Revenues for the quarter were more than the comparable period in the previous year from transportation revenues associated with the expansion projects. However, transportation revenues, excluding fuel, from the expansion projects were about $12 million lower than expected due to operating those pipelines at decreased pressures following the discovery of anomalies in certain joints of pipe.
The revenue increase was more than counterbalanced by higher expenses related to the expansion projects, such as depreciation and property taxes, which decreased net income for the quarter as compared to the year-ago period. In addition, net income was lower due to increased operation and maintenance expenses resulting from major maintenance projects and higher interest expense due to an increase in outstanding debt balances and lower capitalized interest.
Net income and EBITDA for the 2008 period were positively impacted by an $11.2 million contract settlement gain and a $3.1 million mark-to-market gain related to certain derivatives associated with the expansion projects.
Capital Program
Expansion and growth capital expenditures were $292.7 million for the first quarter of 2009.
In the first quarter 2009, the partnership concluded the compression related with the Southeast expansion and the initial building of the Gulf Crossing project and the Fayetteville and Greenville Laterals. Additional compression facilities are anticipated to be built for the Gulf Crossing project and Fayetteville and Greenville laterals, which are anticipated to be placed in service in 2010. The additional compression for the Gulf Crossing project remains subject to regulatory consent.
Additionally, for the first quarter of 2009, the partnership signed shipper agreements for about 0.4 Bcf of capacity that will support expanding the partnership’s system in the Haynesville production area in Louisiana. This project will comprise of adding compression facilities to the partnership’s Gulf South system at an anticipated cost of up to $200 million.
Cost and timing estimates for the development projects are put through a variety of risks and uncertainties, including obtaining regulatory approvals, adverse weather conditions, delays in obtaining key materials, shortages of qualified labor and escalating costs of labor and materials.
Maintenance capital expenditures were $9.2 million for the first quarter of 2009.
Net Income Per Unit
For the first quarter of 2009, the partnership started applying the provisions of EITF issue No. 07-4, application of the two-class method under FASB statement No. 128, earnings per share, to Master Limited Partnerships, which provides that net income for the existing period be decreased by the amount of available cash that will be distributed with respect to that period for purposes of calculating net income per unit. Any residual amount representing undistributed net income (or loss) is assumed to be allocated to the different ownership interests in accordance with the contractual provisions of the partnership agreement.
Under the partnership’s partnership agreement, for any quarterly period, the incentive distribution rights (IDRs) take part in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in undistributed net income or losses. Consequently, undistributed net income is assumed to be allocated to the other ownership interests on a pro rata basis, excluding the class B units for which participation in net income is limited to $0.30 per unit per quarter.
As a result of applying the provisions of EITF No. 07-04, net income per unit for the first quarter 2008 has been adjusted from $0.60 per common and subordinated unit, as originally reported using the provisions of EITF Issue No. 03-06, participating securities and the two-class method under FASB statement No. 128, to $0.68 per common and subordinated unit.
