Crosstex Energy Incurs Heavy Costs in 2012, Emphasizes Fee-Based Gas Services for 2013

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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 mixed results for fourth-quarter and full-year 2012 as higher depreciation and amortization costs siphoned earnings. Still, the company notched up several acquisitions, including assets in the Ohio River Valley. Crosstex LP reported net losses of $24.54 million for the quarter, compared with losses of $1.4 million in fourth-quarter 2011, and net losses of $40.1 million for the year, compared with losses of $2.34 million in 2011.

Crosstex executives noted the difference when excluding one-time expenses and other exceptional costs, including gains and losses on the sale of property; stock-based compensation interest expenses; non-cash derivatives; depreciation; amortization; impairments; taxes; and interest expenses. Using this measurement, which is called "adjusted EBITDA," Crosstex LP saw income of $51.68 million for the quarter, a 5.41% decrease from the same period in 2011, and $214.09 million for the year, basically unchanged from 2011.

Total midstream revenues were reported to be $525.98 million for the quarter, a 9.37% increase from fourth-quarter 2011, and $1.66 billion for the year, a 17.78% decrease from 2011. The Processing and Natural Gas Liquids (PNGL) and the Louisiana pipelines and processing (LIG) segments were both negatively affected by weaker processing environments, with the latter incurring losses from a slurry-filled sinkhole that formed near a Crosstex pipeline in August. Much of the depreciation and amortization that negated company earnings were related to the Sabine gas processing plant in Cameron, Louisiana; additions made to systems in the Permian Basin; and transportation and pipeline facilities in the Ohio River Valley.

Among the company's highlights were an overall increase in NGL fractionation and marketing activity; the July 2012 acquisition of assets in the Ohio River Valley; stronger activity at the southern Louisiana crude oil terminals; higher processing volumes in northern Texas (NTX); and the addition of gas processing facilities in the Permian Basin in West Texas.

Capital expenditures totaled about $502 million for 2012. Maintenance expenditures accounted for $13.65 million.

Industrial Info is tracking $278 million in active projects involving Crosstex, including the construction of two pump stations, each with an estimated value of $25 million, in Texas and Louisiana. Both will be part Crosstex's 130-mile Cajun-Sibone Pipeline Extension Project, and each involves constructing buildings and installing three electric drive compressor gas packages. The pump stations are being built west of Mont Belvieu, Texas, and in Eunice, Louisiana.

"Development of the shale plays that began some 10 years ago was the catalyst for today's industry activity that is now concentrated in rich gas and crude oil plays," said Barry Davis, the president and chief executive officer of Crosstex, in a conference call. "As commodity supply grows and we continue to see a major shift from the traditional areas of gas supply to new, more liquids-rich resources, we will see a re-piping of America, with approximately $10 billion in new infrastructure expected to be invested annually over the next 25 years."

The realized weighted average NGL price stood at $1.02 per gallon for the quarter, compared with $1.37 per gallon in fourth-quarter 2011, and $1.07 for the year, compared with $1.31 in 2011. Only the PNGL segment saw an decrease in natural gas volumes processed:

• The PNGL segment reported 659,000 Btu/d for the quarter, an 18.74% decrease when compared to fourth-quarter 2011, and 738,000 Btu/d for the year, a 10.98% decrease from 2011.
• The LIG segment reported 269,000 Btu/d for the quarter, a 3.86% increase when compared to fourth-quarter 2011, and 248,000 Btu/d for the year, basically unchanged from 2011.
• The NTX segment reported 398,000 Btu/d for the quarter, a 57.94% increase when compared to fourth-quarter 2011, and 364,000 Btu/d for the year, a 46.18% increase from 2011.

Davis said the company is focusing on fee-based projects that diversify Crosstex's offerings and enlarge its presence in the natural gas, NGL and crude oil markets, including more than $1 billion in projects that were initiated in 2012 and are to be completed in 2014. They include further development of the Ohio River Valley acquisitions; the company's joint venture with Apache Corporation (NYSE:APA) in the Permian Basin; and the Cajun Sibone pipeline and fractionation expansion project.

"Through year's end, we spent approximately $104 million on the Cajun Sibone project," said Mike Garberding, the executive vice president and chief financial officer of Crosstex, in the conference call. "These growth projects will continue to transform the business, further increasing product diversity and fee-based margin. Approximately 80% of our margin in the fourth quarter was derived from fee-based gas gathering and processing business, compared with approximately 70% just a year ago. We believe this is the most effective way to manage commodity exposure."

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

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