Copano Energy Reports Third Quarter 2012 Results

HOUSTON, Nov. 7, 2012 /PRNewswire/ -- Copano Energy, L.L.C. (NASDAQ: CPNO) today announced its financial results for the three months ended September 30, 2012.

Third Quarter 2012 Highlights:

  • Fee-based Texas segment rich natural gas volumes drive third quarter performance
  • Total distributable cash flow of $57.1 million, a 55% increase from third quarter 2011
  • Total segment gross margin of $75.1 million, a 16% increase from the prior year period
  • Adjusted EBITDA of $73.0 million, a 41% increase from the prior year period
  • Volumes gathered from the Eagle Ford Shale play averaged 567,000 MMBtu/d, a 248% increase from the prior year period
  • Texas segment NGL production of over 54,000 Bbls/d, a 75% increase from third quarter 2011

"Our third quarter results highlight our strengthening operational performance and continued progress in executing on our Eagle Ford strategy," said R. Bruce Northcutt, Copano's President and Chief Executive Officer. "Despite lower NGL prices compared to the second quarter of this year, fee-based volumes from the Eagle Ford have continued to grow, delivering strong gross margins for our Texas business segment.

"Our organic growth projects in the play remain on track and we look forward to the positive impact they will have on total distributable cash flow as our Eagle Ford strategy continues to develop," Northcutt added.

Third Quarter Financial Results

Total distributable cash flow was $57.1 million, a 55% increase from the third quarter of 2011, and a 45% increase from the second quarter of 2012.  The increase from the prior-year period was primarily due to:

  • increased throughput from the Eagle Ford Shale, north Barnett Shale Combo and Woodford Shale plays, and
  • a $9.7 million gain related to the sale of the Lake Charles plant in Louisiana.

These benefits were partially offset by lower natural gas liquids (NGL) prices and higher interest and operating expenses.

Third-quarter 2012 total distributable cash flow represents 124% coverage of the third-quarter distribution of $0.575 per unit, based on common units outstanding on the distribution record date, which included an additional 6,526,078 common units issued in our equity offering that closed in late October 2012.  Excluding the gain on the sale of the Lake Charles plant, third-quarter 2012 total distributable cash flow coverage was approximately 103%.  Excluding the newly issued units and the gain on sale of the Lake Charles plant, third-quarter 2012 total distributable cash flow coverage was approximately 112%.

Revenue for the third quarter of 2012 increased 4% from the third quarter of 2011 to $366.4 million, and 15% from the second quarter of 2012.  Total segment gross margin increased 16% from the third quarter of 2011 to $75.1 million, and 3% from the second quarter of 2012.  Adjusted EBITDA increased 41% from the third quarter of 2011 to $73.0 million, and 25% from the second quarter of 2012.  Net income to common units was $19.8 million for the third quarter of 2012 compared to net loss of $166.0 million for the third quarter of 2011.

Corporate and other activities, which include Copano's commodity risk management efforts, resulted in a loss of $3.7 million for the third quarter of 2012, consisting of $5.9 million in non-cash amortization expense and $2.6 million of unrealized losses on commodity derivative instruments, offset by $4.8 million of net cash settlements received.  Corporate and other activities resulted in a $8.0 million loss for the third quarter of 2011 consisting of $7.4 million of non-cash amortization expense and $2.9 million of net cash settlements paid, offset by $2.3 million of unrealized gain on commodity derivative instruments.  Corporate and other activities resulted in a $3.4 million gain for the second quarter of 2012 consisting of $3.4 million of net cash settlements received and $5.0 million of unrealized gains on commodity derivative instruments, offset by $5.0 million of non-cash amortization expense.

Total distributable cash flow, total segment gross margin, adjusted EBITDA and segment gross margin are non-GAAP financial measures, which are reconciled to their most directly comparable GAAP measures at the end of this news release.  Please read "Use of Non-GAAP Financial Measures" beginning on page 5 of this news release.

Third Quarter Operating Results by Segment

Texas

Segment gross margin for Texas increased 24% from the third quarter of 2011 to $55.2 million, and increased 12% from the second quarter of 2012.  The increase from the prior year was primarily a result of volume growth from the Eagle Ford Shale and north Barnett Shale Combo plays, partially offset by a decline in leaner gas volumes at the Houston Central complex, which were displaced to accommodate richer Eagle Ford Gathering fee-based gas volumes.

During the third quarter of 2012, Texas segment service throughput volumes averaged 897,601 MMBtu/d of natural gas, an increase of 17% from the third quarter of 2011.  The Texas segment gathered an average of 557,457 MMBtu/d of natural gas, an increase of 20% over the third quarter of 2011, primarily due to increased volumes from the Eagle Ford Shale and north Barnett Shale Combo plays.  Volumes processed at Copano's plants and third-party plants in Texas averaged 824,196 MMBtu/d during the third quarter of 2012, an increase of 20% over the third quarter of 2011 primarily due to increased volumes from the north Barnett Shale Combo play and at the Lake Charles plant.  Third-quarter NGL production averaged 54,142 Bbls/d at Copano-owned plants and third-party plants, an increase of 75% from the third quarter of 2011, reflecting a substantial increase in the NGL content of volumes at the Houston Central complex, and increased volumes at the Saint Jo plant in the north Barnett Shale Combo play.

Eagle Ford Gathering, Copano's unconsolidated joint venture with Kinder Morgan, has been in full service since December 2011 and provided gathering services for an average of 319,919 MMBtu/d during the third quarter of 2012.  Texas segment gross margin results do not include the financial results and volumes associated with Copano's interest in Eagle Ford Gathering, which is accounted for under the equity method of accounting and shown in Copano's financial statements under "Equity in (earnings) loss from unconsolidated affiliates." For the third quarter of 2012, equity earnings and distributions from Eagle Ford Gathering totaled $9.2 million and $6.3 million, respectively.

Oklahoma

Segment gross margin for Oklahoma was $22.9 million for the third quarter of 2012, a decrease of 18% compared to the third quarter of last year and an increase of 14% from the second quarter of 2012.  The year-over-year decrease was due primarily to lower NGL and natural gas prices, which resulted in a 24% decrease in realized margins on service throughput compared to the third quarter of 2011 ($0.80 per MMBtu in 2012 compared to $1.05 per MMBtu in 2011).  This decrease was partially offset by an increase in service throughput attributable to lean gas volume growth from the Woodford Shale play.

The Oklahoma segment gathered an average of 313,414 MMBtu/d of natural gas, an increase of 9% compared to the third quarter of 2011, due primarily to lean gas from the Woodford Shale area, which increased 20% compared to the third quarter of 2011.  Volumes processed at wholly owned and third-party plants in Oklahoma were flat compared to the third quarter of 2011, averaging 157,775 MMBtu/d.  Third-quarter NGL production at Copano-owned plants and third-party plants averaged 16,207 Bbls/d, a decrease of 7% from the third quarter of 2011.

Rocky Mountains

Segment gross margin for the Rocky Mountains segment totaled $0.6 million in the third quarter of 2012 compared to $0.4 million for the third quarter of 2011 and $0.2 million for the second quarter of 2012.  Rocky Mountains segment gross margin results do not include the financial results and volumes associated with Copano's interest in Bighorn Gas Gathering and Fort Union Gas Gathering, which are accounted for under the equity method of accounting and shown in Copano's financial statements under "Equity in (earnings) loss from unconsolidated affiliates."

Average pipeline throughput for Bighorn and Fort Union on a combined basis increased 4% to 694,961 MMBtu/d in the third quarter of 2012 as compared to 670,543 MMBtu/d in the third quarter of 2011.  The volume increase is due primarily to producers increasing volumes on Fort Union to access downstream markets; however, because Fort Union has firm volume commitments from these producers, the increase did not have a material impact on Copano's equity earnings or distributions.  For the third quarter of 2012, combined equity earnings for Bighorn and Fort Union totaled $3.0 million compared to equity losses of $164.1 million for the same period in 2011, which included a $165.0 million impairment in 2011. Combined distributions from Bighorn and Fort Union totaled $5.1 million in the third quarter of 2012 compared to $5.0 million in the third quarter of last year.

Cash Distributions

On October 10, 2012, Copano announced its third quarter 2012 cash distribution of $0.575 per unit, or $2.30 per unit on an annualized basis, which will be paid on November 8, 2012 to common unitholders of record at the close of business on October 31, 2012.  This distribution is unchanged from the second quarter of 2012.

Conference Call Information

Copano will hold a conference call on November 8, 2012 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) to discuss its third quarter 2012 financial results.  To participate in the call, dial (480) 629-9643 and ask for the Copano call at least 10 minutes prior to the start time, or access it live over the internet at http://www.copano.com on the "Investor Overview" page of the "Investor Relations" section of Copano's website.

A replay of the audio webcast will be available shortly after the call on Copano's website.  A telephonic replay will be available through November 15, 2012 by calling (303) 590-3030 and using the pass code 4570334#.

Use of Non-GAAP Financial Measures

This news release and the accompanying schedules include non-generally accepted accounting principles, or non-GAAP, financial measures of total distributable cash flow, total segment gross margin, adjusted EBITDA and segment gross margin.  The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States, or GAAP. Non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income (loss), operating income (loss), cash flows from operating activities or any other GAAP measure of liquidity or financial performance.  Copano's non-GAAP financial measures may not be comparable to similarly titled measures of other companies, who may not calculate their measures in the same manner.

Copano's management team uses non-GAAP financial measures to evaluate its core profitability and to assess the financial performance of its assets.  Subject to the limitations expressed above, Copano believes that investors and other market participants benefit from access to the various financial measures that its management uses in evaluating its performance because it allows them to independently evaluate Copano's performance with the same information used by management.

Copano Energy, L.L.C. is a midstream natural gas company with operations in Texas, Oklahoma and Wyoming.  For more information, please visit http://www.copano.com.

This press release includes "forward-looking statements," as defined by the Securities and Exchange Commission.  Statements that address activities or events that Copano believes will or may occur in the future are forward-looking statements.  These statements include, but are not limited to, statements about future producer activity and Copano's total distributable cash flow and distribution coverage.  These statements are based on management's experience and perception of historical trends, current conditions, expected future developments and other factors management believes are reasonable.  Important factors that could cause actual results to differ materially from those in forward-looking statements include the following risks and uncertainties, many of which are beyond Copano's control: the volatility of prices and market demand for natural gas and natural gas liquids; Copano's ability to continue to connect new sources of natural gas, crude oil and condensate, and the NGL content of new gas supplies; the impact on volumes and resulting cash flow of technological, economic and other uncertainties inherent in estimating future production; producers' ability to drill and successfully complete and connect new natural gas supplies; Copano's ability to attract and retain key customers; performance by producers, customers and service providers under their contracts with Copano; the availability of downstream transportation and other facilities for natural gas and NGLs; operational risks affecting the performance of Copano or third-party processing, fractionation plants and other facilities; Copano's ability to access or construct new processing, fractionation and transportation capacity; higher construction costs or project delays due to inflation, limited availability of required resources, or the effects of operational, legal or other uncertainties; general economic conditions; the effects of government regulations and policies; and other financial, operational and legal risks and uncertainties detailed from time to time in Copano's quarterly and annual reports filed with the Securities and Exchange Commission.  Copano does not undertake to update any forward-looking statement except as provided by law.

Contacts:

Carl A. Luna, SVP and CFO

Copano Energy, L.L.C.

713-621-9547

 

Jack Lascar / jlascar@drg-l.com

Anne Pearson/ apearson@drg-l.com

DRG&L/ 713-529-6600

financial statements follow –

 

COPANO ENERGY, L.L.C. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS













Three Months Ended

September 30,



Nine Months Ended

September 30,





2012


2011



2012


2011





(In thousands, except per unit information)

Revenue:















Natural gas sales 


$

97,614


$

120,815



$

253,819


$

348,538


Natural gas liquids sales 



205,464



191,370




589,431



521,129


Transportation, compression and processing fees 



49,314



30,337




132,394



82,706


Condensate and other 



14,001



11,169




45,280



37,299



Total revenue 



366,393



353,691




1,020,924



989,672

















Costs and expenses:















Cost of natural gas and natural gas liquids(1)



284,936



281,858




789,369



779,986


Transportation(1)



6,365



6,991




18,785



19,202


Operations and maintenance 



19,242



16,091




56,171



46,953


Depreciation and amortization



19,259



16,911




57,409



51,143


Impairment



-



5,000




28,744



5,000


General and administrative 



13,697



10,031




38,939



34,530


Taxes other than income 



1,983



1,502




5,459



4,029


Equity in (earnings) loss from unconsolidated affiliates 



(12,558)



161,589




89,733



158,581


Gain on sale of operating assets



(9,716)



-




(9,716)



-



Total costs and expenses 



323,208



499,973




1,074,893



1,099,424

















Operating income (loss)



43,185



(146,282)




(53,969)



(109,752)

Other income (expense):















Interest and other income 



11



16




570



31


Loss on refinancing of unsecured debt 



-



-




-



(18,233)


Interest and other financing costs 



(13,797)



(11,080)




(42,823)



(34,450)

Income (loss) before income taxes



29,399



(157,346)




(96,222)



(162,404)

Provision for income taxes 



(474)



(390)




(1,406)



(1,161)

Net income (loss)



28,925



(157,736)




(97,628)



(163,565)

Preferred unit distributions



(9,138)



(8,279)




(26,751)



(24,235)

Net income (loss) to common units


$

19,787


$

(166,015)



$

(124,379)


$

(187,800)

















Basic net income (loss) per common unit:















Net income (loss) per common unit


$

0.27


$

(2.51)



$

(1.73)


$

(2.84)


Weighted average number of common units 



72,395



66,246




71,887



66,125

















Diluted net income (loss) per common unit:















Net income (loss) per common unit


$

0.23


$

(2.51)



$

(1.73)


$

(2.84)


Weighted average number of common units 



85,682



66,246




71,887



66,125

































Distributions declared per common unit


$

0.575


$

0.575



$

1.725


$

1.725























(1) Exclusive of operations and maintenance, depreciation and amortization and impairment shown separately below.

 

COPANO ENERGY, L.L.C. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS














Nine Months Ended September 30,







2012



2011

Cash Flows From Operating Activities:


(In thousands)


Net loss


$

(97,628)



$

(163,565)


Adjustments to reconcile net loss to net cash provided by operating activities:










Depreciation and amortization



57,409




51,143



Impairment



28,744




5,000



Amortization of debt issue costs



2,987




2,855



Equity in loss from unconsolidated affiliates



89,733




158,581



Distributions from unconsolidated affiliates



31,229




17,961



Gain on sale of operating assets



(9,716)




-



Loss on refinancing of unsecured debt



-




18,233



Non-cash gain on risk management activities, net 



(4,327)




(4,723)



Equity-based compensation



5,246




7,445



Deferred tax provision



240




253



Other non-cash items



5,196




(86)



Changes in assets and liabilities, net of acquisitions:



-




-




Accounts receivable



8,032




(11,132)




Prepayments and other current assets



1,861




(2,952)




Risk management activities



8,135




11,353




Accounts payable



(24,371)




17,459




Other current liabilities



21,010




14,964





Net cash provided by operating activities



123,780




122,789













Cash Flows From Investing Activities:









Additions to property, plant and equipment



(247,179)




(175,323)


Additions to intangible assets



(6,869)




(5,316)


Acquisitions



-




(16,084)


Investments in unconsolidated affiliates



(60,677)




(105,111)


Distributions from unconsolidated affiliates



3,279




2,368


Escrow cash



-




6


Proceeds from sale of assets



23,850




248


Other



2,604




98





Net cash used in investing activities 



(284,992)




(299,114)













Cash Flows From Financing Activities:









Proceeds from long-term debt



420,375




725,000


Repayment of long-term debt



(322,000)




(412,665)


Payments of premiums and expenses on redemption of unsecured debt



-




(14,572)


Deferred financing costs



(3,539)




(15,743)


Distributions to unitholders



(126,090)




(114,834)


Proceeds from public offering of common units, net of underwriting discounts










and commissions of $7,590



188,083




-


Equity offering costs



(379)




(4)


Proceeds from option exercises 



1,284




2,747





Net cash provided by financing activities



157,734




169,929













Net decrease in cash and cash equivalents



(3,478)




(6,396)

Cash and cash equivalents, beginning of year



56,962




59,930

Cash and cash equivalents, end of period


$

53,484



$

53,534