The Dallas-based Crosstex Energy LP on Friday reported 4Q2005 earnings surged 71%, boosted by a $2.3 million gain from mark-to-market valuation of derivatives bought to hedge against price changes from its South Louisiana processing business.

The partnership reported net income of $10.5 million (30 cents/unit), compared with $6.1 million (22 cents) in 4Q2004. Wall Street analysts had pegged earnings at 26 cents/share.

“We had a great fourth quarter and an outstanding year in 2005,” said CEO Barry E. Davis. “The quarter and the year were distinguished by continued emphasis on maximizing profitable growth, including constructing a new pipeline in North Texas, the significant expansion in our treating business, and the strategic acquisition of the South Louisiana processing business.”

Full-year 2005 results were net income of $19.2 million (56 cents/unit), versus net income of $23.7 million (98 cents) in 2004. The year’s net income was reduced by the impact of the fair value loss of $9.2 million in puts in the final quarter, Crosstex said. “Neither the gains associated with the puts in the fourth quarter nor the fair value loss for the year had any impact on distributable cash flow.

The last quarter of 2005 was negatively impacted by reduced throughput volumes on Crosstex’s new South Louisiana processing assets following damage by Hurricanes Katrina and Rita to production and pipeline facilities owned by third parties in the Gulf of Mexico. However, Crosstex took advantage of arbitrage opportunities resulting from market volatility in the aftermath of the hurricanes, which more than offset the negative impact of the reduced volumes.

Additionally, Crosstex negotiated a purchase price reduction on South Louisiana assets due to the negative impacts on volumes foreseen prior to their acquisition. The company said volumes in these assets should begin to increase over the first half of 2006 as natural gas producers and pipelines complete repairs to their infrastructure and resume full production, “although it may be the third quarter before volumes are back to levels consistent with original acquisition expectations.”

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