|
Commission
file number: 01-32665
|
BOARDWALK
PIPELINE PARTNERS, LP
|
(Exact
name of registrant as specified in its charter)
|
DELAWARE
|
(State
or other jurisdiction of incorporation or
organization)
|
20-3265614
|
(I.R.S.
Employer Identification No.)
|
3800
Frederica Street, Owensboro, Kentucky 42301
(270)
926-8686
|
(Address
and Telephone Number of Registrant’s Principal Executive
Office)
|
ASSETS
|
September
30, 2007
|
December
31, 2006
|
||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ |
45,161
|
$ |
399,032
|
||||
Short-term
investments
|
540,000
|
-
|
||||||
Receivables:
|
||||||||
Trade,
net
|
40,543
|
54,082
|
||||||
Other
|
12,349
|
12,759
|
||||||
Gas
Receivables:
|
||||||||
Transportation
and exchange
|
8,345
|
9,115
|
||||||
Storage
|
653
|
11,704
|
||||||
Inventories
|
14,315
|
14,110
|
||||||
Costs
recoverable from customers
|
6,313
|
11,236
|
||||||
Gas
stored underground
|
14,252
|
14,001
|
||||||
Prepaid
expenses and other current assets
|
13,773
|
22,117
|
||||||
Total
current assets
|
695,704
|
548,156
|
||||||
Property,
Plant and Equipment:
|
||||||||
Natural
gas transmission plant
|
2,752,860
|
1,997,922
|
||||||
Other
natural gas plant
|
233,031
|
213,926
|
||||||
2,985,891
|
2,211,848
|
|||||||
Less—Accumulated
depreciation and amortization
|
243,990
|
187,412
|
||||||
Property,
plant and equipment, net
|
2,741,901
|
2,024,436
|
||||||
Other
Assets:
|
||||||||
Goodwill
|
163,474
|
163,474
|
||||||
Gas
stored underground
|
175,304
|
161,537
|
||||||
Costs
recoverable from customers
|
15,210
|
19,767
|
||||||
Other
|
31,582
|
33,929
|
||||||
Total
other assets
|
385,570
|
378,707
|
||||||
Total
Assets
|
$ |
3,823,175
|
$ |
2,951,299
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
September
30, 2007
|
December
31, 2006
|
||||||
Current
Liabilities:
|
||||||||
Payables:
|
||||||||
Trade
|
$ |
139,202
|
$ |
56,604
|
||||
Affiliates
|
1,127
|
3,014
|
||||||
Other
|
14,336
|
14,459
|
||||||
Gas
Payables:
|
||||||||
Transportation
and exchange
|
11,797
|
15,485
|
||||||
Storage
|
40,966
|
42,127
|
||||||
Other
accrued taxes
|
25,659
|
16,082
|
||||||
Accrued
interest
|
22,862
|
19,376
|
||||||
Accrued
payroll and employee benefits
|
16,475
|
18,198
|
||||||
Deferred
income
|
9,809
|
22,147
|
||||||
Other
current liabilities
|
30,221
|
20,926
|
||||||
Total
current liabilities
|
312,454
|
228,418
|
||||||
Long
–Term Debt
|
1,847,534
|
1,350,920
|
||||||
Other
Liabilities and Deferred Credits:
|
||||||||
Pension
and postretirement benefits
|
17,658
|
15,761
|
||||||
Asset
retirement obligation
|
14,751
|
14,307
|
||||||
Provision
for other asset retirement
|
41,648
|
39,644
|
||||||
Other
|
29,992
|
29,742
|
||||||
Total
other liabilities and deferred credits
|
104,049
|
99,454
|
||||||
Commitments
and Contingencies
|
||||||||
Partners’
Capital:
|
||||||||
Common
units - 83,156,122 units and 75,156,122 units issued and outstanding
as of
September 30, 2007 and December 31, 2006
|
1,232,734
|
941,792
|
||||||
Subordinated
units - 33,093,878 units issued and outstanding as of September 30,
2007
and December 31, 2006
|
287,538
|
285,543
|
||||||
General
partner
|
28,122
|
22,060
|
||||||
Accumulated
other comprehensive income
|
10,744
|
23,112
|
||||||
Total
partners’ capital
|
1,559,138
|
1,272,507
|
||||||
Total
Liabilities and Partners’ Capital
|
$ |
3,823,175
|
$ |
2,951,299
|
For
the
Three
Months Ended
September
30,
|
For
the
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Operating
Revenues:
|
||||||||||||||||
Gas
transportation
|
$ |
111,572
|
$ |
108,195
|
$ |
379,494
|
$ |
364,597
|
||||||||
Parking
and lending
|
6,845
|
9,099
|
38,024
|
32,030
|
||||||||||||
Gas
storage
|
10,256
|
8,321
|
28,455
|
25,136
|
||||||||||||
Other
|
6,059
|
7,430
|
27,413
|
14,390
|
||||||||||||
Total
operating revenues
|
134,732
|
133,045
|
473,386
|
436,153
|
||||||||||||
Operating
Costs and Expenses:
|
||||||||||||||||
Operation
and maintenance
|
45,863
|
39,740
|
128,317
|
114,901
|
||||||||||||
Administrative
and general
|
22,103
|
23,878
|
70,011
|
74,111
|
||||||||||||
Depreciation
and amortization
|
20,510
|
18,888
|
60,644
|
56,298
|
||||||||||||
Taxes
other than income taxes
|
6,588
|
6,592
|
21,757
|
18,607
|
||||||||||||
Asset
impairment
|
-
|
-
|
14,698
|
-
|
||||||||||||
Net
(gain) on disposal of operating assets and related
contracts
|
(8,879 | ) | (826 | ) | (7,241 | ) | (3,032 | ) | ||||||||
Total
operating costs and expenses
|
86,185
|
88,272
|
288,186
|
260,885
|
||||||||||||
Operating
income
|
48,547
|
44,773
|
185,200
|
175,268
|
||||||||||||
Other
Deductions (Income):
|
||||||||||||||||
Interest
expense
|
14,760
|
14,977
|
46,106
|
45,822
|
||||||||||||
Interest
income
|
(5,741 | ) | (553 | ) | (16,283 | ) | (1,796 | ) | ||||||||
Interest
income from affiliates, net
|
(16 | ) | (10 | ) | (36 | ) | (16 | ) | ||||||||
Miscellaneous
other deductions (income), net
|
(575 | ) | (406 | ) | (751 | ) | (1,383 | ) | ||||||||
Total
other deductions
|
8,428
|
14,008
|
29,036
|
42,627
|
||||||||||||
Income
before income taxes
|
40,119
|
30,765
|
156,164
|
132,641
|
||||||||||||
Income
taxes
|
140
|
118
|
503
|
364
|
||||||||||||
Net
income
|
$ |
39,979
|
$ |
30,647
|
$ |
155,661
|
$ |
132,277
|
Calculation
of limited partners’ interest in Net income:
|
||||||||||||||||
Net
income
|
$ |
39,979
|
$ |
30,647
|
$ |
155,661
|
$ |
132,277
|
||||||||
Less
general partner’s interest in Net income
|
1,511
|
612
|
4,521
|
2,645
|
||||||||||||
Limited
partners’ interest in Net income
|
$ |
38,468
|
$ |
30,035
|
$ |
151,140
|
$ |
129,632
|
||||||||
Basic
and diluted net income per limited partner unit:
|
||||||||||||||||
Common
units
|
$ |
0.35
|
$ |
0.35
|
$ |
1.32
|
$ |
1.27
|
||||||||
Subordinated
units
|
$ |
0.30
|
$ |
0.19
|
$ |
1.32
|
$ |
1.27
|
||||||||
Cash
distribution to common and subordinated unitholders
|
$ |
0.44
|
$ |
0.38
|
$ |
1.29
|
$ |
0.92
|
||||||||
Weighted-average
number of limited partner units outstanding:
|
||||||||||||||||
Common
units
|
83,156,122
|
68,256,122
|
80,773,769
|
68,256,122
|
||||||||||||
Subordinated
units
|
33,093,878
|
33,093,878
|
33,093,878
|
33,093,878
|
For
the
Nine
Months Ended
September
30,
|
||||||||
2007
|
2006
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net
income
|
$ |
155,661
|
$ |
132,277
|
||||
Adjustments
to reconcile to cash provided by operations:
|
||||||||
Depreciation
and amortization
|
60,644
|
56,298
|
||||||
Amortization
of deferred costs
|
1,161
|
1,746
|
||||||
Amortization
of acquired executory contracts
|
(994 | ) | (3,236 | ) | ||||
Asset
impairment
|
14,698
|
-
|
||||||
(Gain)
loss on disposal of operating assets and related contracts
|
(7,241 | ) | (3,032 | ) | ||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
and other receivables
|
16,376
|
13,637
|
||||||
Gas
receivables and storage assets
|
(2,195 | ) |
24,417
|
|||||
Costs
recoverable from customers
|
4,471
|
2,584
|
||||||
Other
assets
|
(14,120 | ) | (12,104 | ) | ||||
Trade
and other payables
|
(15,325 | ) | (369 | ) | ||||
Gas
payables
|
(11,087 | ) | (54,079 | ) | ||||
Accrued
liabilities
|
11,340
|
(5,304 | ) | |||||
Other
liabilities
|
15,348
|
31,949
|
||||||
Net
cash provided by operating activities
|
228,737
|
184,784
|
||||||
INVESTING
ACTIVITIES:
|
||||||||
Capital
expenditures
|
(688,155 | ) | (124,175 | ) | ||||
Proceeds
from sale of operating assets
|
5,025
|
3,967
|
||||||
Proceeds
from insurance reimbursements and other recoveries
|
1,726
|
4,960
|
||||||
Advances
to affiliates, net
|
187
|
(660 | ) | |||||
Purchase
of short-term investments
|
(540,000 | ) |
-
|
|||||
Net
cash used in investing activities
|
(1,221,217 | ) | (115,908 | ) | ||||
FINANCING
ACTIVITIES:
|
||||||||
Payments
of notes payable
|
-
|
(42,100 | ) | |||||
Proceeds
from long-term debt
|
495,271
|
60,000
|
||||||
Distributions
|
(150,479 | ) | (95,021 | ) | ||||
Proceeds
from sale of common units, net of related transaction
costs
|
287,858
|
13
|
||||||
Capital
contribution from general partner
|
5,959
|
-
|
||||||
Net
cash provided by (used in) financing activities
|
638,609
|
(77,108 | ) | |||||
(Decrease)
in cash and cash equivalents
|
(353,871 | ) | (8,232 | ) | ||||
Cash
and cash equivalents at beginning of period
|
399,032
|
65,792
|
||||||
Cash
and cash equivalents at end of period
|
$ |
45,161
|
$ |
57,560
|
Common
Units
|
Subordinated
Units
|
General
Partner
|
Accumulated Other
Comprehensive (Loss) Income
|
Total
Partners’ Capital
|
||||||||||||||||
Balance,
January 1, 2006
|
$ |
705,609
|
$ |
266,578
|
$ |
16,661
|
$ | (174 | ) | $ |
988,674
|
|||||||||
Add
(deduct):
|
||||||||||||||||||||
Net
income
|
87,303
|
42,329
|
2,645
|
-
|
132,277
|
|||||||||||||||
Distributions
paid
|
(62,714 | ) | (30,407 | ) | (1,900 | ) |
-
|
(95,021 | ) | |||||||||||
Other
comprehensive income
|
-
|
-
|
-
|
3,602
|
3,602
|
|||||||||||||||
Transaction
costs related to sale of common units
|
13
|
-
|
-
|
-
|
13
|
|||||||||||||||
Balance,
September 30, 2006
|
$ |
730,211
|
$ |
278,500
|
$ |
17,406
|
$ |
3,428
|
$ |
1,029,545
|
Balance,
January 1, 2007
|
$ |
941,792
|
$ |
285,543
|
$ |
22,060
|
$ |
23,112
|
$ |
1,272,507
|
||||||||||
Add
(deduct):
|
||||||||||||||||||||
Net
income
|
106,620
|
44,520
|
4,521
|
-
|
155,661
|
|||||||||||||||
Distributions
paid
|
(103,536 | ) | (42,525 | ) | (4,418 | ) |
-
|
(150,479 | ) | |||||||||||
Other
comprehensive (loss)
|
-
|
-
|
-
|
(12,368 | ) | (12,368 | ) | |||||||||||||
Sale
of common units, net of related transaction costs (8,000,000
units)
|
287,858
|
-
|
-
|
-
|
287,858
|
|||||||||||||||
Capital
contribution from general partner
|
-
|
-
|
5,959
|
-
|
5,959
|
|||||||||||||||
Balance,
September 30, 2007
|
$ |
1,232,734
|
$ |
287,538
|
$ |
28,122
|
$ |
10,744
|
$ |
1,559,138
|
For
the
Three
Months Ended
September
30,
|
For
the
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
income
|
$ |
39,979
|
$ |
30,647
|
$ |
155,661
|
$ |
132,277
|
||||||||
Other
comprehensive income:
|
||||||||||||||||
(Loss)
gain on cash flow hedges
|
(5,765 | ) |
1,328
|
(4,869 | ) |
11,736
|
||||||||||
Reclassification
adjustment transferred to Net income
|
(2,889 | ) | (2,540 | ) | (7,499 | ) | (8,134 | ) | ||||||||
Total
comprehensive income
|
$ |
31,325
|
$ |
29,435
|
$ |
143,293
|
$ |
135,879
|
|
September
30, 2007
|
December
31, 2006
|
||||||
Prepaid
expenses and other current assets
|
$ |
1.7
|
$ |
13.7
|
||||
Other
Assets - Other
|
0.2
|
-
|
||||||
Other
current liabilities
|
1.9
|
5.1
|
||||||
Other
Liabilities and Deferred Credits - Other
|
1.0
|
-
|
||||||
Accumulated
other comprehensive income
|
(2.5 | ) |
8.3
|
Less
than 1 year
|
$ |
755.2
|
||
1-3
years
|
145.2
|
|||
4-5
years
|
-
|
|||
More
than 5 years
|
-
|
|||
Total
|
$ |
900.4
|
|
|
|
|
|
|
|
|
||||||
|
|
Total
Quarterly Distribution
|
Marginal Percentage Interest in
Distributions
|
||||||||||
|
Target
Amount
|
Common
and
Subordinated
Unitholders
|
|
General Partner
|
|||||||||
Minimum
Quarterly Distribution
|
|
$0.3500
|
|
98%
|
2%
|
||||||||
First
Target Distribution
|
|
up to $0.4025
|
|
98%
|
2%
|
||||||||
Second
Target Distribution
|
|
Above $0.4025 up to $0.4375
|
|
85%
|
15%
|
||||||||
Third
Target Distribution
|
|
Above
$0.4375 up to $0.5250
|
|
75%
|
25%
|
||||||||
Thereafter
|
|
above
$0.5250
|
|
50%
|
50%
|
For
the
Three
Months Ended
September
30,
|
For
the
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Limited
partners' interest in net income
|
$ |
38,468
|
$ |
30,035
|
$ |
151,140
|
$ |
129,632
|
||||||||
Less
assumed allocation to incentive distribution rights
|
(711 | ) |
-
|
719
|
962
|
|||||||||||
Net
income available to limited partners
|
$ |
39,179
|
$ |
30,035
|
$ |
150,421
|
$ |
128,670
|
||||||||
Less
assumed allocation to subordinated units
|
10,074
|
6,144
|
43,718
|
42,015
|
||||||||||||
Net
income available to common units
|
$ |
29,105
|
$ |
23,891
|
$ |
106,703
|
$ |
86,655
|
||||||||
Weighted
average common units
|
83,156,122
|
68,256,122
|
80,773,769
|
68,256,122
|
||||||||||||
Weighted
average subordinated units
|
33,093,878
|
33,093,878
|
33,093,878
|
33,093,878
|
||||||||||||
Net
income per limited partner unit - common units
|
$ |
0.35
|
$ |
0.35
|
$ |
1.32
|
$ |
1.27
|
||||||||
Net
income per limited partner unit – subordinated units
|
$ |
0.30
|
$ |
0.19
|
$ |
1.32
|
$ |
1.27
|
Retirement
Plans
|
PBOP
|
|||||||||||||||
For
the
Three
Months Ended
September
30,
|
For
the
Three
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Service
cost
|
$ |
935
|
$ |
1,826
|
$ |
152
|
$ |
108
|
||||||||
Interest
cost
|
1,542
|
2,816
|
818
|
858
|
||||||||||||
Expected
return on plan assets
|
(1,695 | ) | (2,942 | ) | (1,183 | ) | (1,134 | ) | ||||||||
Amortization
of prior service credit
|
1
|
-
|
(1,940 | ) | (1,939 | ) | ||||||||||
Amortization
of unrecognized net loss
|
69
|
383
|
167
|
110
|
||||||||||||
Settlement
charge (ERIP)
|
400
|
5,600
|
-
|
900
|
||||||||||||
Regulatory
asset (increase) decrease
|
(453 | ) | (3,295 | ) |
1,354
|
1,354
|
||||||||||
Net
periodic expense
|
$ |
799
|
$ |
4,388
|
$ | (632 | ) | $ |
257
|
Retirement
Plans
|
PBOP
|
|||||||||||||||
For
the
Nine
Months Ended
September
30,
|
For
the
Nine
Months Ended
September
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Service
cost
|
$ |
2,800
|
$ |
3,984
|
$ |
456
|
$ |
1,194
|
||||||||
Interest
cost
|
4,767
|
6,044
|
2,455
|
4,319
|
||||||||||||
Expected
return on plan assets
|
(5,275 | ) | (6,492 | ) | (3,550 | ) | (3,418 | ) | ||||||||
Amortization
of prior service credit
|
3
|
-
|
(5,820 | ) | (2,587 | ) | ||||||||||
Amortization
of unrecognized net loss
|
215
|
584
|
501
|
876
|
||||||||||||
Settlement
charge (ERIP)
|
4,200
|
5,600
|
-
|
900
|
||||||||||||
Regulatory
asset (increase) decrease
|
(453 | ) | (3,045 | ) |
4,061
|
4,964
|
||||||||||
Net
periodic expense
|
$ |
6,257
|
$ |
6,675
|
$ | (1,897 | ) | $ |
6,248
|
Record
Date
|
Payable
Date
|
Distribution
per Unit
|
||
November
5, 2007
|
November
12, 2007
|
0.45
|
||
August
6, 2007
|
August
13, 2007
|
0.44
|
||
May
7, 2007
|
May
14, 2007
|
0.43
|
||
February
20, 2007
|
February
27, 2007
|
0.415
|
||
October
30, 2006
|
November
6, 2006
|
0.40
|
||
August
11, 2006
|
August
18, 2006
|
0.38
|
||
May
12, 2006
|
May
19, 2006
|
0.36
|
||
February
16, 2006
|
February
23, 2006
|
0.179*
|
*Distribution
represented a prorated portion of the $0.35 per unit “minimum quarterly
distribution” (as defined in the Partnership’s partnership agreement) for
the period November 15, 2005 through December 31,
2005.
|
As
of
September
30, 2007
|
As
of
December
31, 2006
|
|||||||
(Loss)
gain on cash flow hedges
|
$ | (2,524 | ) | $ |
8,309
|
|||
Deferred
components of net periodic benefit cost
|
13,268
|
14,803
|
||||||
Total
Accumulated other comprehensive income
|
$ |
10,744
|
$ |
23,112
|
·
|
$5.1
million increase in transportation fees due to higher reservation
rates,
including $2.4 million from new contracts associated with the Carthage,
Texas to Keatchie, Louisiana pipeline expansion which was placed
in
service at the end of 2006, partly offset
by
|
·
|
a
$2.5 million decrease in fuel revenues due to lower realized gas
prices,
including hedging activity.
|
·
|
$6.7
million decrease comprised of a $5.1 million accrual of estimated
insurance proceeds deemed probable of recovery related to Hurricane
Rita
and a $1.6 million decrease in the estimated cost of damage caused
by
Hurricanes Katrina and Rita
(hurricanes);
|
·
|
$4.4
million gain on the sale of gas associated with the Western Kentucky
storage expansion project and related derivative
contracts;
|
·
|
$1.8 million
decrease in administrative and general expenses driven primarily
by
benefit plan changes at Texas Gas, partly offset by an increase in
other
expenses due to growth; and
|
·
|
$4.0
million increase from an accrual for remediation of an offshore pipeline
in the South Timbalier Bay area, offshore
Louisiana;
|
·
|
$3.8 million
increase related to termination of an agreement with a construction
contractor on the Southeast expansion
project;
|
·
|
$2.1
million increase in fuel costs due to an increase in gas usage;
and
|
·
|
$1.6
million increase in depreciation and amortization from additions
to plant
and computer systems.
|
·
|
$18.8
million increase in transportation fees due to higher reservation
rates,
including $6.6 million from new contracts associated with the Carthage,
Texas to Keatchie, Louisiana pipeline
expansion;
|
·
|
$11.5
million increase in fuel revenues due to an increase in other system
volumes and higher realized gas prices including hedging activity;
and
|
·
|
$9.3
million increase in PAL and storage services mainly due to increased
firm
storage service rates and gas parked by customers during summer and
fall
2006 for withdrawal during summer
2007.
|
·
|
$2.2
million due to a decrease in the amortization of acquired executory
contracts.
|
·
|
$14.7
million loss from impairment of the Magnolia storage facility in
the
second quarter 2007;
|
·
|
$5.0
million increase in fuel costs due to an increase in gas
usage;
|
·
|
$4.3
million increase in depreciation and amortization from additions
to plant
and computer systems;
|
·
|
$4.0
million increase from an accrual for remediation of an offshore pipeline
in the South Timbalier Bay area, offshore
Louisiana;
|
·
|
$3.8
million increase related to termination of an agreement with a
construction contractor on the Southeast expansion project;
and
|
·
|
$3.2
million increase in property and other taxes primarily as a result
of a
reversal of a franchise tax accrual in the 2006
period.
|
·
|
$4.1
million decrease in administrative and general expenses driven primarily
by benefit plan changes at Texas Gas, partly offset by an increase
in
other expenses due to growth;
|
·
|
$3.6
million net favorable variance from a gain on the sale of gas associated
with the Western Kentucky storage expansion project and related derivative
contracts; and
|
·
|
$3.0
million decrease from the accrual of estimated insurance proceeds
related
to the hurricanes deemed probable of
recovery.
|
·
|
East
Texas to Mississippi Expansion. On June 18, 2007, the FERC
granted Gulf South the authority to construct, own and operate a
pipeline
expansion consisting of approximately 242 miles of 42-inch pipeline
from
DeSoto Parish in western Louisiana to near Harrisville, Mississippi
and
approximately 110,000 horsepower of new compression. The
expansion will add approximately 1.7 billion cubic feet (Bcf) of
new
peak-day transmission capacity to the Gulf South pipeline
system. This project is supported by firm transportation
agreements with customers who have contracted, on a long-term basis
(with
a weighted average term of approximately 6.8 years), for 1.4 Bcf
per day
of capacity from Carthage, Texas, which represents substantially
all of
the normal operating capacity. Construction of this project has
commenced and we expect this project to be in service during the
later
part of the fourth quarter 2007.
|
·
|
Gulf
Crossing Project. We are pursuing construction of a new interstate
pipeline that will begin near Sherman, Texas and proceed to the
Perryville, Louisiana area. The project will be owned by Gulf
Crossing Pipeline Company LLC (Gulf Crossing), a subsidiary of ours,
and
will consist of approximately 357 miles of 42-inch pipeline having
capacity of up to approximately 1.7 Bcf of peak-day transmission
capacity. Additionally, Gulf Crossing will enter into: (i) a
lease for up to 1.4 Bcf per day of capacity on our Gulf South pipeline
system (including capacity on the Southeast Expansion and capacity
on a
portion of the East Texas to Mississippi Expansion) to make deliveries
to
an interconnect with Transcontinental Pipe Line Company (Transco)
in
Choctaw County, Alabama (Transco 85); and (ii) a lease with Enogex,
a
third-party intrastate pipeline, which will bring certain gas supplies
to
our system. This project is supported by firm transportation
agreements with customers who have contracted, on a long-term basis
(with
a weighted average term of approximately 9.5 years), for 1.1 Bcf
per day
of capacity. A customer’s option for an additional 300 MMcf per
day of firm transportation capacity expired on October 1, 2007. Another
customer has the option through November 30, 2007, to increase its
contract capacity by 50 MMcf per day. The certificate application
for this
project was filed with the FERC on June 19, 2007, and the project
is
expected to be in service during the later part of the fourth quarter
2008. We are no longer engaged in negotiations for the possible
sale of up to a 49.0% equity interest in Gulf Crossing to one of
the
foundation shippers on the project.
|
·
|
Southeast
Expansion. On September 28, 2007, the FERC granted Gulf
South the authority to construct, own and operate a pipeline expansion
originating near Harrisville, Mississippi and extending to an interconnect
with Transco 85. This expansion will initially consist of approximately
112 miles of 42-inch pipeline having capacity of approximately 1.2
Bcf of peak-day transmission capacity, and will be expanded to 2.2
Bcf per
day to accommodate volumes expected to come from the Gulf Crossing
leased
capacity discussed above. In addition, Gulf South has executed
a lease with Destin Pipeline Company for capacity which will enhance
Gulf
South’s access to markets in Florida. This project is supported
by firm transportation agreements with customers who have contracted,
on a
long-term basis (with a weighted-average term of 8.7 years), for
660 MMcf
per day of capacity as well as the capacity leased to Gulf Crossing
discussed above. We expects to commence construction in the
fourth quarter 2007, and this expansion to be in service during the
later
part of the first quarter 2008.
|
·
|
Fayetteville
and Greenville Laterals. We are pursuing the construction of two
laterals connected to our Texas Gas pipeline system to transport
gas from
the Fayetteville Shale area in Arkansas to markets directly and indirectly
served by our existing interstate pipelines. The Fayetteville
Lateral, consisting of approximately 165 miles of 36-inch pipeline,
has an
initial design capacity of approximately 800 MMcf of peak-day transmission
capacity. This lateral will originate in Conway County,
Arkansas and proceed southeast through the Bald Knob, Arkansas, area
to an
interconnect with Texas Gas’ mainline in Coahoma County, Mississippi. The
Greenville Lateral, consisting of approximately 95 miles of pipeline
with
an initial design capacity of 750 MMcf of peak-day transmission capacity,
will originate at the Texas Gas mainline near Greenville, Mississippi
and
proceed east to the Kosciusko, Mississippi area. The Greenville
Lateral will allow customers to access additional markets, primarily
in
the Midwest, Northeast and Southeast. Construction of both laterals
is
supported by a binding precedent agreement with Southwestern Energy
Services Company, a wholly-owned subsidiary of Southwestern Energy
Company. The certificate application for this project was filed
with the FERC on July 11, 2007. We expect the first 60 miles of
the Fayetteville Lateral to be in service during the early part of
the
third quarter 2008 and the remainder of the Fayetteville and Greenville
Laterals to be in service during the first quarter
2009.
|
·
|
Western
Kentucky Storage Expansion Phase II. In December 2006, the
FERC issued a certificate approving the Phase II storage expansion
project
which will expand the working gas capacity in our western Kentucky
storage
complex by approximately 9.0 Bcf. This project is supported by
binding commitments from customers to contract on a long-term basis
(with
a weighted-average term of 8.3 years), for the full additional capacity
at
Texas Gas’ maximum applicable rate. We expect this project to
cost approximately $56.0 million and to be in service November
2007.
|
·
|
Western
Kentucky Storage Expansion Phase III. Texas Gas has signed
two 10-year precedent agreements for 4.0 Bcf of storage capacity
for our
Phase III storage project. The certificate application for this
project was filed with the FERC on June 25, 2007, seeking up to 8.3
Bcf of
new storage capacity if Texas Gas is granted market-based rate authority
for the new storage capacity being proposed. The cost of this
project will be dependent on the ultimate size of the
expansion. We expect 4.0 Bcf of storage capacity to be in
service in 2008.
|
·
|
Magnolia
Storage Facility. We were developing a salt dome storage cavern near
Napoleonville, Louisiana. Operational tests, which began in May
2007 and were completed in July, indicated that due to anomalies
that
could not be corrected, we will be unable to place the cavern in
service
as expected. As a result, we have elected to abandon that
cavern and are exploring the possibility of securing a new site on
which a
new cavern could be developed. In accordance with the
requirements of Statement of Financial Accounting Standards (SFAS)
No.
144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the carrying value of the cavern and related facilities of
approximately $45.1 million was tested for recoverability. In
the second quarter 2007 we recognized an impairment charge to earnings
of
approximately $14.7 million, representing the carrying value of the
cavern. We expect to use the other assets associated with the
project, which include pipeline, compressors, base gas and other
equipment
and facilities, in conjunction with a replacement storage cavern
to be
developed. If it is determined in the future that the assets
cannot be used in conjunction with a new cavern, we may be required
to
record an additional impairment charge at the time that determination
is
made. Additional costs to abandon the impaired cavern may be
incurred due to regulatory or contractual obligations, however, the
amounts are inestimable at this
time.
|
·
|
$44.1
million improvement in net income, excluding non-cash items such
as
depreciation and amortization and the Magnolia impairment
charge;
|
·
|
$21.9
million increase in cash due to gas purchases of imbalance gas made
in
2006; and
|
·
|
$18.0
million increase in cash due to the timing of
expenditures.
|
·
|
$32.9
million reduction in cash due to recognition of deferred income related
to
PAL services..
|
·
|
$564.0
million increase in capital expenditures mainly for our expansion
projects; and
|
·
|
$540.0
million increase in purchases of short-term
investments.
|
·
|
$293.8
million in net proceeds from the sale of 8,000,000 units and related
general partner capital contribution in March 2007;
and
|
·
|
$495.3
million in net proceeds from the issuance of long term debt at Gulf
South.
|
·
|
$55.5
million increase in cash distributions to unitholders and the general
partner.
|
Payments
due by Period
|
||||||||||||||||||||
Total
|
Less than
1
Year
|
1-3 Years
|
4-5 Years
|
More than
5
Years
|
||||||||||||||||
Capital
commitments
|
$ |
900.4
|
$ |
755.2
|
$ |
145.2
|
$ |
-
|
$ |
-
|
·
|
We
may not complete projects, including growth or expansion projects,
that we
commence, or we may complete projects on materially different terms
including contracted volumes or timing than anticipated and we may
not be
able to achieve the intended benefits of any such project, if
completed.
|
·
|
The
successful completion, timing, cost, scope and future financial
performance of our expansion projects could differ materially from
our
expectations due to availability of contractors, weather, untimely
regulatory approvals or denied applications, delayed approvals by
regulatory bodies, land owner opposition, the lack of adequate materials,
labor difficulties, difficulties we may encounter with partners or
potential partners, expansion cost higher than anticipated and numerous
other factors beyond our control.
|
·
|
We
may not complete any future debt or equity financing transaction,
including any sale of an equity interest in Gulf Crossing
Pipeline.
|
·
|
The
gas transmission and storage operations of our subsidiaries are subject
to
rate-making policies and actions by the FERC or customers that could
have
an adverse impact on the rates we charge and the revenues we collect
may
not cover our full cost of operating our pipelines and a reasonable
return.
|
·
|
We
are subject to laws and regulations relating to the environment and
pipeline operations which may expose us to significant costs, liabilities
and loss of revenues. Any changes in such regulations or their application
could negatively affect our business, financial condition and results
of
operations.
|
·
|
Our
operations are subject to operational hazards and unforeseen interruptions
for which we may not be adequately
insured.
|
·
|
The
cost of insuring our assets may increase
dramatically.
|
·
|
Because
of the natural decline in gas production from existing wells, our
success
depends on our ability to obtain access to new sources of natural
gas,
which is dependent on factors beyond our control. Any decrease in
supplies
of natural gas in our supply areas could adversely affect our business,
financial condition and results of
operations.
|
·
|
Successful
development of LNG import terminals in the eastern or northeastern
United
States could reduce the demand for our
services.
|
·
|
We
may not be able to maintain or replace expiring gas transportation
and
storage contracts at favorable
rates.
|
·
|
Significant
changes in natural gas prices could affect supply and demand, reducing
system throughput and adversely affecting our
revenues.
|
Exhibit
Designation
|
Nature
of Exhibit
|
|
31.1*
|
Certification
of Rolf A. Gafvert, Chief Executive Officer, pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
|
31.2*
|
Certification
of Jamie L. Buskill, Chief Financial Officer, pursuant to Section
302 of
the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification
of Rolf A. Gafvert, Chief Executive Officer, pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
Certification
of Jamie L. Buskill, Chief Financial Officer, pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
Boardwalk
Pipeline Partners, LP
|
|||||
By:
Boardwalk GP, LP
|
|||||
its
general partner
|
|||||
By:
Boardwalk GP, LLC
|
|||||
its
general partner
|
|||||
Dated:
October 30, 2007
|
By:
|
/s/
Jamie L. Buskill
|
|||
Jamie
L. Buskill
|
|||||
Chief
Financial Officer
|