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Boardwalk Pipeline Partners, LP (BWP) |
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WIKI ANALYSIS
Boardwalk Pipeline Partners NYSE:BWP is a master limited partnership that controls and operates pipeline systems consisting of pipelines (natural gas) and storage facilities, through Boardwalk Pipelines LP. In total there are 3 major interstate natural gas pipeline systems originating in the Gulf Coast (Oklahoma, Arkansas) which carry gas to the Midwest (Tennessee, Kentucky, Illinois, Indiana and Ohio). More recently (2010) increased competition from regional and national transportation companies (causing there to be a higher overall capacity available and new sources of transmission) has narrowed pipeline system price differentials. The parent company Loews (66% equity owner) charges Boardwalk about 12.4 million per year for services such as those relating to information technology, tax and risk management. Boardwalk Pipelines Holding Company (direct subsidiary of Loews that manages its interests in Boardwalk) owns all of the Long Term - Affiliate debt; the debt is from a 2009 subordinated loan made with the holding company and amounts to about $100 million (about 3% of the company's total debt ($3.152 billion in September 2010 with the fair value being $3.39 billion). Loews' indirect interest in Boardwalk has been slowly decreasing since 2005; it was 85% in 2005, 72% in 2009 and 66% by the end of 2010. The company's biggest customer is Devon Energy which contributed 11% of total revenue in 2009. In June 2010 it committed to modifying the Eagle Ford pipeline system.
In 2009 leading customers based on revenue were marketers (45%), producers (30%), LDC's (17%), power generators (4%), pipelines (2%) and industrial end users and others (5%). Pipeline interconnects is the destination of approximately 54% of all gas delivered through Boardwalk's systems with LDC's at 22% and storage facilities 11%.
Boardwalk operates at two main locations on large fully owned or leased properties; one is in Houston (103,000 square feet of leased space) the other in Owensboro, Kentucky (108,000 square feet of owned space).
The company hedges against changes in the price of natural gas by using derivatives (futures, swaps and option contracts). Total gas hedged amounted to 2.2 billion cubic feet in September 2010.
Company Overview
- Gulf South - An extensive pipeline system that runs through and serves Texas, Louisiana, Mississippi, Alabama and Florida. New Orleans, Jackson, Mobile and Pensacola are the largest municipalities directly accessable by the system (the system also links up to other ones that serve end users in many other parts of the US). The system encompasses 2 natural gas storage facilities, 1 in Bistineau, Louisiana (78 billion Bcf of gas storage capacity) and 1 other smaller one in Jackson, Mississippi that is used only for operational purposes (5 billion Bcf of gas storage capacity as of the end of 2009).[3]
- Gulf Crossing - A pipeline system that takes gas from Sherman (Texas) to Perryville (Louisiana)
- Texas Gas - Starts out in Louisiana, East Texas and Arkansas and ends up in Louisiana, Arkansas, Mississippi, Tennessee, Kentucky, Indiana, and Illinois. Eight states are directly served by the pipeline system, the largest cities in the direct area are Memphis, Louisville, Cincinnati and Dayton, Evansville and Indianapolis. Most of the gas delivered by that system is used for heating.
- There are also 9 storage fields that are majority owned, some of the storage is used by clients who borrow extra gas during the winter with the promise that they replace it during the summer.
Subsidiaries
Business is divided into 3 segments; Gulf Crossing, Gulf South (pipeline) and Texas Gas (transmission). The 3 pipeline divisions are also subsidiaries with each managing its own operations.
Newest Projects
Total capex (capital expenditure) used on growth projects was $145 million for the first nine months of 2010.
- Haynesville - Involves increasing compression to the East Texas Pipeline in Louisiana (services Perryville). Began operating in October 2010 when it contributed about 0.6 billion cubic feet per day to capacity. Total capacity has been sold, avg contract life - 12.2 years. The cost of the project was estimated at about $110 million ($75 million less than the previous estimate)
- Clarence Compression - contracted out 0.1 Bcf of capacity for 11 years, begins transporting shale in 2011, originates in the Holly Field of NW Louisiana and delivers to a third party operated pipeline near Olla, Louisiana.
Business and Financials
9M10 - Capex spent on maintenance was about the same as it was in 2009, $26.4 million compared to $26.1 million. Credit Facility loans outstanding amounted to $703.5 million, 2.85 times higher than credit available ($246.5 million). Lower capex (by $482.7 million, caused by project completions and the sale of gas assets) caused net cash used in investing to fall by 51.3% (to $157.8 million). $175 million in short term investments were sold in 2009. In contract financing activities required $355.4 million more in net cash (came out to $154 million due to financing activities being a positive contributor in 2009). As of September 2010 there were $2.4 billion in outstanding debentures (steady year on year) paying 5.89% interest. $6.26 billion of the $6.9075 billion in total assets (90.6% compared to 91.04% the previous year) are in property, plant and equipment (that's the net amount after subtracting depreciation and ammortization).
2009 For the year 74% of revenue came from capacity reservation contracts, 15% from other contracts (actual utilization) and the other 11% from interruptable transportation, storage, parking and other on demand services.[3]
| millions USD | 2007[4] | 2008[5] | 2009[3] | 9M09[6] | 9M10[7] | Change % (9M) | millions USD | 2007[4] | 2008[5] | 2009[3] | 9M09[6] | 9M10[7] | Change % (9M) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| total revenue | 643.2 | 784.8 | 909.2 | 630.2 | 814.8 | 29.29% | capex | 1,209.8 | 2,652.5 | 846.8 | 656.9 | 174.2 | (73.48)% |
| operating income | 266.0 | 346.6 | 294.5 | 186.2 | 312.5 | 67.83% | net income per share | 1.91 | 2.09 | 0.88 | 0.51 | 1.02 | 100% |
| depreciation ammortization | 81.8 | 124.8 | 203.1 | 150.5 | 161.3 | 7.18% | total expenses | 377.2 | 438.2 | 614.7 | 444.0 | 502.3 | 13.13% |
| net income | 227.7 | 294.0 | 162.7 | 91.1 | 200.5 | 120% | cash equivalents | 317.3 | 137.7 | 45.8 | 122.9 | 88.8 | (27.75)% |
| gas transp revenue | 529.7 | 698.2 | 794.9 | 545.9 | 734.0 | 34.46% | shareholders equity | 1,803.0 | 3,245.0 | 3,364.2 | 3,387.2 | 3,259.6 | (3.77)% |
| current assets | 455.6 | 451.8 | 190.9 | 259.1 | 222.0 | (14.32)% | total assets | 4,122.0 | 6,721.6 | 6,895.8 | 6,905.9 | 6,907.5 | steady |
Trends and Forces
Weather/Temperature Affects Gas Demand
In addition to the price of natural gas, sales/revenue is affected by seasonality, the result of its effect on demand for heat/power (in 2009 55% of revenue came from the coldest quarters (1 and 4)).[3] Temperature extremes in the summer can also affect business because of the increased use of air conditioners and other cooling systems.
Gas Prices Are Directly Proportional To Demand For Services
Relatively low prices in 2009 caused key customers which produce natural gas to decrease drilling and shut down several wells. Although most of Boardwalk Pipelines business comes from reservational contracts (a fixed amount of pipeline capacity is purchased by capacity) a minor but growing source of revenue is based on actual gas transported. When those customers produce less that affects the amount of pipeline capacity they require and lowers revenue for Boardwalk.
References
- ↑ FERC Approves Construction of Three Boardwalk Pipeline Projects. (2008-05-14).
- ↑ Boardwalk Pipeline Partners to extend two pipelines (February 2007).
- ↑ 3.0 3.1 3.2 3.3 3.4 Boardwalk Pipelines 2009 Annual Report (2010-02-10).
- ↑ 4.0 4.1 Boardwalk Pipeline Partners 2008 Annual SEC Report (2008).
- ↑ 5.0 5.1 Boardwalk Pipeline Partners 2008 Annual SEC Report (2009).
- ↑ 6.0 6.1 Boardwalk Pipeline Partners 2009 Third Quarter Report (2009-10-28).
- ↑ 7.0 7.1 Boardwalk Pipelines 2010 Third Quarter Report (2010-10-26).
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