Profits and revenues in 2Q2010 surged for Houston-based Boardwalk Pipeline Partners LP, but the natural gas pipeline operator failed to hit Wall Street expectations because of higher operating costs and interest expenses, it said Monday.

Net income in the latest quarter jumped 168% to $54.4 million (28 cents/unit) from $20.3 million (12 cents) in 2Q2009. Operating revenue was up 27% to $256.7 million from $201.4 million. Wall Street's average estimate of expected earnings was 36 cents/unit, according to a poll by Thomson Reuters.

Operating results primarily were driven by higher natural gas transportation revenues from expansion projects, CEO Rolf Gafvert said during a conference call. Results were partly offset by lower interruptible and short-term firm transportation revenues because of reduced price spreads between locations on the pipeline systems.

When the partnership issued its results for the first three months of this year, Gafvert noted in April that "basis spreads between different receipt and delivery locations on our systems had narrowed, affecting the transportation rates we were able to charge in certain markets.

"These trends have negatively impacted our contract renewals, and revenues from our interruptible and short-term firm transportation services and future revenues may continue to be negatively impacted."

Capacity available on a short-term basis "will decrease as long-term capacity commitments on our recently completed pipeline expansion projects increase over the next 12 to 18 months," said the CEO. "However, our contract renewals remain subject to basis spread volatility and some of our capacity will continue to be available for sale on a short-term or interruptible basis, and that capacity will also be dependent upon basis spreads."

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.

Boardwalk is making progress on some of its growth projects, including two in the Haynesville Shale, said Gafvert. The Haynesville Project is scheduled to ramp up by the end of this year; Boardwalk sold an additional 156 MMcf/d of capacity on the project late last year (see Daily GPI, Dec. 17, 2009).

In January the Federal Energy Regulatory Commission issued a certificate to Gulf South to expand compression at its East Texas-to-Mississippi facilities to boost takeaway capacity from the Haynesville Shale area (see Daily GPI, Jan. 8). The compression expansion is expected to be in service by late 2011.

The Haynesville Project is scheduled to be in service by the end of this year; the Clarence Compression project has an anticipated in-service date of late 2011.

Also on the radar is the Eagle Ford Shale in South Texas, which is about 50 miles from Boardwalk's pipeline system in South Texas, noted the CEO. Boardwalk and Southcross Energy LLC in June agreed to jointly build infrastructure for gas producers in the shale play (see Daily GPI, June 16).

"As part of that project, we plan to modify an existing section of Gulf South's 30-inch pipeline from Refugio, TX, to Fort Bend County, TX, so that condensate-rich Eagle Ford Shale gas can be accepted into that pipeline segment," said Gafvert. "In addition, Boardwalk continues to pursue other Eagle Ford growth opportunities.

"We are also pursuing opportunities to grow our transportation and storage business. Today Boardwalk serves approximately 40 natural gas-fired power plants in 10 states. We are currently pursuing opportunities to serve power generators who are replacing old, inefficient coal plants and simple-cycle gas-fired combustion turbines with highly efficient combined-cycle gas generation."

CFO Jamie Buskill told analysts on the conference call that year to date, Boardwalk has invested $118 million in growth capital expenditures. "For the remainder of 2010 and for 2011, we plan to invest approximately $225 million for growth capital expenditures, primarily for our Haynesville and compression projects and for post-construction activities related to major expansion projects already in service."

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