow perspective we have invested again $2.3 billion as of the end of the second quarter. We have roughly another $2.5 billion that has to be spent but that really goes all the way through 2010 so we really, with these additional projects we are adding on the capital spend is being pushed out to longer period. So, the financing need is not as immediate as you might see with the original $4.5 billion.

Robert [Schriek - Burham] Security

You have flexibility to raise more long-term fix debt?

Jaime Buskill

Again, we have not commented but yes, we do have some flexibility there.

Robert [Schriek - Burham] Security

I know you are not commenting on this but this is very important to investors to have some feel for this. Are you sure you do not want to give us any more of your thinking regarding the mix of debt and equity to..?

Jaime Buskill

I will tell you from a long-term capital structure, we generally look at a roughly 50% debt 50% equity. Now, that will move a few percentage points either way depending on the environment we are facing. Our primary goal in looking at our financing plan is to maintain an investment grade ranking so we work very closely with the rating agencies to make sure we have a capital structure that maintains that.

Robert [Schriek - Burham] Security

As of June 30, 2008, your equity figure was what?

Jaime Buskill

At June 30, 2008, our equity is $2.8 billion.

Robert [Schriek - Burham] Security

One more last thing, do you consider the revolving credit as part of debt or do you consider that as something that sort of flows with the circumstances?

Jaime Buskill

We consider that long-term debt and it is a five year instrument but anything that will go on there, we will plan to refinance with some type of fix right instrument in the future.

Operator

Your next question comes from Omar Jama - Owl Creek.

Omar Jama - Owl Creek

I believe you said, on the liquidity, just to confirm it is a billion and a half of liquidity versus remaining CapEx of $2.5 billion, is that correct?

Jaime Buskill

That is correct. Again the $2.5 billion really goes through 2010.

Omar Jama - Owl Creek

Got it and then it seems like you announced a few incremental expansions onto your pipeline construction program but I just wanted to clarify, what was the original amount of spending on the, say at the laterals. I heard it is about $900 million but it looks like it is about $1.3 billion now?

Jaime Buskill

Right, it is roughly $1.3 billion with the add-on. We are basically adding on compressions, I believe in our first quarter we had just under $1.1 billion for the Fayetteville project.

Omar Jama - Owl Creek

Okay, the first quarter was $1.1 billion. So, is all of the increase related to the compression or is partly..?

Jaime Buskill

Yes, on all the, it is roughly $200 million for the Fayetteville added compression for the incremental expansion and then on Gulf Crossing, it is a $110 million for primarily added compression to be able to go to the 17 Bcf a day.

Omar Jama - Owl Creek

Okay and then the other thing I was curious about, it seems like you said you are sold out now given on all of these incremental expansions?

Rolf Gafvert

Well, in terms of just using compression, we could always loop the pipes and add more compression if we needed to.

Omar Jama - Owl Creek

Okay because one of the issues seem to be you are having significant cost pressure but you would already signed the long term capacity deals so you are getting a little bit of a margin squeeze or a squeeze on your returns but now, it would seem that obviously the demand for capacity is increasing with all of the shale place. Can you talk about what the outlook now is for returns do you see on these incremental expansions higher returns just because the demand is much higher? Can you just talk about the kinds of returns you are getting if you average in these new deals with expanded compression and so forth?

Rolf Gafvert

I do not know the rules speak to the exact returns but yes, we are seeing returns on these incremental projects where we are just adding compression and we are also seeing some significant improvement in the rates that we are seeing in the marketplace as well. So, these add-ons are very positive for Boardwalk.

Omar Jama - Owl Creek

I see. Now, do you anticipate continuing to commit to these compression additions over the next few quarters or would you say you are pretty much done now?

Rolf Gafvert

In terms of what, the efficient expansions, I think we are pretty much done. We would have to look at looping but I would say we are also looking at the Haynesville Shale and it is interesting that all of our pipes will take the gas Gulf South east of the expansion and Gulf Crossing all since we go through the Haynesville so we see that as very, very positive future opportunity for us.

Omar Jama - Owl Creek

So, for sure in the future, you will be doing additional expansions?

Rolf Gafvert

Yes, well, we probably have to look at what the returns are but we are well placed in the Haynesville for example to take advantage of what could be a very significant play.

Omar Jama - Owl Creek

Okay, so why sign ten-year deals? It seems like the market is coming your way.

Rolf Gafvert

Well, it comes down from a risk standpoint. If you look at our business model, it is always been around stability of cash flow and growing that stability but to your point, we saw on our legacy systems when market conditions are unfavorable, we actually have gone out before and our strategy has been to keep short term agreements because we felt like the rights were not where they needed to be and that as rates started to rise, then we would extend the length of the contract. Really when you go back to look at the shale place, I think they are growing beyond anyone's expectations as to what was originally thought.

If you go back in even six months ago when you look at production forecast and compare to what you are hearing today, it is you are seeing a lot of growth there. Also, when we look at these projects we are taking, we are financing these projects so we want as long of the cash flow stability stream as possible so that is how we look at these new projects.

Omar Jama - Owl Creek

Okay and additional one or two other things, you said the volumes were strong in the quarter, is that attributable to new gas supply from the shale place?

Rolf Gafvert

Yes, if you look at four year-to-date, on our fourth quarter we are 425 TBTu versus 307 and that was primarily all driven by the expansion projects and that is coming from the shale place.

Omar Jama - Owl Creek

Okay and then you also cited a one time gain in the quarter; can you just repeat what that was and what the amount was?

Rolf Gafvert

There was a gain related to the disposal of gas related to our western Kentucky expansion and actually if you go back and look at our 10Qs over the last few years, we have had several gains because this is our third expansion project at that facility and basically what we are doing is we are taking base gas converting it to working gas. We sell that gas and then we take the proceeds to finance a good portion of the capital cost. So, these are very high returning project.

Omar Jama - Owl Creek

So, what was that gain?

Rolf Gafvert

The gain related to the, for the quarter on the storage gain is $13.3 million and year-to-date, it is $15.4 million.

Omar Jama - Owl Creek

Okay, got it and was that gain included in the EBITDA?

Rolf Gafvert

Yes.

Operator

Your next question comes from Noah Lerner - Hartz Capital.

Noah Lerner - Hartz Capital

The East Texas to Mississippi expansion you said in the conference call and the press release, it is complete $960 million, and the chart shows on the first page of the press release shows $934 million. I was just wondering if that $26 million the "approximate" $960 million or if there is still $26 million of odds and ends still to be spent?

Jaime Buskill

All the work has been performed and was closed out and the press release announces the cash expenditures. The difference is basically the accrual we had invoices that came in and had not been paid yet with the contractors and it is just a matter of working through and paying those out.

Noah Lerner - Hartz Capital

Jaime and then when you talk about having $500 million cash on the balance sheet as far as into the cash needed to complete all the projects, will that be already in that of the $26 million accrual or that goes into the cash flow and cash availability mathematics?

Jaime Buskill

Any payables that we have for charges on the construction project again, what we reported on the press release is simply cash that has been paid out. The accruals will show up as a liability on the balance sheet as a current liability. I think if you go back first quarter, I would say that was around a $100 million.

Noah Lerner - Hartz Capital

Okay that payable is still part of the tax on the cash availability?

Jaime Buskill

Yes.

Noah Lerner - Hartz Capital

In other words, when you said you need $2.5 billion and $0.5 billion in cash and a billion on the revolver and you have how much ability to spend in all in the projects, in that how much has to be spent and cash going out would be the $26 million?

Jaime Buskill

It would be roughly $2.5 billion, yes; $2.5 billion left to be spent in cash.

Noah Lerner - Hartz Capital

Okay and that includes the $26 million of balance.

Jaime Buskill

Right. The $2.5 billion plus the $2.3 billion that has been spent on cash is the fore rate. Okay, we got $2.3 billion cash that has been spent on the project. We have a remaining $2.5 billion to be spent to get to the $4.8 billion and again, the $4.8 billion covers all of the expansion projects including the incremental projects that Rolf discussed and that goes out through 2010.

Noah Lerner - Hartz Capital

On the projects, I know you do not comment on the EBITDA but can you give any kind of a sense and I apologize, you have given this in the previous conference call as far as the multiple on the projects, we are talking with the revised estimates if they come on at those levels and you guys have done pretty good job over the last six months since you went back and reached the numbers staying in that budget but I am just curious, are we talking high single digits, low double digits type of multiples on the projects now? Can you give any comment on that?

Jaime Buskill

No again, it is just our policy not to provide guidance there. But I will say if you look at our first half on the revenues, I mean that is the indication because that is East Texas was up by probably a good portion of that period and southeast came in toward the mid part of the second quarter so again, you are starting to see the flavor of the contributions that those projects will make.

Noah Lerner - Hartz Capital

Okay and then just really quick, you said in Kentucky you converted base gas to working gas?

Jaime Buskill

Yes.

Noah Lerner - Hartz Capital

Just really simply, I am a little confused and actually I am lost, do not you think to keep the base gas in there for the working gas you had?

Jaime Buskill

What we do is it is a matter of you can go in and add additional wells in compression which allows you to go deeper into that storage field and you basically then have to sell that base gas to create the cavity in the storage field for the customer to come in and park their gas. So, that is in essence to what you are doing and if you look that base gas was put in the ground many, many years ago and if you look at our bases in it is just over $2.

Operator

Your next question comes from Yves Siegel - Aroya Capital.

Yves Siegel - Aroya Capital

Could you speak to direct to the as you add capacity, how much of the rates up do you think from the initial projects on incremental capacity?

Jaime Buskill

Again we are not going to talk on percentages but again in each case, you are just adding compression, you are not going out and adding pipeline, and buying right away and so you really have a good baseline to be working from so the better returns generally than what you see on the base projects.

Yves Siegel - Aroya Capital

Let me attack you from a different vantage point. If the construction costs are up 20% from a year or so ago, do you think tariff has gone up commensurate with that?

Rolf Gafvert

I think in the future if you will look at a new build obviously the tariffs will have to go up to support those but on these compression projects, I can say that we think the returns are very attractive.

Yves Siegel - Aroya Capital

As you look at the Haynesville play and you mentioned that you are really well positioned as your pipelines go, where do you have bottlenecks ? Well, I guess the first part is have you contracted any potential Haynesville gas currently and secondarily, where may you have bottlenecks that you have to spend some money to be able to accommodate that?

Rolf Gafvert

Well, as to the first question, we actually are shipping gas on the Haynesville right now on our Texas gas system and they are working with the potential shippers but since we are sold out on all of our pipes going from say west to east, we will have to look at looping and compression in order to accommodate the extra gas that comes out of the Haynesville play. I think we do see some very efficient expansions on our systems since we built 42-inch pipe and there is some significant amount of capacity we can add at a relatively efficient way so we certainly look forward to working with the shippers. Probably the first point the shippers allowed to get to is a plane called Perivale [ph] and after that there is an opportunities for us to build a way from there as well to potentially bring more gas into the southeast and Florida markets so. I think the Haynesville, from our standpoint, is an excellent addition to the shale place and again we are very well positioned to provide service for that.

Yves Siegel - Aroya Capital

When you loop the pipeline, do you need to get anymore right of way or typically because it is by definition looping, you already have the right of way, you just need permitting or what are the obstacles to getting the looping done?

Rolf Gafvert

It is pretty much the same as a new build. In most cases, we have to go out and acquire right of way for a second pipeline and we have to, depending on the size of the project we have to go back to the commission and seek a certificate in order to put the loop and the compression in.

Operator

Your next question comes from Dennis Coleman - Bank of America Securities.

Dennis Coleman - Bank of America Securities

If I can just swing back to this sale of base gas issue again that was just asked. So this is base gas that you put in when the storage was established historically and now you do not need it anymore and it is being sold and does not have to be replaced. Is that…am I getting it right?

Jaime Buskill

No, it is, I mean if you look at it when the gas was put in when these projects were built decades ago, natural gas prices were relatively low, cost of compression and pipe relatively high. Today that is flipped with gas prices $10 or better. It is actually very efficient to essentially sell that base gas and put horsepower and pipe and extra wells and so it is a very good trade from that standpoint.

Dennis Coleman - Bank of America Securities

So, it is that gas will never need to be put back in. You do not need to maintain..?

Jaime Buskill

You do have to fit in. It is base gas but you create a cavity for customers to put their gas in and to utilize that storage facility there.

Rolf Gafvert

It is essentially making the storage field more efficient. You need less base gas to perform the same amount of peaks send out on that facility.

Dennis Coleman - Bank of America Securities

Okay on the balance sheet then, there is base gases part of PP&E and it is coming out of that. Is that how that works?

Jaime Buskill

Yes, and it is part of the PP&E you capitalize as part of that when that originally was set up, the gas that was needed is part of your PP&E and so that is why it is a gain on disposal of asset whenever we sell that gas and again as Rolf mentioned, we have a pretty low bases in that gas so the gains are fairly high.

Dennis Coleman - Bank of America Securities

I mean how much more of that can you do?

Jaime Buskill

Well, we are on our third expansion project of that field. Each once it gets progressively, more expensive to do because you take the low hanging fruit first and it really just depends on the economics that are presented to you as to whether it makes sense or not.

Operator

Your next question comes as a follow-up from John Edwards - Morgan Keegan.

John Edwards - Morgan Keegan & Co.

Yes, you are talking about your position in the Haynesville and you might be able to do some or handle additional volumes with the looping, I was just wondering if what kind of additional volumes would you potentially anticipate with looping?

Jaime Buskill

You can actually loop up to almost any volume you want but we will always be trying to find the sweet spot in terms of the low hanging fruit first and the most efficient expansion first but it is really depending on what the market is willing to contract for but I do see us as being significant participant in the Haynesville.

John Edwards - Morgan Keegan & Co.

Okay, so it is too early to talk about specifics as far as volumes go.

Jaime Buskill

Right but everything we understand about the Haynesville it could be a very significant field so it could be Bcf or more a day.

John Edwards - Morgan Keegan & Co.

Okay and then, what in terms of timing what do you think, I know it is early in the process, how far are you thinking it would?

Rolf Gafvert

Yes, we would view it as probably these initial projects coming on line in probably late 2010.

Operator

There are no further questions in queue.

Petra Tabor

Once again, I would 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 our conference call today. Thank you and 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: Boardwalk Pipeline Partners, LP Q2 2008 Earnings Call Transcript
This Transcript
All Transcripts