2013 Annual Report
A Letter to Our UnitholdersIn 2013 we made progress in implementing our strategic objectives, but have continued to face market challenges.
During the year, we placed into service our expanded gathering system and new cryogenic gas processing plant that serve producers in the Eagle Ford shale basin, received Federal Energy Regulatory Commission (FERC) approval for our Southeast Market Expansion project, completed brine and propane projects to serve petrochemical customers in the Gulf Coast area, connected additional end-use customers to our natural gas pipeline system, and announced a new project to transport natural gas from Lebanon, Ohio to Louisiana.
We also faced challenges brought on by the development of shale plays in the U.S., particularly in the Marcellus and Utica areas. These new shale supply sources and related pipeline infrastructure have caused significant narrowing of basis differentials on our pipeline systems, reducing transportation revenues as pipeline contracts are being renewed at lower rates or in some cases not being renewed at all. The increased supply has also led to a compression of seasonal spreads, which is evidenced by a flattened forward natural gas pricing curve, and a reduction in spread volatility, all of which adversely impact the value of our storage and parking and lending services.
Due to these factors, our forecast of distributable cash flow in 2014 is approximately $400 million, down from approximately $560 million in 2013. The projected distributable cash flow would not be sufficient to cover the cash distribution per unit that had been paid over the previous four quarters. The unfavorable transportation and storage market fundamentals that are expected to negatively impact our 2014 distributable cash flow are explained in more detail in the attached 2013 Annual Report on Form 10-K.
We reduced the fourth quarter cash distribution to $0.10 per common unit, or $0.40 per unit on an annualized basis, a reduction from the per-unit distribution paid over the previous four quarters, which had been $0.5325 per quarter or $2.13 per unit annualized, in order to: (i) solve for a sustainable cash distribution coverage given that current market fundamentals were not likely to improve in the near term and (ii) position ourselves for future growth by using cash flow to strengthen our balance sheet. We continue to pursue strategic growth opportunities and plan to finance these projects with internally generated cash and, if required, support from our general partner in order to improve our leverage metrics. We believe that, over the long run, this strategy will maximize the value of our company and returns to our unitholders.
Strategic OverviewOur strategy remains unchanged, and we believe it is the right one for the long term. Our four strategic goals are:
y Strengthening our natural gas pipeline transportation and storage operations by attaching new customers and loads, especially electric power generators, to our facilities;
y Diversifying within the midstream energy sector into areas such as the gathering and processing of natural gas and the transportation, storage and fractionation of natural gas liquids (NGLs);
y Aggressively controlling our costs and streamlining our organizational structure, while maintaining a strong emphasis on safety and reliability; and
y Strengthening our balance sheet.
1 Boardwalk Pipeline Partners, LPPictured on the cover: Rodrigue Compressor Station, in Belle Rose, LA that was recently modified to increase Boardwalks firm transportation deliveries to end-use customers in the growing Mississippi River Corridor area
Progress on Growth InitiativesWe continue to pursue new growth initiatives that are consistent with our strategic objectives, both organic growth projects and acquisitions. While we did not complete an acquisition in 2013, acquisitions remain a key component of our growth and diversification objectives. Some of the key organic growth projects being pursued are noted below.
y Southeast Market Expansion: Our Southeast Market Expansion is proceeding as planned. This project increases Boardwalks ability to transport natural gas supplies to growing areas of demand in the southeast region of the U.S., including industrial and power generation markets in Mississippi, Alabama and Florida. This $300 million project is fully contracted with 10-year firm agreements for approximately 550,000 dekatherms per day (Dth/day). We received FERC approval for this project and anticipate a fourth quarter 2014 in-service date.
y Ohio to Louisiana Access Project: We have just concluded the open season for our Ohio to Louisiana Access Project. This project, which was approved by the Board, will provide long-term firm natural gas transportation from Lebanon, Ohio for natural gas sourced from the Marcellus and Utica production areas to diverse delivery markets in Louisiana. We will primarily utilize existing pipeline facilities for this project and will invest approximately $115 million to reverse the traditional flow of natural gas from northbound to southbound on a portion of our Texas Gas system. We have executed precedent agreements for 625,000 Dth/day. The in-service date is targeted for the first half of 2016.
y New Customers and Loads: We also placed into service projects connecting new loads to both our NGLs and natural gas pipeline systems, including three projects that support the petrochemical expansion in the Gulf Coast area and two projects connecting our natural gas pipeline systems to new gas-fired electric power generation facilities. During the year, we completed the expansion of brine handling assets at our Choctaw Hub, completed construction of propane storage and transportation assets at our Sulphur Hub in the Lake Charles area and placed into service a brine pipeline near the Choctaw Hub. In addition, we recently completed expansions of our natural gas pipeline systems to serve two power plants: the first to serve a new plant in the Baton Rouge/River Corridor area, where our pipeline can deliver 100,000 Dth/day, and a second to serve the first phase of a new power plant in North Texas, where our pipeline will have the ability to deliver 125,000 Dth/day.
In addition to these projects, we remain diligently focused on identifying new opportunities to profitably grow, diversify and optimize the value of our existing assets, such as the proposed Bluegrass Pipeline, Moss Lake Fractionation and Moss Lake LPG Terminal projects.
SummaryThe rapid development of the new shale basins has created significant challenges for our business in the near and medium term, but it is also creating opportunities for us to grow and diversify within the midstream sector. While this will take time and patience, we are working tirelessly to execute our strategy and to strengthen our financial condition so that we can take advantage of the opportunities available to us and maximize long-term benefits for our unitholders.
Finally, Boardwalks most valuable asset is our employees. We thank them for the dedication and commitment to Boardwalk. It is a pleasure to lead them.
Ken Siegel Stan Horton Chairman of the Board President and CEO
2013 Annual Report 2
3 Boardwalk Pipeline Partners, LP
$ in Millions 2009 2010 2011 2012 2013
Revenues $909 $1,117 $1,143 $1,185 $1,206 Adjusted EBITDAa $498 $658 $617 $727 $689 Distributable Cash Flowa $323 $468 $408 $497 $559Capital Expenditures $847 $227 $142 $227 $295Miles of Pipeline 14,200 14,200 14,305 14,410 14,450Certificated Working Gas Storage Capacity (Bcf)b 163 167 186 201c 207c
Average Daily Throughput (Bcf)b 5.7 6.8 7.3 6.9 6.6
a Please refer to pages 27 and 28 of our enclosed Form 10-K for a reconciliation of Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) and Distributable Cash Flow to our net income
b Billion cubic feetc We also have approximately 17.6 million barrels of salt-dome NGLs storage capacity
Financial and Operational Highlights
The following table presents a reconciliation of the Partnerships Forecasted Adjusted EBITDA and Forecasted Distributable Cash Flow to its net income, the most directly comparable GAAP financial measure, for 2014 (in millions):
Net income attributable to controlling interests $210 Depreciation and amortization 280 Interest expense, net 160
Adjusted EBITDA 650Less: Cash paid for interest, net of capitalized interest 160 Maintenance capital expenditures 90
Distributable Cash Flow $400
More information regarding the Partnerships adjusted EBITDA and distributable cash flow can be found on pages 27 and 28 of the accompanying Form 10-K.
Texas Gas TransmissionTexas Gas storage facilitiesGulf South PipelineGulf South storage facilitiesGulf Crossing PipelinePetal Gas StoragePetal Gas Storage pipeline facilitiesBoardwalk Louisiana Midstream HubsBoardwalk Storage CompanySouth Texas Gathering SystemsFlag City Gas Processing PlantMarcellus Gathering Pipeline
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 01-32665 BOARDWALK PIPELINE PARTNERS, LP
(Exact name of registrant as specified in its charter) DELAWARE
(State or other jurisdiction of incorporation or organization) 20-3265614
(I.R.S. Employer Identification No.) 9