Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
EXLP > SEC Filings for EXLP > Form 10-Q on 6-Nov-2013All Recent SEC Filings

Show all filings for EXTERRAN PARTNERS, L.P.

Form 10-Q for EXTERRAN PARTNERS, L.P.


6-Nov-2013

Quarterly Report


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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 ("Financial Statements") of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2012.

Disclosure Regarding Forward-Looking Statements

This report contains "forward-looking statements." All statements other than statements of historical fact contained in this report are forward-looking statements, including, without limitation, statements regarding our business growth strategy and projected costs; future financial position; the sufficiency of available cash flows to fund continuing operations; the sufficiency of available cash flows to make cash distributions; the expected amount of our capital expenditures; future revenue, gross margin and other financial or operational measures related to our business; the future value of our equipment; plans and objectives of our management for our future operations; and any potential contribution of additional assets from Exterran Holdings, Inc. (individually, and together with its wholly-owned subsidiaries, "Exterran Holdings") to us. You can identify many of these statements by looking for words such as "believe," "expect," "intend," "project," "anticipate," "estimate," "will continue" or similar words or the negative thereof.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Known material factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2012, and those set forth from time to time in our filings with the Securities and Exchange Commission ("SEC"), which are available through our website at www.exterran.com and through the SEC's website at www.sec.gov, as well as the following risks and uncertainties:

conditions in the oil and natural gas industry, including a sustained decrease in the level of supply or demand for oil or natural gas or a sustained decrease in the price of oil or natural gas, which could cause a decline in the demand for our natural gas compression services;

our reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

our dependence on Exterran Holdings to provide services and compression equipment, including its ability to hire, train and retain key employees and to timely and cost effectively obtain compression equipment and components necessary to conduct our business;

our dependence on and the availability of cost caps from Exterran Holdings to generate sufficient cash to enable us to make cash distributions at our current distribution rate;

changes in economic or political conditions, including terrorism and legislative changes;

the inherent risks associated with our operations, such as equipment defects, impairments, malfunctions and natural disasters;

loss of our status as a partnership for federal income tax purposes;

the risk that counterparties will not perform their obligations under our financial instruments;

the financial condition of our customers;

our ability to implement certain business and financial objectives, such as:

growing our asset base and asset utilization, particularly for our fleet of compressors;

winning profitable new business;

integrating acquired businesses;

generating sufficient cash;

accessing the capital markets at an acceptable cost; and


Table of Contents

purchasing additional contract operation contracts and equipment from Exterran Holdings;

liability related to the provision of our services;

changes in governmental safety, health, environmental or other regulations, which could require us to make significant expenditures; and

our level of indebtedness and ability to fund our business.

All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

General

Exterran Partners, L.P. ("we," "our," "us," or "the Partnership") is a publicly held Delaware limited partnership formed in 2006 to acquire certain contract operations customer service agreements and a compressor fleet used to provide compression services under those agreements. We completed our initial public offering in October 2006.

March 2013 Contract Operations Acquisition

In March 2013, we acquired from Exterran Holdings contract operations customer service agreements with 50 customers and a fleet of 363 compressor units used to provide compression services under those agreements, comprising approximately 256,000 horsepower, or 8% (by then available horsepower) of the combined United States of America ("U.S.") contract operations business of Exterran Holdings and us (the "March 2013 Contract Operations Acquisition"). The acquired assets also included 204 compressor units, comprising approximately 99,000 horsepower, previously leased from Exterran Holdings to us and contracts relating to approximately 6,000 horsepower of compressor units we already owned and previously leased to Exterran Holdings. At the acquisition date, the acquired fleet assets had a net book value of $158.5 million, net of accumulated depreciation of $94.9 million. Total consideration for the transaction was approximately $174.0 million, excluding transaction costs. In connection with this acquisition, we issued approximately 7.1 million common units and approximately 145,000 general partner units to Exterran Holdings.

March 2012 Contract Operations Acquisition

In March 2012, we acquired from Exterran Holdings contract operations customer service agreements with 39 customers and a fleet of 406 compressor units used to provide compression services under those agreements, comprising approximately 188,000 horsepower, or 5% (by then available horsepower) of the combined U.S. contract operations business of Exterran Holdings and us (the "March 2012 Contract Operations Acquisition"). The acquired assets also included 139 compressor units, comprising approximately 75,000 horsepower, previously leased from Exterran Holdings to us, and a natural gas processing plant with a capacity of 10 million cubic feet per day that we used to provide processing services. At the acquisition date, the acquired fleet assets had a net book value of $149.5 million, net of accumulated depreciation of $67.0 million. Total consideration for the transaction was approximately $182.8 million, excluding transaction costs. In connection with this acquisition, we assumed $105.4 million of Exterran Holdings' long-term debt and paid $77.4 million in cash to Exterran Holdings.

Omnibus Agreement

We are a party to an omnibus agreement with Exterran Holdings, our general partner and others (as amended and/or restated, the "Omnibus Agreement"), which includes, among other things:

certain agreements not to compete between Exterran Holdings and its affiliates, on the one hand, and us and our affiliates, on the other hand;

Exterran Holdings' obligation to provide all operational staff, corporate staff and support services reasonably necessary to operate our business and our obligation to reimburse Exterran Holdings for such services, subject to certain limitations and cost caps;

the terms under which we, Exterran Holdings, and our respective affiliates may transfer, exchange or lease compression equipment among one another;

the terms under which we may purchase newly-fabricated contract operations equipment from Exterran Holdings;


Table of Contents

Exterran Holdings' grant to us of a license to use certain intellectual property, including our logo; and

Exterran Holdings' and our obligations to indemnify each other for certain liabilities.

For further discussion of the Omnibus Agreement, please see Note 3 to the Financial Statements.

Overview

Industry Conditions and Trends

Our business environment and corresponding operating results are affected by the level of energy industry spending for the exploration, development and production of oil and natural gas reserves in the U.S. Spending by oil and natural gas exploration and production companies is dependent upon these companies' forecasts regarding the expected future supply, demand and pricing of oil and natural gas products as well as their estimates of risk-adjusted costs to find, develop and produce reserves. Although we believe our business is typically less impacted by commodity prices than certain other oil and natural gas service providers, changes in natural gas exploration and production spending normally result in changes in demand for our services.

Natural gas consumption in the U.S. for the twelve months ended July 31, 2013 increased by approximately 3% over the twelve months ended July 31, 2012, and is expected to increase by 0.5% in 2013 and by an average of 0.5% per year thereafter until 2035 according to the U.S. Energy Information Administration ("EIA").

Natural gas marketed production in the U.S. for the twelve months ended July 31, 2013 increased by approximately 2% over the twelve months ended July 31, 2012. The EIA forecasts that total U.S. marketed production will increase by 1% in 2013 compared to 2012. In 2011, the U.S. accounted for an estimated annual production of approximately 24 trillion cubic feet of natural gas. The EIA estimates that the U.S. natural gas production level will be approximately 26 trillion cubic feet in 2035.

Our Performance Trends and Outlook

Our results of operations depend upon the level of activity in the U.S. energy market. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and natural gas prices or significant instability in energy markets.

Our revenue, earnings and financial position are affected by, among other things, (i) market conditions that impact demand and pricing for natural gas compression, (ii) our customers' decisions between using our services or our competitors' products or services, (iii) our customers' decisions regarding whether to own and operate the equipment themselves, and (iv) the timing and consummation of acquisitions of additional contract operations customer service agreements and equipment from Exterran Holdings or others. As we believe there will continue to be a high level of activity in certain U.S. areas focused on the production of oil and natural gas liquids, we anticipate investing in more new fleet units, and therefore investing more capital, in 2013 than we did in 2012.

In the second half of 2011, Exterran Holdings, which provides all operational staff, corporate staff and support services necessary to operate our business, embarked on a multi-year plan to improve the profitability of its operations, including the operations of our business. Exterran Holdings implemented certain key profitability initiatives associated with this plan in 2012 and is implementing additional process initiatives intended to improve operating efficiency and reduce our cost structure throughout 2013. These profitability initiatives have positively impacted our business, and we expect additional positive impact in 2014.

During the first nine months of 2013, we saw steady activity in certain shale plays and areas focused on the production of oil and natural gas liquids. This new development activity has increased the overall amount of compression horsepower in the industry and in our business; however, these increases continue to be offset by horsepower declines in more mature and predominantly dry gas markets, where we provide a significant amount of contract operations services. In early 2012, natural gas prices in the U.S. fell to their lowest levels in more than a decade. Since then, natural gas prices in the U.S. have improved, but still remain at low levels which could limit natural gas production growth in the U.S., particularly in dry gas areas. We believe that the low natural gas price environment, as well as the recent capital investment in new equipment by our competitors and other third parties, could decrease demand for our services. A 1% decrease in average utilization of our contract operations fleet during the nine months ended September 30, 2013 would have resulted in a decrease of approximately $3.5 million and $2.0 million in our revenue and gross margin (defined as revenue less cost of sales, excluding depreciation and amortization expense), respectively. Gross margin is a non-GAAP financial measure. For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure calculated


Table of Contents

and presented in accordance with accounting principles generally accepted in the U.S. ("GAAP"), please read "- Non-GAAP Financial Measures."

Exterran Holdings intends for us to be the primary long-term growth vehicle for its U.S. contract operations business and intends, but is not obligated, to offer us the opportunity to purchase the remainder of its U.S. contract operations business over time. Likewise, we are not required to purchase any additional portions of such business. The consummation of any future purchase of additional portions of Exterran Holdings' U.S. contract operations business and the timing of any such purchase will depend upon, among other things, our ability to reach an agreement with Exterran Holdings regarding the terms of such purchase, which will require the approval of the conflicts committee of our board of directors. The timing of such transactions would also depend on, among other things, market and economic conditions and our access to additional debt and equity capital. Future acquisitions of assets from Exterran Holdings may increase or decrease our operating performance, financial position and liquidity. Unless otherwise indicated, this discussion of performance trends and outlook excludes any future potential transfers of additional contract operations customer service agreements and equipment from Exterran Holdings to us.

Operating Highlights



The following table summarizes our total available horsepower, total operating
horsepower, average operating horsepower and horsepower utilization percentages
(in thousands, except percentages):



                                      Three Months Ended September 30,        Nine Months Ended September 30,
                                          2013                2012               2013                2012
Total Available Horsepower (at
period end)(1)                                 2,391               2,022              2,391               2,022
Total Operating Horsepower (at
period end)(1)                                 2,221               1,941              2,221               1,941
Average Operating Horsepower                   2,217               1,924              2,127               1,859
Horsepower Utilization:
Spot (at period end)                              93 %                96 %               93 %                96 %
Average                                           93 %                95 %               94 %                93 %



(1) Includes compressor units with an aggregate horsepower of approximately 96,000 and 161,000 leased from Exterran Holdings as of September 30, 2013 and 2012, respectively. Excludes compressor units with an aggregate horsepower of approximately 7,000 and 9,000 owned by us and leased to Exterran Holdings as of September 30, 2013 and 2012, respectively.

Summary of Results

Net income (loss). We recorded net income of $10.0 million and $52.7 million during the three and nine months ended September 30, 2013, respectively, and net income of $10.4 million and net loss of $4.2 million during the three and nine months ended September 30, 2012, respectively. The decrease in net income during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was attributable to an increase in selling, general and administrative ("SG&A") expense and interest expense, partially offset by the impact of the assets acquired in the March 2013 Contract Operations Acquisition, including improved gross margins which were partially offset by higher depreciation and amortization and SG&A expenses. The increase in net income during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 was primarily due to a $25.7 million decrease in long-lived asset impairments and $6.5 million of revenue with no incremental cost and $6.8 million of gain on sale of property, plant and equipment recognized due to the termination of contracts resulting from the exercise of purchase options by our customer on two natural gas processing plants during the nine months ended September 30, 2013. The increase in net income during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 was also attributable to the impact of the assets acquired in the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, including improved gross margins, partially offset by higher depreciation and amortization and SG&A expenses.

EBITDA, as further adjusted. Our EBITDA, as further adjusted, was $55.7 million and $179.2 million during the three and nine months ended September 30, 2013, respectively, and $46.2 million and $131.1 million during the three and nine months ended September 30, 2012, respectively. The increase in EBITDA, as further adjusted, during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was primarily caused by improved gross margins, partially offset by higher SG&A expense, all of which were impacted by the assets acquired in the March 2013 Contract Operations Acquisition. The increase in EBITDA, as further adjusted, during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 was primarily due to $6.5 million of revenue with no incremental cost and $6.8 million of gain on sale of property, plant and equipment recognized due to the termination of contracts resulting from the exercise of purchase options by our customer on two natural gas processing plants during the nine months ended September 30, 2013 and the impact of the assets acquired in the March 2013 Contract Operations Acquisition and the March 2012 Contract Operations Acquisition, including improved gross


Table of Contents

margins, partially offset by higher depreciation and amortization and SG&A expenses. EBITDA, as further adjusted, is a non-GAAP financial measure. For a reconciliation of EBITDA, as further adjusted, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "- Non-GAAP Financial Measures."

Financial Results of Operations



The Three Months Ended September 30, 2013 Compared to the Three Months Ended
September 30, 2012



The following table summarizes our revenue, gross margin, gross margin
percentage, expenses and net income (dollars in thousands):



                                                     Three Months Ended
                                                       September 30,
                                                      2013         2012
Revenue                                            $   115,808   $ 99,324
Gross margin(1)                                         64,330     50,672
Gross margin percentage                                     56 %       51 %
Expenses:
Depreciation and amortization                      $    27,158   $ 21,930
Long-lived asset impairment                                784          -
Selling, general and administrative - affiliates        16,948     11,762
Interest expense                                         9,735      6,465
Other (income) expense, net                               (639 )     (137 )
Provision for income taxes                                 309        272
Net income                                         $    10,035   $ 10,380



(1) Defined as revenue less cost of sales, excluding depreciation and amortization expense. For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "- Non-GAAP Financial Measures."

Revenue. The increase in revenue and average operating horsepower was primarily due to the inclusion of the results from the assets acquired in the March 2013 Contract Operations Acquisition as well as from organic growth in operating horsepower. Average operating horsepower was approximately 2,217,000 and 1,924,000 during the three months ended September 30, 2013 and 2012, respectively. The increase in revenue during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was also attributable to an increase in rates, partially offset by a $2.3 million decrease in revenue due to the termination of two natural gas processing plant contracts during the second quarter of 2013.

Gross Margin. The increase in gross margin during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was primarily due to the increases in revenue discussed above, better management of field operating expenses from the implementation of profitability improvement initiatives by Exterran Holdings and a $0.8 million decrease in intercompany lease expense on equipment leased from Exterran Holdings.

Depreciation and Amortization. The increase in depreciation and amortization expense during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was primarily due to additional depreciation expense on compression equipment additions, including the assets acquired in the March 2013 Contract Operations Acquisition.

Long-Lived Asset Impairment. During the three months ended September 30, 2013, we evaluated the future deployment of our idle fleet and determined to retire and either sell or re-utilize the key components of approximately 20 idle compressor units, representing approximately 4,000 horsepower, that we previously used to provide services. As a result, we performed an impairment review and recorded a $0.8 million asset impairment to reduce the book value of each unit to its estimated fair value. The fair value of each unit was estimated based on the expected net sale proceeds compared to other fleet units we recently sold, as well as our review of other units recently offered for sale by third parties, or the estimated component value of the equipment we plan to use.

SG&A - affiliates. SG&A expenses are primarily comprised of an allocation of expenses, including costs for personnel support and related expenditures, from Exterran Holdings to us pursuant to the terms of the Omnibus Agreement. The increase in SG&A expense was primarily due to increased costs associated with the impact of the March 2013 Contract Operations Acquisition and an increase in SG&A expense allocated to the U.S. portion of Exterran Holdings' North America contract operations segment. SG&A expenses represented 15% and 12% of revenue during the three months ended September 30, 2013 and 2012, respectively.


Table of Contents

Interest Expense. The increase in interest expense during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was primarily due to an increase in the weighted average effective interest rate on our debt and a higher average balance of long-term debt. The increase in the weighted average effective rate on our debt was primarily due to the issuance of the 6% senior notes (the "6% Notes") in March 2013.

Other (Income) Expense, Net. Other (income) expense, net, included $0.6 million and $0.1 million of gains on sale of property, plant and equipment during the three months ended September 30, 2013 and 2012, respectively.

Provision for Income Taxes. The increase in our provision for income taxes during the three months ended September 30, 2013 compared to the three months ended September 30, 2012 was primarily due to increased revenue subject to state-level taxation.

The Nine Months Ended September 30, 2013 Compared to the Nine Months Ended
September 30, 2012



The following table summarizes our revenue, gross margin, gross margin
percentage, expenses and net income (loss) (dollars in thousands):



                                                     Nine Months Ended
                                                       September 30,
                                                     2013        2012
Revenue                                            $ 347,323   $ 285,192
Gross margin(1)                                      197,984     146,981
Gross margin percentage                                   57 %        52 %
Expenses:
Depreciation and amortization                      $  76,894   $  65,080
Long-lived asset impairment                            3,249      28,927
Selling, general and administrative - affiliates      44,758      37,434
Interest expense                                      27,458      18,746
Other (income) expense, net                           (8,316 )       129
Provision for income taxes                             1,277         830
Net income (loss)                                  $  52,664   $  (4,165 )



(1) For a reconciliation of gross margin to net income (loss), its most directly comparable financial measure calculated and presented in accordance . . .
  Add EXLP to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for EXLP - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.