Crosstex Energy Endures Tough Natural Gas Market in Second-Quarter 2013, Bets Big on Utica, Marcellus

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Researched by Industrial Info Resources (Sugar Land, Texas)--Crosstex Energy LP (NASDAQ:XTEX) (Dallas, Texas), a leading midstream natural gas company that is partly owned by Crosstex Energy Incorporated (NASDAQ:XTXI) (Dallas), reported declines revenues and profit losses for the second quarter of 2013, as a weak natural gas-processing environment and higher expenses offset gains from U.S. shale plays. The company reported a net loss of $10.63 million for the quarter, compared with a loss of $2.44 million in second-quarter 2012.

Total revenues stood at $454.59 million, a 15.26% increase from the same period last year. Crosstex benefited from the July 2012 acquisition of assets in the Ohio River Valley, which contributed $13.5 million of gross operating margin during the quarter, which was the highest of any segment. The company reported stronger gas-processing margins from the Barnett Shale and especially the Permian Basin, but these were offset by a drop in gathering and transmission margins, following a decline in volumes and gathering rates. A weak natural gas-processing environment plagued gas pipelines and processing plants in Louisiana, which also suffered from diminished blending and treating fees, as well as the company's NGL assets in the same state, despite higher NGL volumes at Crosstex's fractionators and increased activity at oil terminals.

Operating, general and administrative expenses sharply increased from the same period last year. The company cited direct operating costs from the Ohio River Valley acquisition, including newly hired employees, and planned growth projects in the southern Louisiana gas-processing and NGL assets. Crosstex LP also reported a $4.9 million benefit from derivatives in second-quarter 2012, whereas it only saw a $445,000 benefit in second-quarter 2013.

Maintenance capital expenditures were reported to be $2.31 million during the quarter, compared with $3.73 million in the same period last year.

Industrial Info is tracking $471 million in active projects involving Crosstex, including two extensions to the 130-mile Cajun-Sibon Pipeline extension project in Louisiana and Texas. The $110 million Louisiana portion involves installing 85 miles of 12-inch diameter transmission pipeline to transport up to 70,000 barrels per day (BBL/d) of NGLs from the Eunice NGL Fractionation Facility in Eunice, Louisiana, to Crosstex's existing 440-mile Cajun-Sibon NGL pipeline near Beaumont, Texas. The $70 million Texas portion involves installing 45 miles of the same type of pipeline to transport up to 70,000 BBL/d of NGLs from Beaumont to Mont Belvieu, Texas.

"On the NGL front, the Louisiana petrochemical market consumes up to 300,000 BBL/d of ethane--but less than 100,000 BBL/d of ethane is produced in Louisiana, and the demand is expected to grow significantly in the future," said Barry Davis, the president and chief executive officer of Crosstex, in a conference call. "Our Cajun-Sibon expansion project is built to meet a portion of the current shortfall, and we believe that the increasing market demand will lead to additional growth opportunities from our expanded platform. I'm pleased to announce that construction on Phase I of Cajun-Sibon is near completion, and we expect volumes to ramp up to full capacity in the fourth quarter."

Davis said that the company plans to continue its focus on executing $1 billion worth of growth projects that are scheduled to be completed by the end of 2014, particularly in its NGL and crude oil businesses. He noted that drilling permits are up 44% from the first quarter, "driving a strong need for midstream condensate solutions, as the wells that are currently shut-in come online, and future wells are completed."

"In the Utica [Shale], the wells that have been drilled to date are producing large volumes of condensate," David said in the conference call. "The aggregate condensate volumes currently produced from the Utica are approximately 15,000 BBL/d. We anticipate that this will increase to 40,000 to 50,000 BBL/d by the end of the year. Local refining markets can only absorb about 50,000 to 60,000 BBL/d of condensate from the Utica and Marcellus. Anything produced in the region beyond that has to be moved outside the local markets. Our assets provide our customer with the optionality to move a truck, rail or barge to premium-priced markets outside the region. We expect to see progress in the Utica region ramp up dramatically in the coming months, as midstream infrastructure projects come online."

For more information, visit Industrial Info's North American Oil and Gas Transmission Project Database.

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