El Paso Pipeline Partners Boosts 3Q Earnings by 20%

El Paso Pipeline Partners, L.P. has reported third quarter 2008 financial and operational results for the partnership.

Highlights include:

  • Net income increased to $20.8 million from $17.4 million in the third quarter of 2007
  • Earnings of $0.29 per common unit in the third quarter 2008
  • Raised third quarter cash distribution to $0.30 per common and subordinate unit, a 1.7 percent increase from the second quarter 2008
  • Completed $736 million acquisition from El Paso Corporation
  • SNG SESH phase I project placed into service in September
  • WIC Medicine Bow expansion placed into service in October

"The partnership's earnings and cash flow continue to demonstrate consistent growth as our premier pipeline assets delivered solid results in the quarter," said Jim Yardley, president and chief executive officer of El Paso Pipeline Partners. "The highlight of the quarter was our first acquisition from El Paso Corporation, which provides for 8 to 10 percent organic growth through 2012."

Financial Results

For the quarter and nine months ended September 30, 2008, El Paso Pipeline Partners reported net income of $20.8 million and $71.4 million, respectively, compared with $17.4 million and $46.6 million, respectively, for the same periods in 2007. EBIT for the quarter and nine months ended September 30, 2008, was $25.2 million and $85.8 million, respectively, compared with $19.8 million and $52.1 million, respectively, for the same 2007 periods.

The increase in net income and EBIT for both periods is due primarily to increased earnings from equity investments, and the completion of pipeline expansion projects, which offset higher operating expenses. The partnership began recording earnings from its equity investments following the contribution of the interests in Colorado Interstate Gas (CIG) and Southern Natural Gas (SNG) from El Paso Corporation in connection with its initial public offering.

Operating income for the quarter and nine months ended September 30, 2008 was $17.5 million and $55.7 million, respectively, compared with $17.7 million and $48.0 million respectively for the same 2007 periods. Operating costs for the quarter increased as a result of public company expenses, acquisition costs, and increased transportation costs related to the acquisition of capacity on third party pipelines to support the Piceance Lateral expansion.

Distributable cash flow for the nine months ended September 30, 2008 was $93.5 million, with distribution coverage of 1.10 times.

Equity Investments

On September 30, 2008, El Paso Pipeline Partners completed its acquisition of additional interests in CIG and SNG and now owns 40 percent and 25 percent of each, respectively. The acquisition was financed by the issuance of 27.8 million common units, 0.6 million general partner units, and $250 million of debt.

From a cash perspective, the acquisition was effective July 1, 2008 and El Paso Pipeline Partners received a full third quarter distribution from CIG and SNG at its increased interest level. The acquisition will be accounted for prospectively from the transaction close date, and equity earnings from CIG and SNG for the third quarter are reported at El Paso Pipeline Partners pre-acquisition interest levels.

Equity earnings from CIG for the quarter and nine months ended September 30, 2008, were $2.5 million and $10.1 million, respectively. SNG generated equity earnings of $4.5 million and $19.1 million for the quarter and nine months ended September 30, 2008, respectively.

Interest and Debt Expense

For the quarter and nine months ended September 30, 2008, interest and debt expense was $4.4 million and $14.4 million, respectively. Interest and debt expense relates primarily to amounts borrowed under the partnership's credit facility.

Liquidity

El Paso Pipeline Partners maintains a $750 million revolving credit facility, which is underwritten by a diverse group of 25 financial institutions. The facility, which has a November 2012 maturity date, had available capacity of approximately $150 million as of September 30, 2008. The partnership will utilize this facility, operating cashflow, and a $30 million note receivable from El Paso Corporation to fund its on-going capital expenditures, and does not expect a need to access the capital markets until beyond 2009.

Capital Projects

During the quarter and nine months ended September 30, 2008, WIC invested $14.1 million and $71.8 million of growth capital, respectively, primarily for the Kanda Lateral, Piceance Lateral, and Medicine Bow expansions. Maintenance capital expenditures for the quarter and nine months ended September 30, 2008, were $1.0 million and $2.0 million, respectively. During the quarter, the first phase of SNG's Southeast Supply Header project was placed into service, and the partnership announced the WIC system, and CIG Raton 2010 expansion projects. In October, the WIC Medicine Bow expansion was placed into service.
 

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