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
|
June
30, 2007
|
December
31, 2006
|
||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ |
387,746
|
$ |
399,032
|
||||
Receivables:
|
||||||||
Trade,
net
|
41,581
|
54,082
|
||||||
Other
|
6,405
|
12,759
|
||||||
Gas
Receivables:
|
||||||||
Transportation
and exchange
|
11,185
|
9,115
|
||||||
Storage
|
16
|
11,704
|
||||||
Inventories
|
14,062
|
14,110
|
||||||
Costs
recoverable from customers
|
7,381
|
11,236
|
||||||
Gas
stored underground
|
12,108
|
14,001
|
||||||
Prepaid
expenses and other current assets
|
18,320
|
22,117
|
||||||
Total
current assets
|
498,804
|
548,156
|
||||||
Property,
Plant and Equipment:
|
||||||||
Natural
gas transmission plant
|
2,359,683
|
1,997,922
|
||||||
Other
natural gas plant
|
229,146
|
213,926
|
||||||
2,588,829
|
2,211,848
|
|||||||
Less—Accumulated
depreciation and amortization
|
225,033
|
187,412
|
||||||
Property,
plant and equipment, net
|
2,363,796
|
2,024,436
|
||||||
Other
Assets:
|
||||||||
Goodwill
|
163,474
|
163,474
|
||||||
Gas
stored underground
|
174,570
|
161,537
|
||||||
Costs
recoverable from customers
|
16,428
|
19,767
|
||||||
Other
|
29,818
|
33,929
|
||||||
Total
other assets
|
384,290
|
378,707
|
||||||
Total
Assets
|
$ |
3,246,890
|
$ |
2,951,299
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
June
30, 2007
|
December
31, 2006
|
||||||
Current
Liabilities:
|
||||||||
Payables:
|
||||||||
Trade
|
$ |
54,549
|
$ |
56,604
|
||||
Affiliates
|
813
|
3,014
|
||||||
Other
|
14,333
|
14,459
|
||||||
Gas
Payables:
|
||||||||
Transportation
and exchange
|
19,508
|
15,485
|
||||||
Storage
|
40,047
|
42,127
|
||||||
Other
accrued taxes
|
27,977
|
16,082
|
||||||
Accrued
interest
|
19,621
|
19,376
|
||||||
Accrued
payroll and employee benefits
|
16,141
|
18,198
|
||||||
Deferred
income
|
5,193
|
22,147
|
||||||
Other
current liabilities
|
17,483
|
20,926
|
||||||
Total
current liabilities
|
215,665
|
228,418
|
||||||
Long
–Term Debt
|
1,351,384
|
1,350,920
|
||||||
Other
Liabilities and Deferred Credits:
|
||||||||
Pension
and postretirement benefits
|
17,271
|
15,761
|
||||||
Asset
retirement obligation
|
14,668
|
14,307
|
||||||
Provision
for other asset retirement
|
40,924
|
39,644
|
||||||
Other
|
26,245
|
29,742
|
||||||
Total
other liabilities and deferred credits
|
99,108
|
99,454
|
||||||
Commitments
and Contingencies
|
||||||||
Partners’
Capital:
|
||||||||
Common
units - 83,156,122 units and 75,156,122 units issued and outstanding
as of
June 30, 2007 and December 31, 2006
|
1,241,806
|
941,792
|
||||||
Subordinated
units - 33,093,878 units issued and outstanding as of June 30,
2007 and
December 31, 2006
|
291,148
|
285,543
|
||||||
General
partner
|
28,381
|
22,060
|
||||||
Accumulated
other comprehensive income
|
19,398
|
23,112
|
||||||
Total
partners’ capital
|
1,580,733
|
1,272,507
|
||||||
Total
Liabilities and Partners’ Capital
|
$ |
3,246,890
|
$ |
2,951,299
|
For
the
Three
Months Ended
June
30,
|
For
the
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Operating
Revenues:
|
||||||||||||||||
Gas
transportation
|
$ |
115,008
|
$ |
105,390
|
$ |
267,922
|
$ |
256,402
|
||||||||
Parking
and lending
|
12,796
|
9,414
|
31,178
|
22,931
|
||||||||||||
Gas
storage
|
10,489
|
7,196
|
18,199
|
16,814
|
||||||||||||
Other
|
12,249
|
6,662
|
21,355
|
6,961
|
||||||||||||
Total
operating revenues
|
150,542
|
128,662
|
338,654
|
303,108
|
||||||||||||
Operating
Costs and Expenses:
|
||||||||||||||||
Operation
and maintenance
|
42,995
|
36,833
|
82,454
|
75,160
|
||||||||||||
Administrative
and general
|
22,116
|
22,844
|
47,909
|
50,232
|
||||||||||||
Depreciation
and amortization
|
20,219
|
18,727
|
40,134
|
37,410
|
||||||||||||
Taxes
other than income taxes
|
7,209
|
6,785
|
15,169
|
12,014
|
||||||||||||
Asset
impairment
|
14,698
|
-
|
14,698
|
-
|
||||||||||||
Net
(gain) loss on disposal of operating assets and related
contracts
|
(1,001 | ) | (2,391 | ) |
1,638
|
(2,205 | ) | |||||||||
Total
operating costs and expenses
|
106,236
|
82,798
|
202,002
|
172,611
|
||||||||||||
Operating
income
|
44,306
|
45,864
|
136,652
|
130,497
|
||||||||||||
Other
Deductions (Income):
|
||||||||||||||||
Interest
expense
|
14,548
|
15,215
|
31,345
|
30,847
|
||||||||||||
Interest
income
|
(5,968 | ) | (698 | ) | (10,542 | ) | (1,242 | ) | ||||||||
Interest
income from affiliates, net
|
(13 | ) | (7 | ) | (20 | ) | (7 | ) | ||||||||
Miscellaneous
other deductions (income), net
|
159
|
(792 | ) | (175 | ) | (977 | ) | |||||||||
Total
other deductions
|
8,726
|
13,718
|
20,608
|
28,621
|
||||||||||||
Income
before income taxes
|
35,580
|
32,146
|
116,044
|
101,876
|
||||||||||||
Income
taxes
|
132
|
246
|
362
|
246
|
||||||||||||
Net
income
|
$ |
35,448
|
$ |
31,900
|
$ |
115,682
|
$ |
101,630
|
Calculation
of limited partners’ interest in Net income:
|
||||||||||||||||
Net
income
|
$ |
35,448
|
$ |
31,900
|
$ |
115,682
|
$ |
101,630
|
||||||||
Less
general partner’s interest in Net income
|
1,199
|
638
|
3,010
|
2,033
|
||||||||||||
Limited
partners’ interest in Net income
|
$ |
34,249
|
$ |
31,262
|
$ |
112,672
|
$ |
99,597
|
||||||||
Basic
and diluted net income per limited partner unit:
|
||||||||||||||||
Common
units
|
$ |
0.35
|
$ |
0.35
|
$ |
0.97
|
$ |
0.95
|
||||||||
Subordinated
units
|
$ |
0.17
|
$ |
0.22
|
$ |
0.97
|
$ |
0.95
|
||||||||
Cash
distribution to common and subordinated unitholders
|
$ |
0.43
|
$ |
0.36
|
$ |
0.845
|
$ |
0.54
|
||||||||
Weighted-average
number of limited partner units outstanding:
|
||||||||||||||||
Common
units
|
83,156,122
|
68,256,122
|
79,576,012
|
68,256,122
|
||||||||||||
Subordinated
units
|
33,093,878
|
33,093,878
|
33,093,878
|
33,093,878
|
For
the
Six
Months Ended
June
30,
|
||||||||
2007
|
2006
|
|||||||
OPERATING
ACTIVITIES:
|
||||||||
Net
income
|
$ |
115,682
|
$ |
101,630
|
||||
Adjustments
to reconcile to cash provided
|
||||||||
by
operations:
|
||||||||
Depreciation
and amortization
|
40,134
|
37,410
|
||||||
Amortization
of deferred costs
|
3,803
|
1,106
|
||||||
Amortization
of acquired executory contracts
|
(889 | ) | (2,561 | ) | ||||
Asset
impairment
|
14,698
|
-
|
||||||
Loss
(gain) on disposal of operating assets
|
1,638
|
(2,205 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Trade
and other receivables
|
17,129
|
12,791
|
||||||
Gas
receivables and storage assets
|
(1,887 | ) |
22,178
|
|||||
Costs
recoverable from customers
|
4,281
|
4,065
|
||||||
Other
assets
|
(6,129 | ) | (10,232 | ) | ||||
Trade
and other payables
|
(11,632 | ) |
7,643
|
|||||
Gas
payables
|
(5,350 | ) | (44,050 | ) | ||||
Accrued
liabilities
|
10,084
|
(8,262 | ) | |||||
Other
liabilities
|
(9,896 | ) |
17,028
|
|||||
Net
cash provided by operating activities
|
171,666
|
136,541
|
||||||
INVESTING
ACTIVITIES:
|
||||||||
Capital
expenditures
|
(380,062 | ) | (55,200 | ) | ||||
Proceeds
from sale of operating assets
|
328
|
4,178
|
||||||
Proceeds
from insurance reimbursements and other recoveries
|
1,726
|
4,960
|
||||||
Advances
to affiliates, net
|
(1,202 | ) | (623 | ) | ||||
Net
cash used in investing activities
|
(379,210 | ) | (46,685 | ) | ||||
FINANCING
ACTIVITIES:
|
||||||||
Payments
of notes payable
|
-
|
(42,100 | ) | |||||
Distributions
|
(97,559 | ) | (55,722 | ) | ||||
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
|
196,258
|
(97,809 | ) | |||||
Increase
(decrease) in cash and cash equivalents
|
(11,286 | ) | (7,953 | ) | ||||
Cash
and cash equivalents at beginning of period
|
399,032
|
65,792
|
||||||
Cash
and cash equivalents at end of period
|
$ |
387,746
|
$ |
57,839
|
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
|
67,075
|
32,522
|
2,033
|
-
|
101,630
|
|||||||||||||||
Distributions
paid
|
(36,776 | ) | (17,831 | ) | (1,115 | ) |
-
|
(55,722 | ) | |||||||||||
Other
comprehensive income
|
-
|
-
|
-
|
4,814
|
4,814
|
|||||||||||||||
Transaction
costs related to sale of common units
|
13
|
-
|
-
|
-
|
13
|
|||||||||||||||
Balance,
June 30, 2006
|
$ |
735,921
|
$ |
281,269
|
$ |
17,579
|
$ |
4,640
|
$ |
1,039,409
|
Balance,
January 1, 2007
|
$ |
941,792
|
$ |
285,543
|
$ |
22,060
|
$ |
23,112
|
$ |
1,272,507
|
||||||||||
Add
(deduct):
|
||||||||||||||||||||
Net
income
|
79,103
|
33,569
|
3,010
|
-
|
115,682
|
|||||||||||||||
Distributions
paid
|
(66,947 | ) | (27,964 | ) | (2,648 | ) |
-
|
(97,559 | ) | |||||||||||
Other
comprehensive income
|
-
|
-
|
-
|
(3,714 | ) | (3,714 | ) | |||||||||||||
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,
June 30, 2007
|
$ |
1,241,806
|
$ |
291,148
|
$ |
28,381
|
$ |
19,398
|
$ |
1,580,733
|
For
the
Three
Months Ended
June
30,
|
For
the
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
income
|
$ |
35,448
|
$ |
31,900
|
$ |
115,682
|
$ |
101,630
|
||||||||
Other
comprehensive income:
|
||||||||||||||||
Gain
(Loss) on cash flow hedges
|
8,433
|
3,390
|
896
|
10,408
|
||||||||||||
Reclassification
adjustment transferred to Net income
|
(3,061 | ) | (2,802 | ) | (4,610 | ) | (5,594 | ) | ||||||||
Total
comprehensive income
|
$ |
40,820
|
$ |
32,488
|
$ |
111,968
|
$ |
106,444
|
June
30, 2007
|
December
31, 2006
|
|||||||
Prepaid
expenses and other current assets
|
$ |
4.3
|
$ |
13.7
|
||||
Other
current liabilities
|
0.4
|
5.1
|
||||||
Other
Liabilities and Deferred Credits - Other
|
0.6
|
-
|
||||||
Accumulated
other comprehensive income
|
4.6
|
8.5
|
Less
than 1 year
|
$ |
647.6
|
||
1-3
years
|
99.0
|
|||
4-5
years
|
-
|
|||
More
than 5 years
|
-
|
|||
Total
|
$ |
746.6
|
|
|
|
|
|
|
|
|
||||||
|
|
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
June
30,
|
For
the
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Limited
partners' interest in net income
|
$ |
34,249
|
$ |
31,262
|
$ |
112,672
|
$ |
99,597
|
||||||||
Less
assumed allocation to incentive distribution rights
|
(491 | ) |
-
|
3,696
|
3,503
|
|||||||||||
Net
income available to limited partners
|
$ |
34,740
|
$ |
31,262
|
$ |
108,976
|
$ |
96,094
|
||||||||
Less
assumed allocation to subordinated units
|
5,635
|
7,372
|
32,009
|
31,378
|
||||||||||||
Net
income available to common units
|
$ |
29,105
|
$ |
23,890
|
$ |
76,967
|
$ |
64,716
|
||||||||
Weighted
average common units
|
83,156,122
|
68,256,122
|
79,576,012
|
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
|
$ |
0.97
|
$ |
0.95
|
||||||||
Net
income per limited partner unit – subordinated units
|
$ |
0.17
|
$ |
0.22
|
$ |
0.97
|
$ |
0.95
|
Retirement
Plans
|
PBOP
|
|||||||||||||||
For
the
Three
Months Ended
June
30,
|
For
the
Three
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Service
cost
|
$ |
935
|
$ |
1,079
|
$ |
149
|
$ |
464
|
||||||||
Interest
cost
|
1,542
|
1,614
|
737
|
1,582
|
||||||||||||
Expected
return on plan assets
|
(1,695 | ) | (1,775 | ) | (1,199 | ) | (1,157 | ) | ||||||||
Amortization
of prior service credit
|
1
|
-
|
(1,940 | ) | (647 | ) | ||||||||||
Amortization
of unrecognized net loss
|
69
|
100
|
36
|
330
|
||||||||||||
Settlement
charge (ERIP)
|
700
|
-
|
-
|
-
|
||||||||||||
Regulatory
asset decrease
|
-
|
-
|
1,354
|
1,353
|
||||||||||||
Net
periodic expense
|
$ |
1,552
|
$ |
1,018
|
$ | (863 | ) | $ |
1,925
|
Retirement
Plans
|
PBOP
|
|||||||||||||||
For
the
Six
Months Ended
June
30,
|
For
the
Six
Months Ended
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Service
cost
|
$ |
1,865
|
$ |
2,159
|
$ |
304
|
$ |
1,105
|
||||||||
Interest
cost
|
3,225
|
3,229
|
1,637
|
3,526
|
||||||||||||
Expected
return on plan assets
|
(3,580 | ) | (3,550 | ) | (2,367 | ) | (2,326 | ) | ||||||||
Amortization
of prior service credit
|
2
|
1
|
(3,880 | ) | (647 | ) | ||||||||||
Amortization
of unrecognized net loss
|
146
|
200
|
334
|
770
|
||||||||||||
Settlement
charge (ERIP)
|
3,800
|
-
|
-
|
-
|
||||||||||||
Regulatory
asset decrease
|
-
|
250
|
2,708
|
4,619
|
||||||||||||
Net
periodic expense
|
$ |
5,458
|
$ |
2,289
|
$ | (1,264 | ) | $ |
7,047
|
Record
Date
|
Payable
Date
|
Distribution
per Unit
|
||
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
June
30, 2007
|
As
of
December
31, 2006
|
|||||||
Gain
on cash flow hedges
|
$ |
4,619
|
$ |
8,309
|
||||
Deferred
components of net periodic benefit cost
|
14,779
|
14,803
|
||||||
Total
Accumulated other comprehensive income
|
$ |
19,398
|
$ |
23,112
|
·
|
$7.9
million increase in transportation fees due to higher reservation
rates,
including $2.5 million from new contracts associated with the Carthage,
Texas to Keatchie, Louisiana pipeline expansion which was placed
in
service at the end of 2006;
|
·
|
$7.9
million increase in fuel revenues from other system volumes and
higher
realized prices including hedging
activity; and
|
·
|
$6.7
million increase in PAL and storage revenues mainly due to gas
parked by
customers during summer and fall 2006 for withdrawal during
summer 2007.
|
·
|
$14.7
million loss due to impairment related to the Magnolia storage
facility in
the 2007 period;
|
·
|
$4.1
million increase in fuel costs primarily due to an increase in
gas
usage;
|
·
|
$2.9
million increase primarily due to a favorable hurricane accrual
adjustment
made in the 2006 period;
|
·
|
$2.7
million increase in operation and maintenance expenses due to engine
overhauls, remediation and inline inspections at certain
locations;
|
·
|
$1.7
million increase in employee compensation related to long-term
incentives;
and
|
·
|
$1.5
million increase in depreciation and amortization resulting primarily
from
increased property, plant and
equipment.
|
·
|
a
$2.8 million decline in post retirement benefits other than pensions
costs
primarily as a result of plan changes implemented in the second
half
2006.
|
·
|
$13.9
million increase in fuel revenues due to an increase in other system
volumes and higher realized gas prices including hedging
activity;
|
·
|
$13.8
million increase in transportation fees due to higher reservation
rates,
including $4.2 million from new contracts associated with the Carthage,
Texas to Keatchie, Louisiana pipeline expansion;
and
|
·
|
$9.6
million increase in PAL and storage services mainly due to gas
parked by
customers during summer and fall 2006 for withdrawal during summer
2007.
|
·
|
$1.6
million due to a decrease in the amortization of acquired executory
contracts.
|
·
|
$14.7
million loss due to impairment related to the Magnolia storage
facility
during 2007;
|
·
|
$3.6
million increase in fuel costs primarily due to an increase in
gas
usage;
|
·
|
$3.5
million increase primarily due to favorable items in the 2006 period
related to hurricane recoveries recognized and an adjustment related
to
the hurricane accrual;
|
·
|
$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;
|
·
|
$3.0
million increase in operation and maintenance expenses due to engine
overhauls, remediation and inline inspections at certain
locations;
|
·
|
$2.7
million increase in depreciation and amortization resulting from
increased
property, plant and equipment;
|
·
|
$2.0
million increase in employee compensation related to long-term
incentives;
and
|
·
|
$1.9
million loss on mark-to-market adjustments associated with hedges
on line
pack for pipeline expansion projects and storage gas
sales.
|
·
|
$5.1
million net decrease in pension and postretirement benefits expenses,
mainly comprised of an $8.3 million reduction in postretirement
benefits
as a result of plan changes implemented in the second half 2006,
partly
offset by a $3.8 million pension settlement charge related to an
early
retirement incentive program
(ERIP).
|
·
|
East
Texas to Mississippi Expansion. On June 18, 2007 the FERC
granted Gulf South the primary 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 Bcf per
day of new 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 7 years), for 1.4 Bcf
per day of
capacity from Carthage, Texas. Construction of this project has
commenced
and we expect this project to be in service during 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 per day. 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 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 and options
with
certain of these customers for an additional 350 MMcf per day of
firm
transportation capacity. 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 fourth quarter 2008. We
continue to engage in negotiations concerning the possible sale
of up to a
49.0% equity interest in Gulf
Crossing.
|
·
|
Southeast
Expansion. We are pursuing a pipeline expansion extending
our Gulf South pipeline system from near Harrisville, Mississippi
to an
interconnect with Transco 85, which will enhance our ability to
deliver
gas to the Northeast through other pipeline
interconnects. This expansion will consist of
approximately 112 miles of 42-inch pipeline having initial capacity
of
approximately 1.2 Bcf per day, expandable to as much as 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 to access 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. The certificate application for this project
was filed with the FERC in December 2006 and the project is expected
to be
in service during the first quarter 2008. The FERC issued a
draft environmental impact statement for the expansion project
on April
13, 2007.
|
·
|
Fayetteville
and Greenville Laterals. We are pursuing the construction of two
laterals connected to our 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 per day. 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 per day, will originate at our 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 that the first 60 miles of the Fayetteville
Lateral will be in service during the third quarter of 2008 and
the
remainder of the Fayetteville and Greenville Laterals to be in
service
during the first quarter 2009.
|
·
|
Western
Kentucky Storage Expansion. 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
for
the full additional capacity at Texas Gas’ maximum applicable
rate. We expect this project to cost approximately $40.7
million and to be in service by November 2007. In December
2006, Texas Gas commenced an open season related to a potential
third
expansion of our storage facilities and has signed one precedent
agreement
for 2.0 Bcf of storage capacity. 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.
|
·
|
Magnolia
Storage Facility. We have been in the process of developing a salt
dome storage cavern near Napoleonville, Louisiana. Operational
tests which began in May 2007 and were completed in July have 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 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.
|
·
|
$35.8
million improvement in net income, excluding non-cash items such
as
depreciation and amortization and the Magnolia impairment charge
was
primarily driven by an increase in revenues partly offset by slightly
higher operating expenses; and
|
·
|
$14.6
million increase in cash due to gas purchases made in 2006 to repay
gas
imbalances with shippers and other interstate
pipelines.
|
·
|
$25.6
million reduction in cash due to recognition of deferred income
related to
PAL revenues.
|
Payments
due by Period
|
||||||||||||||||||||
Total
|
Less than
1
Year
|
1-3 Years
|
4-5 Years
|
More than
5
Years
|
||||||||||||||||
Capital
commitments
|
$ |
746.6
|
$ |
647.6
|
$ |
99.0
|
$ |
-
|
$ |
-
|
·
|
We
may not complete projects, including growth or expansion projects,
that we
commence, or we may complete projects on materially different terms
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:
July 31, 2007
|
By:
|
/s/
Jamie L. Buskill
|
|||
Jamie
L. Buskill
|
|||||
Chief
Financial Officer
|