CenterPoint Energy Inc. reported Tuesday that progress was being made on several infrastructure projects, with more under consideration in its field services division, and the company could consider a master limited partnership (MLP) for the midstream to help finance future expansion.
CenterPoint's Field Services division had operating income of $210 million in 2010, more than double the $94 million in 2009.
"This has been our fastest growing segment, and we expect significant growth to continue for the next few years," CenterPoint Energy CEO David McClanahan said in an earnings conference call, adding that the financial figures for field services included a $21 million gain from the 4Q2010 sale of a small gathering system and $36 million from long-term agreements with subsidiaries of Royal Dutch Shell plc and Encana Corp.
"Gathering volumes were up significantly in 2010 compared to 2009," McClanahan said. "Average gathering volumes in 2010 were 1.8 Bcf/d, an increase of more than 50% from 2009."
CenterPoint CFO Gary Whitlock said the company could consider entering into an MLP or other financing if it needed new capital, "which may be required if we were to have a new significant opportunity either in or outside our current footprint." But he declined to predict whether that would happen in 2011 or 2012.
"We think the formation of an MLP could be an efficient way to finance new growth as compared to selling common equity," Whitlock said. "However, our focus has been and will continue to be on executing the optimum financing plan for the company based on our particular circumstances."
The company is in discussions with producers for projects within its footprint, which is the Haynesville, Fayetteville and Woodford shales, but also is in discussions on projects outside that footprint, in particular in the Eagle Ford Shale, McClanahan said.
Whitlock noted that the capital spending plan for field services in 2011 was $262 million, down from $406 million in 2010 because it had completed a significant portion of the build out of the gas gathering and production facilities in the Haynesville Shale pledged in 2009 for Shell and Encana (see Daily GPI, Sept. 11, 2009).
According to McClanahan, the first 700 MMcf/d phase of the Magnolia Gathering System is complete except for well connects. He added that construction of the Olympia Gathering System and a 200 MMcf/d expansion of Magnolia were moving forward on schedule and on budget (see Daily GPI, May 4, 2010).
"By the end of the first quarter of this year, we expect to have both of these projects substantially completed except for pipeline interconnections scheduled for later this year and well connects," McClanahan said. "This will bring the total capacity of these two systems to 1.5 Bcf/d."
McClanahan said CenterPoint's contracts with Shell and Encana contain annual throughput guarantees at certain project milestones. Those guarantees, he said, have either been met or will be met in 2011.
"The initial phase of the Magnolia system is flowing at close to contracted volume capacity," McClanahan said. "We expect throughput on the Olympia system and the Magnolia expansion to increase over the course of the year and be at system capacity by early 2012."
The Magnolia and Olympia systems are both in Louisiana and traverse De Soto and Red River parishes. Olympia also crosses Sabine and Natchitoches parishes. CenterPoint has invested about $800 million for both pipeline projects, but Shell and Encana have expansion rights for another 1.3 Bcf/d, which would increase total capacity for both systems to 2.8 Bcf/d and cost the company another $450 million to build.
Subsidiary CenterPoint Energy Gas Transmission Co. (CEGT) reported operating income of $63 million for 4Q2010 and $270 million for the entire year 2010, up from $62 million in 4Q2009 and $256 million for all of 2009. CEGT equity income totaled $4 million for 4Q2010 and $19 million for the entire 2010 year, thanks to its 50% interest in the Southeast Supply Header.
"Operating income was essentially the same as 2009," McClanahan said of CEGT. "Higher revenues, primarily from firm contracts associated with Phase IV of the Carthage to Perryville [Line CP] pipeline, were offset by lower revenues from ancillary services."
The capital spending for CEGT, which operates Line CP, a 1.9 Bcf/d, 42-inch diameter pipeline from Carthage, TX, to Perryville, LA, has been increased (see Daily GPI, June 15, 2010). Whitlock said CEGT's budget has gone from $102 million in 2010 to $157 million for 2011 -- for "increased maintenance capital and additional spending to ensure compliance with certain [U.S. Environmental Protection Agency] rules."
CenterPoint's Natural Gas Distribution segment reported operating income of $86 million in 4Q2010 and $231 for the year 2010, compared to $99 million for 4Q2009 and $204 million for all of 2009.
"2010 was an exceptional year for our natural gas distribution business," McClanahan said. "Over the last several years, this business has worked diligently on reducing customer delinquencies and bad debt expense and is also focused on obtaining necessary rate increases and improving rate design." He attributed the 4Q2010 decline to milder weather, higher operation and maintenance expenses and changes to rate designs.
The parent company's net income for 2010, including its Houston Electric business, was $442 million, or $1.07/share compared to $372 million or $1.01/share for 2009.
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