CorEnergy Infrastructure Trust Inc (CORR) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the TTO Third Quarter conference call. During today's presentation, all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This call is being recorded today, Monday, October 12, of 2009, and at this time I'd like to turn the conference over to Pam Kearney, Investor Relations. Please go ahead, Ma'am.

Thank you. Welcome to our Third Quarter earnings call for Tortoise Capital Resources. I'm joined today by Ed Russell, President and Connie Savage, Controller. An audio replay of our conference call will be available on our website and this information is included in the press release issued today which is also posted on our website at www.tortoiseadvisors.com.

We would like to remind you that some of the statements made during the course of the presentation that are not purely historical may be forward-looking statements regarding TTO's or managements intentions, estimates, projections, assumptions, beliefs, expectations, and strategies for the future. All such forward-looking statements are intended to be subject to the Safe Harbor protection available under applicable securities laws. Because such statements go with future events that are subject to various risks and uncertainties and actual outcomes and results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in our filings with the SEC including the Quarterly Report on Form 10-Q which was filed on Friday, October 9, and our Annual Report on Form 10-K which was filed earlier this year. These documents can be accessed through the IR section of our website. We do not update our forward-looking statements and with that I'll turn the call over to Ed Russell.

Thanks, Pam, and good afternoon everyone and thank you for joining us today for our Third Quarter earnings conference call. First I'd like to review our investment performance during the quarter and then discuss the performance of our private investments on a Company specific basis, then Connie will discuss our financial and operating performance and we'll follow by opening the phone lines for questions.

For a market perspective our stock price improved this quarter closing at $5.74 per share on August 31, compared to $4.45 per share on May 31. Our total return for the nine months ended August 31, 2009, based on market value, assuming reinvestment of quarterly distributions was 20.55%. Our stock price has continued to improve since quarter end and closed today at $6.78.

Our net asset value however declined this quarter from $8.91 per share on May 31, to $8.76 per share as of August 31. The decrease in net asset value is primarily due to an overall decrease in the fair value of our private investments. As of August 31, the value of our investment portfolio excluding short-term investments was $78.3 million including equity investments of $69.5 million and debt investments of $8.8 million. The portfolio consists of 61% mid stream and downstream investments, 5% upstream and 34% in aggregates and coal. And now I'd like to provide you an update on each of our private companies.

First is Abraxas Energy LP, a private Company that operates long lived, low decline natural gas and oil reserves. Our fair value of Abraxas Energy at 8/31 is $5 per unit down approximately 17% from our $6 per unit value last quarter. On October 5, Abraxas Petroleum Corp. which trades on the NASDAQ under the symbol AXAS completed its merger with Abraxas Energy. Under the terms of the merger agreement we will receive 4.25 shares of Abraxas Petroleum common stock in exchange for each common unit of Abraxas Energy we own which equates to approximately 1,946,377 Abraxas Petroleum shares. Their merger agreement provides for a staggered lockup period for these shares, 90 days after the merger one-third of our shares will be released from lockup, approximately 15 months after the merger date an additional one-third will be released and the final one-third portion of the shares will be released approximately 27 months from the date of the merger. Abraxas Petroleum closed today at $2.25 per share.

Next is High Sierra Energy LP. High Sierra is a holding Company with diversified midstream energy assets focused on the processing, transportation, storage and marketing of hydrocarbons. High Sierra increased its quarterly distribution from $0.61 per unit to $0.63 per unit this quarter and through June 2009 overall performance against budgeted EBITDA was mixed by operating segment but was near budget in the aggregate which enabled High Sierra to increase its distribution and maintain a strong cash position. Depressed natural gas prices and high basis differentials in certain of the areas served by the Company's water handling operations have continued to dampen drilling and production activities thereby resulting in revenues and EBITDA for these segments that were below budget. Shortfalls in the water operations have been particularly offset by strong performance of the Company's energy marketing businesses including the natural gas and natural gas liquid segments. In royal gas storage, High Sierra's Mississippi based natural gas storage joint venture continues to make progress towards completion. The storage facility is offering limited injection and withdrawal services as it continues its development activities.

In August of 2009, High Sierra extended its marketing segments revolving credit facility, together with an earlier expansion of its corporate revolver further reduces our concerns regarding the Company's liquidity position. Our fair value of High Sierra at 8/31 is $22 per common unit, an increase of about 5% over our $21 per common unit value last quarter.

Now for International Resource Partners, IRP's surface and underground coal mine operations in Southern West Virginia are compromised of metallurgical and steam coal reserves, a coal washing and preparation plant, rail loadout facilities and a sales and marketing subsidiary. While met coal pricing and demand has shown some improvement they remain below levels seen in 2008. IRP's operating results continue to exceed budgeted levels. Year-to-date EBITDA through July 31, 2009, was ahead of budget, largely on the strength of results posted by the companies sales and marketing arm. This combined with the Company's strong balance cash position from last years record results enabled the Company to maintain a stable balance sheet position in spite of a challenging coal environment.

Met coal market showed some improvement during the quarter as North America and certain overseas steel production increased over the prior quarter because steam coal demand has continued to be depressed due to moderate cooling season and reduced industrial electricity demand, IRP remains focused on prudently reducing its production costs where possible and dynamically adjusting its mining plan to suit current conditions. Our fair value of IRP at 8/31 is $19.50, an increase of about 8% over our $18 value last quarter.

Next is Mowood LLC, a holding Company whose assets include Omega Pipeline and Timberline Energy. Omega is a natural gas local distribution Company located in Fort Leonard Wood military base in South Central Missouri. Timberline is an owner and developer of projects that convert landfill gas to energy. Through July 2009 Omega slightly outperformed its budget and is expected to continue to post strong results during the year as expansion projects at Fort Leonard Wood enhance results. Omega's contracts have been structured to minimize commodity exposure. Timberline has performed moderately below budget for the year-to-date period as a result of start up operational issues. Timberline has been working to resolve its operational issues and to expand capacity at its existing locations which management believes should result in improved performance. Timberline has structured its offtake contracts to eliminate or minimize commodity exposure in an effort to create predictable performance. Mowood continues to explore strategic alternatives based on growth opportunities at Timberline and the fair value of our Mowood investment at 8/31 increased approximately $1 million of 16% over the prior quarter.

Next is Quest Midstream LP. Quest was formed by the spin-out of Quest Resources Midstream natural gas gathering assets in the Cherokee basin. On July 6, 2009, Quest announced it entered a definitive merger agreement pursuant to which it would recombine with its publicly traded affiliates Quest Resources Corp. and Quest Energy Partners. The transaction would result in a new publicly traded Company which is not expected to pay distributions. On October 6, 2009, Quest Resources Corp. and Quest Energy Partners filed a Form S-4 registration statement to recombine with Quest midstream as a wholly -- as a newly formed post-rock energy corporation which is expected to be listed on the NASDAQ under the symbol PSTR.

Under the terms of the merger agreement, current Quest midstream equity holders would own approximately 44% of the new Company. The new Company's strategy will be to pursue efficient development of unconventional resource plays including coalbed methane in the Cherokee basin of Southeast Kansas and Northeast Oklahoma and the Marcellus Shale in the Appalachian Basin. The recombination would change the risk profile of our investment from primarily a gathering Company to an integrated Company that has increased drilling risk and commodity exposure. The recombination is subject to the satisfaction of a number of conditions including the arrangement of one or more satisfactory credit lines for the newly formed Company, the approval of the transaction by the unit holders of the three existing entities and consent from each of the entities existing lenders. If these conditions are satisfied the recombination is expected to close by the First Quarter of 2010. If the recombination does not close, we believe Quest would be able to operate profitably for the remainder of 2009 but would face significant operational risk created by a lower gathering rate in 2010 and reduced volumes from QELP, its primary customer. Our value of Quest at 8/31 is $3.74 a unit, a decrease of about 38% compared to our $6 per unit value last quarter.

The next is VantaCore Partners LP, which was formed to acquire companies in the aggregate industry and currently owns a coring and asphalt plant in Clarksville, Tennessee, and sand and gravel operations located near Baton Rouge, Louisiana. VantaCore reduced its quarterly cash distribution to $0.475 per unit the minimum quarterly distribution and decrease of 5% from the prior quarter. In our view the distribution reduction together with a suspension in the quarterly distribution to certain of the subordinated unit holders was a prudent and proactive step taken in view of difficult operating environment VantaCore faces.

VantaCore's business is closely linked to the level of commercial construction and infrastructure spending in the two major territories it serves, due to the weakened economy and difficult credit environment, baseline construction spending in these areas has been significantly reduced resulting in lower than anticipated revenues. In Clarksville the lower level of baseline activity has been partially offset by some major projects including the new Dow Hemlock semiconductor plant. VantaCore's Southern aggregates division which serves parts of Louisiana has been slower to recover in part due to significant regional pricing competition. VantaCore has responded to these challenges by implementing cost savings initiatives, prudently reducing capital spending and making the aforementioned adjustments to its distribution. Our fair value of VantaCore at 8/31 is $17.50 per unit a decrease of approximately 3% compared to our $18 per unit valuation last quarter.

Lastly, Lonestar Midstream Partners and LSMP GP LP which had no continuing operations but hold certain rights to receive future payments from PVR related to last year's sale. The fair value of Lonestar and LSMP as of August 31, 2009, is based on the potential receipt of future payments and declined by approximately $575,000 as compared to last quarter. The decrease is primarily due to the fact that the final tranche of PVR and PVG units which were held in escrow were distributed in July, thus reducing our fair value.

That concludes the discussion of our private companies. I'll now turn the call over to Connie for a discussion of our financial results.

Thanks, Ed. First, I'll review this quarter's DCF, and DCF is simply distributions received from investments less total expenses. Our DCF calculation and a reconciliation to our GAAP results are included in our press release issued earlier today and in the MD&A section of our quarterly report on Form 10-Q which we filed this past Friday.

Two of our portfolio companies, High Sierra and EV Energy Partners increased their distributions this quarter and one of our portfolio companies VantaCore reduced its cash distribution. All of our other portfolio companies pay distributions consistent with last quarter. We received a total of $1.9 million from investments this quarter and incurred approximately $268,000 in base management fees, that's net of the expense reimbursement, about $267,000 in other operating expenses and approximately $135,000 in leverage costs. Our DCF for the third quarter totaled roughly $1.2 million and we paid out approximately 99% of our DCF as a distribution to our stockholders. We had unrealized depreciation this quarter of $10.7 million and that's before deferred taxes and after return of capital on distributions received on our investments, and realized losses of about $10.8 million, again before deferred taxes.

The realized losses are primarily the result of sales of publicly traded securities, most notably, EV Rock Energy and Penn Virginia Resource units which were sold to pay down our credit facility. On August 20, 2009, we announced a six-month extension to our line of credit through February 20, 2010. The outstanding balance in our line of credit was reduced from $18.8 million at May 31, 2009, to a current balance as of today of $4.6 million. We do not expect any future leverage reductions to materially impact our distribution paying capacity.

So in summary, we had a net decrease in our net assets resulting from operations for the third quarter of approximately $98,000. With that I'll turn the call back over to Ed.

Thanks, Connie, and thanks, again, to everyone for joining us on the call today. Operator, that concludes our prepared remarks and we're now ready to respond to questions.

Thank you, sir. (Operator Instructions). Sir, we have no questions at this time.

Okay, well, thank you.

Thanks, and that's it for us then. We'll sign off. Thank you.

Thank you. Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 using the access code of 407-5823 followed by the pound key. ACT would like to thank you for your participation. You may now disconnect.