Expenses Erode Gains in Second-Quarter 2010 Results for Energy Transfer Partners

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Researched by Industrial Info Resources (Sugar Land, Texas)--Energy transmission company Energy Transfer Partners LP (NYSE:ETP) (ETP) (Dallas, Texas) saw mixed results in the second quarter of 2010, as various expenses ate away at somewhat improved revenues and earnings. Net income was reported to be $42.84 million, compared to $150.74 million in the same period last year.

Reported net income included a $52.62 million non-cash impairment related to the transfer of the company's interest in the Midcontinent Express Pipeline; $32.1 million in unrealized losses on commodity risk management activities; $83.88 million in depreciation and amortization expenses; $103.01 million in interest expenses; and income taxes and other expenses. Excluding these factors by using non-GAAP "adjusted EBITDA" accounting, ETP's net income for the second quarter totaled $335.62 million, a 25.16% increase from the same period last year.

Total revenues for ETP stood at $1.27 billion, a 10.06% increase from second-quarter 2009. Revenues from natural gas operations totaled $1.05 billion, a 10.3% increase from the same period last year, and retail propane revenues totaled $197.15 million, a 9.67% increase. Revenue from other operations totaled $24.61 million, a 3.36% increase. The company's Midstream segment saw some of the strongest gains, as an increase in gathering and processing volumes, as well as an increase in volumes resulting from recent acquisitions in Louisiana, boosted results.

"Our results for the quarter were impacted by lower transported volumes than we saw a year ago, combined with lower basin differentials across Texas," said Martin Salinas, chief financial officer for ETP, in a conference call. "This resulted in $24 million less margin in transportation fees."

All but one of ETP's four major segments saw an increase in revenues, but a large increase in interstate transportation costs negatively affected operating income for the intrastate transportation segment, and mark-to-market accounting expenses took a bite out of the retail propane businesses:

• Intrastate Transportation and Storage revenues were reported to be $848.89 million, a 71.86% increase from second-quarter 2009, while operating income stood at $127.82 million, an 18.55% decrease.
• Interstate Transportation revenues were reported to be $70.08 million, a 0.72% decrease from the same period last year, while operating income stood at $32.17 million, a 0.67% increase.
• Midstream revenues were reported to be $757.79 million, a 38.85% increase from second-quarter 2009, while operating income stood at $49.87 million, a 77.77% increase.
• Retail Propane and related segment revenues were reported to be $220.13 million, an 8.83% increase from the same period last year, while operating income was reported to be a loss of $6.44 million, compared to a gain of $4.56 million in second-quarter 2009.
• All other revenues were reported to be a total of $41.14 million, compared to only $1.31 million in the same period last year, while operating income totaled a loss of $4.23 million, compared to a loss of $2.27 million in second-quarter 2009.

Partly offsetting overall gains in revenue were elimination costs, which totaled $670.32 million, compared to costs of $162.06 million in the same period last year.

"In addition to seeing an uptick in our quarterly EBITDA of roughly 25% from this time last year, we are seeing some nice volume increases across our systems compared to the latter part of 2009 and early 2010," Salinas said in the conference call. "Our Barnett Shale volumes alone have increased half a billion cubic feet per day, and we expect an additional 200 million to 300 million cubic feet per day by the end of this year. All in all, our transportation volumes are up by more than 1 billion cubic feet per day since the fourth quarter of 2009."

Industrial Info is tracking $525 million in active ETP projects in the U.S., including a $225 million grassroot natural gas pipeline that is part of the 174-mile Tiger Pipeline Project. The project involves the installation of 79.8 miles of 42-inch-diameter pipe, beginning at a compressor station in Carthage, Texas, where it will interconnect with Houston Pipeline Company's existing mainline, and terminating at the Perryville Hub in Richland Parish, Louisiana. The pipe will have a capacity of 1.25 billion cubic feet per day of natural gas, with the capability of expanding to 2.4 billion cubic feet per day by 2012. For more information, visit Industrial Info's North American Oil and Gas Transmission Database.

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