Buoyed by several pieces of good news -- a rate case settlement, getting permission to put an ethylene pipeline into service, and winning approval for new natural gas pipeline capacity between Ohio and Louisiana -- an optimistic Boardwalk Pipeline Partners LP announced that it plans to nearly double its budget for capital expenditures (capex) in 2016.
Gulf South rate case settled
Boardwalk CEO Stanley Horton said the midstream master limited partnership had reached an agreement with its customers to settle a rate case with one of its subsidiaries, Gulf South Pipeline Co. LP (see Daily GPI, Nov. 6). Horton said the rates went into effect on an interim basis on Sunday, and the company anticipates FERC [RP15-65] will approve the settlement and make the rates final and effective in 2Q2016.
As part of the settlement, Gulf South's no-notice customers agreed to extend their existing no-notice contracts through 2023, and agreed to maintain at least 94% of their base maximum daily quantity through 2020, and at least 88% from 2020 to 2023. Boardwalk anticipates that it will earn approximately $20 million in net revenues from the new rates in 2015, followed by an additional $10 million in net revenues in 2016.
"The rate case settlement was fair and balanced between us and our customers and met our expectations," Horton said Monday during a conference call to discuss third quarter results.
Horton added that while new regulations from the U.S. Pipelines and Hazardous Materials Safety Administration (PHMSA) were not yet released, Boardwalk was able to negotiate into the Gulf South settlement the ability to file for a tracker, allowing it to collect an additional surcharge from its customers to cover PHMSA-related costs.
Evangeline back in service, other projects move forward
Boardwalk completed repairs to its Evangeline ethylene pipeline system in June, and it received permission from PHMSA to return it to service and back to full operating pressure in August. It acquired the 180-mile interstate pipeline system from a Chevron Corp. subsidiary in October 2014 (see Daily GPI, Sept. 4, 2014). The Evangeline system has the capacity to transport about 2.6 billion pounds of ethylene per year between Port Neches, TX, and Baton Rouge, LA.
During the quarter, Boardwalk also won approval from the Federal Energy Regulatory Commission for the Ohio-Louisiana Access Project, which would create additional north-south capacity for gas produced in the Marcellus and Utica shales to Midwestern and southern markets (see Daily GPI, Sept. 1).
"We are progressing with engineering, design, surveying and right-of-way acquisition for all of our projects, which include the Southern Indiana Lateral, the Western Kentucky Lateral, the Northern Supply Access, the power plant in South Texas and the coastal bin header," Horton said. He added that the Ohio-Louisiana project is scheduled to be in service by June 1.
One customer bailing on Northern Supply Access
The third quarter wasn't all roses, however. One issue of concern is the Northern Supply Access Project [CP15-513], under which another Boardwalk subsidiary, Texas Gas Transmission LLC (TGT), would provide an additional 384 Bcf/d of north-south transportation capacity on its existing system while maintaining bidirectional flow capability (see Daily GPI, Sept. 8).
According to Horton, certain customers anchoring the company's $1.6 billion in expansion projects are required to provide credit support as construction progresses. He said that all of the customers required to post such credit support are current with their collateral commitments, with one exception: an undisclosed customer associated with the Northern Supply Access Project. That customer had reserved 100,000 MMBtu/d, which Horton said equated to approximately $13 million in annual revenue.
"We are working with that customer, as well as exploring all options for the capacity associated with that customer's precedent agreement," Horton said. He later added that he was "very hopeful that we'll wind up placing that capacity with another customer who would step in and assume that contract from the customer that did not post credit.
"We're in negotiations, and we'll just have to see how those negotiations play out."
CFO Jamie Buskill said that Boardwalk has invested $241 million on capex so far this year, an amount that includes $149 million in growth capital and $92 million in maintenance capital. He said growth projects remain on time and on budget.
"Our original 2015 estimate for growth capital had spending weighted toward the end of the year," Buskill said. "However, some of the expenditures previously expected to be made in 2015 have now moved into early 2016, without impacting the schedule for when our projects are scheduled to go into service."
Buskill said Boardwalk is now forecasting a total capex budget of $410 million for 2015, including $270 million for growth and $140 in maintenance capital. For 2016, the company plans to devote $815 million on capex, including $685 million on growth and $130 on maintenance. The budget for 2016 will be finalized in February.
Horton said the company hasn't seen a downturn in demand.
"It's a tough market for producers to take on new firm contract obligations," Horton said. "A lot of producers are going through downsizing drilling programs and trying to drill within cash flow, etc. The supply of gas has been impacted a little bit. I think producers are being cautious in how much supply they're going to need to move and how quickly.
"But we're seeing strong demand. We haven't seen a downturn; it's about what we expected."
Boardwalk reported EBIDTA of $161.2 million for 3Q2015, a 14% increase from the previous third quarter ($141.4 million). Net income also increased 31.1% between the two aforementioned quarters, from $29.2 to $38.3 million. Buskill said the company ended 3Q2015 with $365 million borrowed against a $1.5 billion credit facility, and had $5 million of cash on hand.
The company declared a quarterly cash distribution of 10 cents per common unit, 40 cents/unit annualized, which would be payable on Nov. 19. It declared the same distribution amount in 2Q2015 and 3Q2014, but it was 53.25 cents/unit in 3Q2013.
Buskill said Boardwalk transported approximately 585 trillion Btu of gas during 3Q2015, an amount unchanged from 3Q2014. It also transported 13 million bbl of liquids in 3Q2015, compared to 9 million bbl in 3Q2014.
Through its six operating subsidiaries, Boardwalk owns and operates approximately 14,190 miles of natural gas pipelines in 13 states, and more than 435 miles of NGL pipelines. It also owns and operates about 208 Bcf of working gas storage capacity and 18 million bbl of liquids capacity.
Boardwalk's six operating subsidiaries are TGT, Gulf South, Gulf Crossing Pipeline Co. LLC, Boardwalk Field Services LLC, Boardwalk Louisiana Midstream LLC and Boardwalk Petrochemical Pipeline LLC.
Boardwalk Pipelines Holding Corp., a wholly-owned subsidiary of New York-based Loews Corp., owns a 49% limited partnership interest and a 2% general partnership interest in Boardwalk. The remaining 49% limited partnership interest is held by public unitholders.