Crosstex Energy Takes Hit from Impairment Charge in Third-Quarter 2013, but Major Growth from Projects Expected

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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 a net loss in third-quarter 2013, influenced largely by an impairment expense on a now-closed plant. Strong gains came from the segment for gas processing and natural gas liquids (NGL). The company reported a net loss of $78.84 million for the quarter, compared with a loss of $16.1 million in third-quarter 2012.

During the quarter, the company incurred a $72.58 million impairment expense, following the termination of customer contracts associated with the August shutdown of a processing plant in Eunice, Louisiana. Crosstex executives pointed out that results are very different when adjusting for this expense, as well as depreciation, amortization, taxes, interest expenses, gains and losses on the sale of property, stock-based compensation and other unique factors. Using this measurement, called "adjusted EBITDA," income stood at $52.51 million, a 4.85% decrease from third-quarter 2012.

Total revenues stood at $468.36 million, a 5.26% increase from the same period last year. The strongest gains came from the segment for gas processing and natural gas liquids (NGL) assets, including NGL fractionation and marketing activities in south Louisiana (PNGL), where margins improved, partly due to increased crude oil terminal activity. The segment for rail, truck, pipeline and barge facilities in the Ohio River Valley (ORV) also improved following increased crude oil and condensate handling activities.

However, the segment for gas pipelines and gas processing plants in Louisiana suffered from weaker processing margins and treating and blending volumes, as well as the effects of a major sinkhole. The segment for natural gas gathering, processing and transmission operations in the Barnett Shale in north Texas and in the Permian Basin in west Texas saw a decline in throughput volumes, as well as a reduction in gathering rates in major contracts. Operating expenses were higher due to increased hiring from the developments in the PNGL and ORV segments, but depreciation and amortization expenses were significantly lower.

Concurrent with the announcement of third-quarter results, Crosstex Energy LP and Crosstex Energy Incorporated announced that they completed construction of Phase I of the Cajun-Sibon NGL expansion project. The project connects the Crosstex's Eunice fractionator in South Louisiana to the Mont Belvieu supply pipelines in eastern Texas, and is delivering approximately 25,000 to 30,000 barrels per day (BBL/d). For more information, see August 9, 2013, article - Crosstex Energy Endures Tough Natural Gas Market in Second-Quarter 2013, Bets Big on Utica, Marcellus.

"This project positions us to take advantage of increasing demand for NGL products on the Louisiana Gulf Coast, driven by petrochemical expansion and exports," said Barry David, the president and chief executive officer of Crosstex, in a conference call. "We're excited about the abundance of future growth opportunities in this region from our expanded NGL platform. Phase II of the Cajun-Sibone project will increase capacity by 50,000 BBL/d, to a total of 120,000 BBL/d, and includes the installation of a 100,000 BBL/d fractionator at our Plaqemine facility. The second phase of the expansion project is scheduled for completion in the second half of 2014."

Maintenance capital expenditures were reported to be $2.8 million during the quarter, compared with $4.22 million in the same period last year.

Industrial Info is tracking $265 million in active projects involving Crosstex, including a $20 million expansion at the Riverside NGL Fractionation Plant in Geismar, Louisiana. The project involves increasing capacity at the 19,500-BBL/d fractionation plant to transload crude oil from rail cars to barges. The expansion should bring the facility to approximately 60,000 BBL/d of crude oil. The project is expected to be completed in the first quarter of 2014.

In late October, the company announced that it had agreed to combine its midstream assets with those of Devon Energy Corporation (NYSE:DVN) (Oklahoma City, Oklahoma), creating a company that Davis said will be "one of the best-positioned midstream businesses in the U.S." The transaction is expected to close in first-quarter 2014. Davis said the new company will have about $700 million annual adjusted EBITDA before synergies, "more than double the size of Crosstex today."

"At the end of October, we announced that we'll build a new gathering and processing complex in the Permian [Basin], called 'Bearcat,'" Davis said in the conference call. "Bearcat is a great example of the type of project that we are able to develop to serve growing production in these types of developing shale plays. This project is initially supported by a long-term, fee-based contract. Our initial investment of approximately $140 million will include gathering, treating processing and natural gas takeaway solutions for regional producers. As production in the region grows, we intend to expand the system to meet our producer customers' needs."

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

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