CorEnergy Infrastructure Trust Inc (CORR) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TTO fourth quarter conference call. (Operator Instructions). This call is being recorded today, February 16th, 2010.

I would now like to turn the conference over to Ed Russell, President of Tortoise Capital Resources. Go ahead, sir.

Thank you. And welcome to the 2009 fourth quarter and year-end earnings call for Tortoise Capital Resources Corp. I'm joined today by 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 earlier today, which is posted on our website at www.tortoiseadvisors.com.

We'd like to remind you that some of the statements made during the course of this presentation that are not purely historical may be forward-looking statements regarding TTO or Management's 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 security law. Because such statements deal with future events, they 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 annual report on Form 10-K, which was filed earlier today as well. These documents can be accessed through the Investor Relations section of our website. We do not update our forward-looking statements.

I'll begin our call today by reviewing our investment performance during the first -- the last quarter of 2009, and then I'll discuss the performance of our private investments on a company-specific basis. Following that, Connie will discuss our financial and operating performance and then we'll open up the lines for questions.

From a market value perspective, our stock price continued to improve this quarter, closing at $6.23 per share on November 30th, compared to $5.74 on August 31st. Our total return for the year ended November 30th, 2009, based on market value, assuming the reinvestment of quarterly distributions, was 33.5%. Our stock price has continued to improve since our year-end, closing today at $6.97.

Our net asset value also improved this quarter from $8.76 per share at August 31st, to $9.29 per share as of November 30th. The increase in net asset value is primarily due to the overall net increase in the fair value of our private investments.

And while we have seen significant increase in the valuations of the public MLP sector and the broader energy markets, we would caution investors that our private companies, while seeing marginal improvement, have not seen the same renewed access to capital and debt that their public peers have realized over the last six months. However, we expect our portfolio of companies to return to a more normalized growth and acquisition environment but, understandably, they will lag the public markets.

As of November 30th, the value of our investment portfolio, excluding short-term investments, was $82.5 million, including equity investments of $73.7 million and debt investments of $8.8 million. The portfolio consists of 61% midstream and downstream investments, 7% upstream, and 32% in aggregates and coal. And now, I'll provide you with an update on each of our private companies.

First is Mowood LLC, which is a holding company whose assets include Omega Pipeline and Timberline Energy. Timberline is the owner and developer of projects that convert landfill gas to energy. And on February 9th, 2010, Mowood closed the sale of Timberline to Landfill Energy Systems. Mowood will continue its ownership and operation of Omega Pipeline Company, which is a local distribution company that serves the natural gas and propane needs of the Fort Leonard Wood Military Base and other customers in South Central Missouri.

With the sale of Timberline, we received a partial distribution in the amount of $3.8 million, which we used to fully eliminate our credit facility. We intend to invest the remainder of the proceeds, expected to be $5.2 million, according to our stated investment policies, which may include investment in publicly-traded securities, as well as a small investment in Omega to facilitate growth.

Over the next two years we could receive additional proceeds of up to $2.4 million based on contingent and escrow terms. We expect this transaction to be neutral to our distributable cash flow.

As a reminder, after the sale of Timberline, we'll own 100% of Omega Pipeline Company, which Mowood purchased in 2006. We expect to invest another $500,000 to $750,000 this quarter to facilitate growth projects, which will contribute to our EBITDA expectations in excess of $1.2 million in 2010.

The fair value of Omega, the Mowood Investment, at 11-30 increased approximately $714,000, or about 4% over the prior quarter.

Next is High Sierra Energy LP, which is our largest holding. High Sierra is a holding company with diversified energy assets focused on the processing, transportation, storage and marketing of hydrocarbons.

High Sierra maintained its quarterly cash distribution of $0.63 per quarter, which was paid in November of 2009. High Sierra reported aggregate EBITDA results, before mark-to-market adjustments in minority investments, of approximately at budget for the nine-month period ending September 30th.

The results within the various business units were mixed, with energy marketing and water services generally performing at or above budget. However, National Coal County, a water transportation and disposal service acquired in 2007, continues to struggle, with results reported significantly below expectations.

The prolonged downturn of construction in Florida continues to produce lower results in High Sierra's asphalt business. And Monroe Gas Storage, and underground natural gas storage joint venture, which began commercial operations earlier this year, but may require additional capital expenditures to reach projected EBITDA levels.

High Sierra continues to expand and strengthen its management team, naming a new Chief Financial Officer and Vice President of Human Resources in November.

In 2010, High Sierra's challenges will include expanding its credit facility to fund growth opportunities in its energy marketing business, and positioning National Coal County to provide a positive EBITDA contribution. We will continue to monitor this investment closely. And our fair value as of 11-30 is $23.46 per common unit, an increase of about 7% over our $22 value last quarter.

Now, for International Resource Partners. IRP's surface and underground coal mining operations in Southern West Virginia are compromised of met and steam coal reserves, a coal washing and preparation plant, rail load-out facilities and a sales and marketing subsidiary.

Year-to-date EBITDA through November, 2009 was ahead of budget, driven largely by the strength of the Company's sales and marketing arm, which has seen significant improvements in its met coal export business.

IRP has contracted its coal for production in 2010, with steam prices fixed at 2009 levels and met coal prices subject to market collars. In general, we expect demand for met coal to be stronger in 2010, driven by renewed overseas demand. In addition, the Company's changes to its surface mining operation should help improve margins in a relatively flat steam coal price environment.

IRP's recent acquisition of Clearwater, or Miller Bros. Coal Company, assets out of bankruptcy has significantly expanded IRP's reserve base with Clearwater's Eastern Kentucky surface mining assets. They did this without taking on considerable investment or operational risk. This acquisition also provides its marketing new opportunities and access to the Big Sandy River market. We do not expect this acquisition to have a significant contribution to the EBITDA until 2011.

Our fair market value of IRP at 11-30 was $19.97, an increase of about 2% over our $19.50 value last quarter.

Next is Quest Midstream Partners LP. Quest was formed as a spin-off of Quest Resources Midstream natural gas gathering assets in the Cherokee basin. And on February 8th, 2010, Quest Resources and Quest Energy Partners announced the Security and Exchange Commission's declared registration statement of PostRock Energy Corp. on a Form S-4.

The S-4 registers with the SEC its PostRock common stock to be issued in connection with the pending merger of QRCP, QELP and Quest Midstream Partners into PostRock, a new publicly traded corporation that would wholly own all three entities. The shareholders of QRCP and QELP, as of February 1st, 2010 record date, will be entitled to vote upon the merger at the shareholder meeting that's been scheduled for [February] 5th, 2010.

Our fair market value of Quest as of November is $4.92, an increase of approximately 32% compared to our $3.74 per unit value last quarter.

And next, VantaCore Partners LP, which was formed to acquire companies in the aggregate industry and currently owns a quarry and asphalt plant in Clarksville, Tennessee, and a sand and gravel operation located near Baton Rouge, Louisiana.

VantaCore reduced its quarterly cash distribution to $0.475 per unit, the minimum quarterly distribution in their second quarter, and approved the same distribution for the most recent quarter, which was paid in November.

The operating results for VantaCore's Clarksville facility continue to exceed budget, supported by two large projects and activity at the Fort Campbell Military Base. Overall, construction activity in the area is down, but improvement is projected in 2010.

Southern Aggregates continues to report disappointing results, with volumes well below historical averages. VantaCore has made significant changes to Southern's operations to reflect these lower values. And I'm cautiously optimistic that we'll see improvement in the aggregate market in the Clarksville and Baton Rouge area as the housing markets improve and new projects funded by the government stimulus program begin.

VantaCore continues to look for growth opportunities through acquisitions and, if successful, it would provide them with the opportunity to broaden their equity and debt sources.

Our fair value for VantaCore at 11-30 is $17.42 per unit, a slight decrease to our $17.50 per unit value last quarter.

And lastly, Lonestar Midstream Partners and LSMP GP, which have no continuing operations but currently hold certain rights to receive future payments from PVR related to last year's sale. The fair value of Lonestar and LSMP as of November 30th is based on the potential receipt of these future payments and declined approximately $900,000 as compared to last quarter. This decrease is primarily due to the reduced possibility that future continued payments will be received. However, we did receive our expected cash distribution from Lonestar of about $804,000 in December.

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

Thanks, Ed.

First, I'll review distributable cash flow, DCF, followed by a summary of our operating results. DCF is distributions received from investments less total expenses. Our Board of Directors determines the amount of distributions we pay to our stockholders based on DCF for the quarter.

We generally do not provide future distribution guidance due to the nature of our private investments, which may inherently contain more uncertainty and management discretion with regards to distributions than do publicly-traded investments.

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 annual report on Form 10-K, which was also filed earlier today.

In the last quarter of 2009, we received a total of $1.8 million in distributions and investment income from our investments. We incurred approximately $249,000 in base management fees - that's net of the expense reimbursement; about $192,000 in other operating expenses; and approximately $65,000 in leverage costs. This left us with distributable cash flow for the quarter of about $1.3 million.

Now, for the year ended November 30th, 2009, we received approximately $8.6 million in distributions and investment income from our investments. We incurred approximately $1.1 million in base management fees; again, net of the expense reimbursement; about $912,000 in other operating expenses; and approximately $628,000 in leverage costs.

DCF for fiscal 2009 totaled approximately $5.9 million. We paid out $5.6 million in distributables to our stockholders, or about 94% of our DCF.

We had unrealized appreciation for the fourth quarter of $9.1 million before deferred taxes and after return of capital on distributions received on our investments, and unrealized appreciation for the year of about $17.5 million; again, before deferred taxes and after return of capital on distributions received.

We had realized losses for the fourth quarter of about $4.5 million before deferred taxes, and realized losses for the year of about $23.1 million. And again, these realized losses are primarily the result of sales of publicly traded securities, which were sold to pay down the outstanding balance on our credit facility.

So, in summary, we had a net increase in net assets resulting from operations for the fourth quarter of approximately $6.1 million, and a net increase in net assets resulting from operations for the year of approximately $11,000. And with that, I'll turn the call back to Ed.

Thanks, Connie. And I want to thank everybody for joining us on the call today.

Operator, that concludes our prepared remarks so we're now ready to respond to questions.

Thank you, sir. (Operator Instructions.) Our first question comes from the line of Selman Akyol. Go ahead, please.

Thank you. Good afternoon. A couple questions. On the pipeline, you talk about $550,000 to $750,000 in growth projects. Can you give any more color on that?

Yes. Just the normal growth of the four -- the military base. We are -- we have an agreement with them where we make a capital investment to facilitate that growth and then we receive that investment back plus a fixed return on our investment to do so. So, it's not only a good project for us, it doesn't have a lot of operational or construction risk, but also it provides growth in volume.

Alright. And the other question. In terms of the Abraxas shares that you're going to be getting, can you talk about what your plans are for those?

Well, we have those now and they're subject to a staggered lock-up. Some of them are freely tradable today -- no?

Not yet.

Not yet? No. So, we'll have those come out of a period of time where they'll be tradable. I mean, I don't really have a predetermined path to that right now that I feel comfortable explaining.

Alright. Thank you.

Thank you very much. (Operator Instructions.) Our next question comes from the line of David Ratliff. Go ahead, please.

Thank you for taking my question. I got on the call late. So, I was wondering if you gave an update on what you plan to do about renewing the credit facility.

Well, we -- right now, our main goal this month was to get that credit facility paid off and renewed.

Right.

So, we'd be focused primarily on that. I would say we don't have anything in place right now to put in place to replace that. And we would just look at that at -- in the future, having what we think would be acceptable and prudent debt levels. But, I don't have anything to announce right now.

Okay. I can re-read the transcript on the other parts I missed. But congratulations on handling that and delevering the way you did and the sale of Timberline. I think that bodes well for the stock. And good luck with your next quarter.

Thank you. I appreciate that.

Thank you, sir. (Operator Instructions.) At this time I show no further questions.

Alright, operator. Well, thank you. That concludes our call. And as I mentioned, we'll have our 10-K and our press release on our website. Thank you, everyone.

Thank you, ladies and gentlemen. This concludes the TTO fourth quarter conference call. You may now disconnect. Thank you for AT&T (inaudible).