Adjusted net earnings available to common stockholders were $73.1 million or $.59 per share, for the first quarter of 2009. Adjusted net earnings for the quarter exclude a $10.1 million ($.08 per share) charge to raise the provision for repair and abandonment costs as a result of damage to Southern Union Sea Robin pipeline system caused by Hurricane Ike and a $9.7 million or $.08 per share mark-to-market unrealized loss on open economic hedges of 2009 processing spreads.
Adjusted net earnings comprise a $9.2 million ($.07 per share) mark-to-market gain on economic hedges which was identified in the prior accounting period but excluded from the previous period’s adjusted earnings. Adjusted items are shown on an after-tax basis. By computing adjusted net earnings available for common stockholders, Southern Union believes it presents its earnings in a way more reliable with the presentation used by the investment community in its assessment of the Southern Union’s earnings.
Southern Union further estimates that Hurricane Ike negatively impacted the quarter by an additional $2.1 million or $.02 per share on an after-tax basis, a result of a $3.4 million decrease in transportation revenue compared to the previous year because of decreased volumes flowing after Hurricane Ike.
For the first quarter of 2009, net operating revenues, calculated as revenue less cost of gas and other energy and revenue-related taxes, declined $37 million or 11.4% to $286.6 million from $323.6 million in the year-ago quarter. Adjusted net operating revenues, which comprises the adjustments for mark-to-market accounting, was $316.8 million during the quarter, or a decline of $6.8 million.
For the first quarter of 2009, the company has reported adjusted EBIT of $160.5 million compared with adjusted EBIT of $170.6 million in the year-ago quarter. The decline was mainly related to lower realized commodity prices at Southern Union’s gathering and processing segment.
Management’s Perspective
Commenting on the quarter, George L. Lindemann, chairman and chief executive officer, said, “Given the overall commodity price environment of the first quarter, we were pleased with the operational and financial results of the company. Our stable, fee based businesses continue to drive results in line with our expectations and as such we are pleased to reaffirm our 2009 earnings guidance.”
Eric D. Herschmann president and chief operating officer added, “We are happy with the continued progress that we are making on our organic growth projects. Trunkline LNG’s Infrastructure Enhancement Project remains on track for an early third quarter in service date. Additionally, the recent senior note offering at our Florida Gas Transmission affiliate, which will help support the Phase VIII expansion project, was very well received by the market.”
Key Factors Impacting First Quarter 2009 Performance Relative to Prior Year
The company’s transportation and storage segment posted adjusted EBIT of $109.3 million, compared with $114.1 million in the year-ago quarter. Adjusted EBIT for the quarter eliminates a $16.1 million charge to raise the provision for repair and abandonment costs as a result of damage to Southern Union’s Sea Robin pipeline system caused by Hurricane Ike. The $4.8 million decline was mainly attributable to a $4.3 million reduction in adjusted EBIT at Panhandle Energy, which comprises Panhandle Eastern Pipeline Company, LP and its subsidiaries. Panhandle Energy saw higher operating revenues of $5.2 million, equalized by higher operating expenses of $6.1 million and higher depreciation and amortization expense of $2.8 million.
The raise in operating revenues was largely because of a $5 million increase in parking revenue, a $2.2 million raise in reservation revenue, mainly a result of the Trunkline field zone expansion project, equalized by a $3.4 million decline in transportation commodity revenue as a result of lower volumes flowing on Southern Union’s Sea Robin system following Hurricane Ike. The operating expense raise includes $2 million of contract storage costs resulting from an increase in leased storage capacity, a $1.3 million charge to record a lower of cost or market adjustment for system gas and a $1.2 million increase in LNG power costs recovered through a reimbursement mechanism.
The gathering and processing segment reported adjusted EBIT of $18.7 million compared with $28.6 million in the year-ago quarter. Adjusted EBIT for the quarter eliminates $15.5 million of mark-to-market unrealized losses on open economic hedges of 2009 processing spreads and comprises $14.6 million of mark-to-market gains identified in a previous accounting period, but excluded from the prior period’s adjusted earnings.
Gross margin declined by $12.1 million, after accounting for the mark-to-market adjustments, mainly because of lower realized natural gas and natural gas liquids prices. Operating expenses declined by $3.3 million, mainly because of a $1.1 million decline in maintenance and contract service costs as a result of Southern Union’s 2009 cost decrease initiative, a $500,000 decrease in chemical and lubricant costs and a $400,000 decrease in utility costs. Depreciation expense rose by $1 million during the period due to an increase in property, plant and equipment.
EBIT for the company’s distribution segment raised $3.2 million to $31.6 million for the first quarter 2009. Increased EBIT for the segment was mainly because of a $3.5 million insurance settlement received during the quarter.
