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Supply Glut, Warm Winter Cut Both Ways for Boardwalk

The conditions that have been keeping a lid on natural gas prices -- unusually warm winter weather and robust gas supplies -- had both positive and negative impacts on Boardwalk Pipeline Partners LP's (BPP) business in 1Q2012, according to CEO Stan Horten.

"Our utilization-driven revenues were negatively impacted by lower gas prices and lower throughput due to the warm winter weather," Horten said during a conference call with financial analysts Monday. "However, like storage operators everywhere, the warm winter has resulted in storage inventory levels that are much higher than normal this time of year. These high storage inventory levels, combined with extremely low gas prices at the front of the Nymex curve, are currently producing parking and lending spreads that are far more favorable than last year."

In February a BPP subsidiary paid approximately $285 million to Boardwalk Pipelines Holding Corp. (BPHC) for the remaining 80% equity interest in Boardwalk HP Storage Co. (see Daily GPI, Feb. 28). BPHC, which is a subsidiary of Loews Corp. and the parent of BPP's general partner, acquired the interest for the same price at the end of 2011 (see Daily GPI, Oct. 18, 2011). Boardwalk HP Storage operates seven high-deliverability salt dome gas storage caverns with 29 Bcf of total capacity, of which approximately 19 Bcf is working capacity in Forrest County, MS.

"Purchasing the remaining equity interest in the HP Storage was the goal for us this year, and I'm very pleased that we were able to complete this transaction so early in the year...these assets are already contributing to the financial results of the company," Horten said. "We also are developing a new cavern that will increase working gas capacity in HP Storage by approximately 5 Bcf. This new cavern is expected to go into service in the first half of 2013."

BPP is seeing demand respond to ample gas supplies in both the industrial and power generation sectors, Horten said.

BPP's 1Q2012 operating revenues were $312.9 million, a 1% increase from $311 million during 1Q2011, and the Houston-based partnership's net income was $92.6 million, a 12% increase from $83 million a year ago.

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