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RGP > SEC Filings for RGP > Form 10-Q on 9-May-2012All Recent SEC Filings

Show all filings for REGENCY ENERGY PARTNERS LP

Form 10-Q for REGENCY ENERGY PARTNERS LP


9-May-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

(Tabular dollar amounts are in thousands)
The following discussion analyzes our financial condition and results of operations. You should read the following discussion of our financial condition and results of operations in conjunction with our historical condensed consolidated financial statements and the notes included elsewhere in this document.
OVERVIEW. We are a growth-oriented publicly-traded Delaware limited partnership formed in 2005 engaged in the gathering and processing, contract compression, treating and transportation of natural gas and the transportation, fractionation and storage of NGLs. We focus on providing midstream services in some of the most prolific natural gas producing regions in the United States, including the Eagle Ford, Haynesville, Barnett, Fayetteville, Marcellus, Bone Spring and Avalon shales and the mid-continent region. Our assets are located in Texas, Louisiana, Arkansas, Pennsylvania, California, Mississippi, Alabama, West Virginia and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma.
OUR OPERATIONS. We divide our operations into five business segments:
Gathering and Processing. We provide "wellhead-to-market" services to producers of natural gas, which include transporting raw natural gas from the wellhead through gathering systems, processing raw natural gas to separate NGLs and selling or delivering the pipeline-quality natural gas and NGLs to various markets and pipeline systems.

Joint Ventures. We own investments in four joint ventures:

?            a 49.99% general partner interest in HPC, which owns RIGS, a 450
             mile intrastate pipeline that delivers natural gas from northwest
             Louisiana to downstream pipelines and markets;


?            a 50% membership interest in MEP, which owns an interstate natural
             gas pipeline with approximately 500 miles stretching from southeast
             Oklahoma through northeast Texas, northern Louisiana and central
             Mississippi to an interconnect with the Transcontinental Gas Pipe
             Line system in Butler, Alabama;


?            a 30% membership interest in Lone Star, an entity owning a diverse
             set of midstream energy assets including NGL pipelines, storage,
             fractionation and processing facilities located in the states of
             Texas, Mississippi and Louisiana; and


?            a 33.33% membership interest in Ranch JV, which, upon completion of
             construction in 2012, will process natural gas delivered from the
             NGLs-rich Bone Spring and Avalon shale formations in west Texas.


      Contract Compression. We own and operate a fleet of compressors used to
       provide turn-key natural gas compression services for customer specific
       systems.


      Contract Treating. We own and operate a fleet of equipment used to provide
       treating services, such as carbon dioxide and hydrogen sulfide removal,
       natural gas cooling, dehydration and BTU management, to natural gas
       producers and midstream pipeline companies.


      Corporate and Others. Our Corporate and Others segment comprises a small
       regulated pipeline and our corporate offices.

HOW WE EVALUATE OUR OPERATIONS. Management uses a variety of financial and operational measurements to analyze our performance. We view these measures as important tools for evaluating the success of our operations and review these measurements on a monthly basis for consistency and trend analysis. These measures include volumes, segment margin, total segment margin, adjusted segment margin, adjusted total segment margin and operation and maintenance expense on a segment and company-wide basis and EBITDA and adjusted EBITDA on a company-wide basis.
Volumes. We must continually obtain new supplies of natural gas to maintain or increase throughput volumes on our gathering and processing systems. Our ability to maintain existing supplies of natural gas and obtain new supplies is affected by (i) the level of workovers or recompletions of existing connected wells and successful drilling activity in areas currently dedicated to our gathering and processing systems, (ii) our ability to compete for volumes from successful new wells in other areas and (iii) our ability to obtain natural gas that has been released from other commitments. We routinely monitor producer activity in the areas served by our gathering and processing systems to pursue new supply opportunities.
Segment Margin and Total Segment Margin. We define segment margin, generally, as revenues minus cost of sales. We calculate our Gathering and Processing segment margin and Corporate and Others segment margin as our revenues generated from operations less the cost of natural gas and NGLs purchased and other cost of sales, including third-party transportation and processing fees.


Table of Contents

We do not record segment margin for the Joint Ventures segment because we record our ownership percentages of the net income of our unconsolidated affiliates as income from unconsolidated affiliates in accordance with the equity method of accounting.
We calculate our Contract Compression segment margin as our revenues generated from our contract compression operations minus direct costs, primarily compressor unit repairs, associated with those revenues.
We calculate our Contract Treating segment margin as revenues generated from our contract treating operations minus direct costs associated with those revenues. We calculate total segment margin as the total of segment margin of our segments, less intersegment eliminations.
Adjusted Segment Margin and Adjusted Total Segment Margin. We define adjusted segment margin as segment margin adjusted for non-cash (gains) losses from commodity derivatives. Our adjusted total segment margin equals the sum of our operating segments' adjusted segment margins or segment margins, including intersegment eliminations. Adjusted segment margin and adjusted total segment margin are included as supplemental disclosures because they are primary performance measures used by management because they represent the results of product purchases and sales, a key component of our operations. Revenue Generating Horsepower. Revenue generating horsepower is the primary driver for revenue growth in our contract compression segment, and it is also the primary measure for evaluating our operational efficiency. Revenue generating horsepower is the total horsepower that our Contract Compression segment owns and operates for external customers. It does not include horsepower under contract that is not generating revenue or idle horsepower. Revenue Generating Gallons per Minute (GPM). Revenue generating GPM is the primary driver for revenue growth of the treating business in our contract treating segment. GPM is used as a measure of the treating capacity of an amine plant. Revenue generating GPM is our total GPM under contract less GPM that is not generating revenues.
Operation and Maintenance Expense. Operation and maintenance expense is a separate measure that we use to evaluate operating performance of field operations. Direct labor, insurance, property taxes, repair and maintenance, utilities and contract services comprise the most significant portion of our operating and maintenance expense. These expenses are largely independent of the volumes through our systems but fluctuate depending on the activities performed during a specific period. We do not deduct operation and maintenance expenses from total revenues in calculating segment margin because we use segment margin to separately evaluate commodity volume and price changes.
EBITDA and Adjusted EBITDA. We define EBITDA as net income (loss) plus interest expense, net, income tax expense and depreciation and amortization expense. We define adjusted EBITDA as EBITDA plus or minus the following:
non-cash loss (gain) from commodity and embedded derivatives;

non-cash unit based compensation;

loss (gain) on asset sales, net;

loss on debt refinancing;

other non-cash (income) expense, net;

net income attributable to noncontrolling interest; and

our interest in adjusted EBITDA from unconsolidated affiliates less income from unconsolidated affiliates.

These measures are used as supplemental measures by our management and by external users of our financial statements such as investors, banks, research analysts and others, to assess:
financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make cash distributions to our unitholders and General Partner;

our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and

the viability of acquisitions and capital expenditure projects.


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Neither EBITDA nor adjusted EBITDA should be considered as an alternative to, or more meaningful than, net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. EBITDA is the starting point in determining cash available for distribution, which is an important non-GAAP financial measure for a publicly traded partnership.
The following table presents a reconciliation of EBITDA and adjusted EBITDA to net cash flows provided by operating activities and to net income (loss) for the Partnership:

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