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Boardwalk Pipeline Partners Continues Shale Expansion

Houston-based Boardwalk Pipeline Partners LP has been able to strengthen the value of its natural gas pipeline network by expanding and extending it into North American shale basins over the past few years, but the recent overabundance of gas has resulted in "lower natural gas prices and a reduction in price differentials, both seasonally and between basins," according to CEO Stanley Horton.

"The reduced price differentials result in lower margins for transportation and short-term storage services such as park and lending, " and has had a negative impact on Boardwalk's results through the first six months of 2011, but the longer-term outlook for the natural gas pipeline operator is more positive, Horton said during an earnings conference call with financial analysts Monday.

"I believe that increased demand for natural gas will eventually correct the unprecedented current domestic gas glut. The demand response will likely come from the electric power [generators] in the industrial sectors and perhaps from increased natural gas exports and new uses for natural gas for our transportation needs. We are beginning to see such a demand response in the form of increased deliveries through electric generation plants and industrials on our pipeline systems."

The partnership's subsidiaries include Gulf Crossing Pipeline Co. LLC, Gulf South Pipeline Co. LP and Texas Gas Transmission LLC. Together the interstate gas pipeline systems have around 14,200 miles of pipeline and underground storage fields with aggregate working gas capacity of about 163 Bcf.

"We feel good about the long-term strategic value of our pipeline assets despite the current depressed margins for transportation and storage services," Horton said. "Our strategy going forward is to strengthen our existing pipeline assets by continuing to attach new supplies in markets to our system via expansion to new projects." Boardwalk recently announced an open season to expand delivery capacity into the Baton Rouge vicinity to meet additional demand from end-use customers in that area.

Gulf South is currently working on two expansion projects: the Clarence Compression Project, which would create new transportation capacity on Gulf South's existing pipeline in north Louisiana and additional market access to production from the prolific Haynesville Shale; and the Hall Summit Unit 6 Project, which would include the construction of a new 8,180 hp compressor unit, including appurtenant, auxiliary facilities, on Gulf South's existing Hall Summit Compressor Station property at the intersection of the pipeline from the Bistineau Storage Field and the 42-inch diameter expansion facilities in Bienville Parish, LA. Construction of both projects began earlier this year and the additional expansion from the projects is expected to be in service in 4Q2011.

While pipelines will continue to be Boardwalk's base business, the company is making efforts to diversity into the midstream sector via gathering and processes, and is "receptive to looking at opportunities outside of the traditional natural gas sector that could help diversify our business mix," Horton said.

"Regardless of the opportunity, we will be looking for growth that is accretive, strategic and that does not significantly increase Boardwalk's overall risk profile. For example, I don't envision getting into the E&P [exploration and production] business."

Boardwalk reported earnings before interest, taxes, depreciation and amortization of $111.4 million for 2Q201, a 24% decline from $145.7 million in 2Q2010. A $28.5 million noncash impairment charge was included in 2Q2011 earnings data, the company said. The impairment charge was associated with the partnership's materials and supplies and increased operation and maintenance expenses primarily related to integrity management and reliability spending.

But revenue from gas transportation, Boardwalk's largest sales segment, climbed to $244.3 million in 2Q2011, a 7.2% increase compared with $227.9 million in 2Q2010.

Boardwalk reported growth capital expenditures of $32 million and maintenance capital expenditures of $41.7 million during the first six months of 2011.

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