El Paso Energy Partners LP (EPN) reported a 70% jump in second quarter 2002 net income over the similar time period a year ago. The company posted net income of $28.7 million ($0.33 per unit), up from $16.9 million ($0.19 per unit), excluding one-time charges in the second quarter of 2001. Including $5.1 million in one-time charges related to the sale of EPN’s interest in the UTOS pipeline, net income for the 2001 quarter was $11.8 million ($0.04 per unit).

In addition, the partnership reported that its second quarter 2002 cash flow — as measured by adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) — increased 92% to $70.9 million compared with $36.9 million in the second quarter of 2001. The company attributed the surge in cash flow to the growing of its natural gas pipelines and plants segment, which includes the Texas and offshore natural gas pipeline systems.

“We are pleased to report our seventh consecutive quarter of record cash flows,” said Robert G. Phillips, CEO of EPN. “These excellent results are directly attributable to our $750 million acquisition of Texas and New Mexico natural gas midstream assets, which generated $29 million of cash flow during the quarter, exceeding our expectations. These results, coupled with the recently announced new transportation contracts on the Texas system, further demonstrate our proven track record of successfully completing accretive acquisitions and managing those assets for maximum financial performance.”

For the quarter, EPN’s pipelines and plants cash flow was $47.1 million, more than four times the $11.4 million reported for the 2001 second quarter. The company mainly attributed the increase to the acquisition of Texas and New Mexico natural gas assets that was completed in April 2002. Also contributing to the increase were assets acquired in October 2001 including the Chaco processing plant and the 50% interest that EPN did not already own in the High Island Offshore System and East Breaks Gathering System. Volumes were 6,451,000 Dth/d for the 2002 quarter compared with 2,235,000 Dth/d in the 2001 quarter. During the quarter, EPN also entered into three new transportation and storage contracts on its 9,400-mile EPGT Texas intrastate system totaling 246 Bcf of natural gas capacity per year. Each of these contracts represents accretive cash flow to EPN.

The partnership’s Natural Gas Storage segment contributed $2.1 million in cash flow, compared with $3.8 million in the second quarter of 2001, reflecting less interruptible storage activity at EPN’s Mississippi salt dome storage caverns. Despite the fall-off, EPN said that the expansion of the Petal natural gas storage facility and the 60-mile takeaway pipeline with interconnects to the Southern Natural Gas and Destin pipeline systems were completed during the quarter, and EPN commenced storage services to Southern Co. on July 1. The company estimates that revenues generated by its new services to Southern Co. will add $7 million of cash flow during the remainder of 2002 and $16 million annually thereafter.

In late May, EPN reaffirmed its earnings, cash flow and distributions guidance for the year and confirmed that it will buy the San Juan Basin gathering, compression, and treating system from general partner El Paso Corp., which intends to use the proceeds to strengthen its balance sheet (see Daily GPI, May 31). The San Juan assets include a 5,500-mile gathering system that is connected to 9,600 gas wells in northwestern New Mexico. EPN is expected to pay approximately $800 million.

“These assets are a perfect fit for EPN and meet our strict criteria for accretive long-term cash flows, Phillips added, referring to the San Juan asset acquisition. “We are also acquiring the Typhoon offshore oil and gas gathering pipelines and natural gas liquids (NGL) transportation assets in South Texas, which are highly synergistic with our existing fractionation and storage assets.”

EPN’s Oil and NGL Logistics, which includes oil pipelines, NGL transportation, fractionation and storage assets, contributed cash flow of $12.1 million, compared with $13.4 million in the similar quarter last year. The company reported operating volumes of 240,184 bbl/d, compared with 248,825 bbl/d in the second quarter of 2001. EPN noted that higher volumes and cash flow contributions from EPN Texas and the Allegheny Oil Pipeline were offset by lower volumes and contributions from EPN’s 36%-owned Poseidon Oil Pipeline.

Positive contributions were also made by the partnership’s recently acquired NGL storage operations in Louisiana and Mississippi. EPN said that progress continued on its 380-mile Cameron Highway Oil Pipeline System. The 500,000-bbl/d pipeline will transport oil from the Atlantis, Holstein, and Mad Dog developments, as well as other fields in the central and western Deepwater Trend, to the major oil market areas of Port Arthur and Texas City, TX.

“In addition, prospects to expand our considerable greenfield project base have never been better,” Phillips added. “Demand for transportation and platform services has remained strong, driven by the development of numerous discoveries in the Deepwater Trend of the Gulf of Mexico. Our expertise in this area is attracting significant new opportunities. We are excited about our continuing success in the Deepwater and are making excellent progress on our existing projects including the Marco Polo and Falcon Nest production platforms, the Medusa natural gas pipeline and our Cameron Highway Oil Pipeline System.”

As part of the April 2002, $750 million transaction to acquire Texas and New Mexico natural gas assets, EPN sold the Prince platform and overriding royalty interest. Contributions from the divested assets were listed under discontinued operations.

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