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Bluegrass On Hold, But Cold 1Q Brings More Green to Boardwalk

Boardwalk Pipeline Partners LP and Williams are no longer funding their Marcellus-to-Gulf Coast natural gas liquids (NGL) joint venture pipeline project, Bluegrass, as customer commitments have yet to materialize.

"The open season for capacity on the pipeline ended in the first quarter 2014 and although discussions with potential customers continued throughout the first quarter, the partnership has not obtained sufficient firm customer commitments," Boardwalk said Monday. Williams made a similar announcement.

However, Boardwalk Monday did have some good news as cold weather lifted pipeline and storage revenue, as did recently completed growth projects, offsetting losses from expiring transportation contracts, the company said. Operating revenues of $356.9 million was a 9% increase from $328.5 million in the year-ago quarter. Net income of $110.2 million was a 9% increase from $101.4 million a year ago.

CFO Jamie Buskill noted during a Monday conference call that Boardwalk results are highly seasonal and the first quarter is usually the company's best of the year. He said to expect continued downward pressure on transportation rates for the remainder of the year. The latest favorable turn in earnings was not enough for Boardwalk to change its previous guidance.

CEO Stan Horton said the Bluegrass project is not dead and that discussions with prospective shippers are continuing. He would not say what, if any, commitments the project backers were able to secure. He added that Boardwalk is not restricted on how it might make use of existing pipeline capacity that has been earmarked for the Bluegrass project. "There are no restrictions on us looking at options for that, including for natural gas service," he said.

Last year, Boardwalk and Williams announced their partnership to develop the Bluegrass Pipeline, which would carry 200,000 b/d of mixed NGLs from Ohio, West Virginia and Pennsylvania to the Gulf Coast, with the potential to expand to 400,000 b/d (see Shale Daily, April 30, 2013; March 7, 2013). Not long after, Kinder Morgan Energy Partners LP and MarkWest Utica EMG LLC came out with their own plan for a y-grade NGL processing and transportation combo project to compete with Bluegrass (see Shale DailyAug. 9, 2013). Kinder Morgan and MarkWest extended the project's open season earlier this year to close on Feb. 28.

Meanwhile at Boardwalk, the first quarter's cold caused the company to set records for gas storage withdrawals and gas deliveries on many parts of its system, adding that end-use customers continue to value flexible services and need firm pipeline and storage capacity, Horton said.

In February, Boardwalk slashed its distribution by 81%, sending units down 46% to $13.03 (see Shale DailyFeb. 11). The company has been plagued by pipeline capacity recontracting woes as abundant Appalachian gas supplies have devalued its Gulf Coast region infrastructure. The partnership and its Texas Gas Transmission LLC recently announced a suite of projects intended to give it a piece of the Marcellus gas pie (see Shale DailyMarch 28).

Boardwalk has recovered some since the distribution cut and closed at $16.19 Monday, still far from the 52-week high of $33.00. Horton was asked by an analyst about his priorities for the next few years and what is being done to turn Boardwalk around.

"Our strategy continues to be to look for ways to repurpose our pipeline assets and to grow loads on our existing pipeline systems and storage," he said. "The markets right now are going through an upheaval. We've got flows of natural gas today in directions and patterns that just were not contemplated when these pipelines were built. So just about every pipeline in North America today is looking at, 'what do I do with my pipeline facilities in lieu of the fact that we've got natural gas supply in areas of the country that historically have been strong demand centers but not strong supply centers.' That's all changed."

Repurposing the pipe that's in the ground will be a priority for the next three to four years, Horton said. Acquisitions are a possibility, but only if they're accretive and strategic. Diversification, along the lines of the Boardwalk Louisiana Midstream acquisition, also is a goal, Horton said.

"We think if we do those things and move through the recontracting efforts that we've got, that we'll continue to have a very healthy company," Horton said.

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