TEPPCO PARTNERS L.P. REPORTS FOURTH QUARTER AND 2003 ANNUAL RESULTS
HOUSTON -- TEPPCO Partners L.P. (NYSE:TPP) today reported net income for 2003 of $125.8 million, or $1.52 per unit, compared with net income of $117.9 million, or $1.79 per unit for the year ended Dec. 31, 2002. Fourth quarter 2003 net income was $27.4 million, or $0.31 per unit, compared with fourth quarter 2002 net income of $34.6 million, or $0.46 per unit.
Net income per Limited Partner and Class B units for the 2003 periods reflects 9.2 million units issued in 2003, including 3.9 million units issued in April 2003 to repurchase the outstanding Class B Units. The weighted-average number of Limited Partner units outstanding for fourth quarter and year ended Dec. 31, 2003, was 63 million and 59.8 million, respectively, compared with 55.8 million and 49.2 million Limited Partner and Class B Units, respectively, for the corresponding 2002 periods.
EBITDA (earnings before interest, taxes, depreciation and amortization) was $80.1 million for fourth quarter 2003, compared with $83.2 million in fourth quarter 2002. EBITDA was $330.6 million for the year ended Dec. 31, 2003, compared with $281.9 million in the prior year period. The 2003 results include the full period impact of the addition of the Chaparral System on March 1, 2002, and the Val Verde Gas Gathering System, which was acquired on June 30, 2002.
"This was a very successful year for the Partnership, as we delivered record volumes in each of our three business segments and achieved substantial growth in EBITDA," said Barry R. Pearl, president and chief executive officer of the general partner of TEPPCO. "The earnings growth is particularly noteworthy in light of the costs associated with the pipeline rehabilitation project on our Northeast propane system. Our 2003 results were fueled by our past acquisitions and several organic growth projects. Capacity resulting from our investment in Centennial Pipeline and other system improvements allowed for increased refined products and liquefied petroleum gas (LPG) deliveries; capacity expansions on the Jonah system resulted in increased natural gas gathering volumes; and higher utilization across several crude oil systems, combined with the recently acquired Genesis Pipeline Texas, L.P. assets, resulted in increased crude oil deliveries.
"For 2004, we expect EBITDA to be in the range of $340 million to $370 million and earnings per unit in the range of $1.55 to $1.85 per unit, which reflects the full year impact of the Genesis acquisition and completion of several organic growth projects in 2004. We anticipate that total capital expenditures for 2004 will be approximately $140 million, which will include $112 million for revenue generating and facility improvement projects and $28 million for maintenance capital. We will continue our disciplined approach to growth while maintaining our strong financial condition," added Pearl.
OPERATING RESULTS BY BUSINESS SEGMENT
Operating income for the upstream segment was $7.3 million for fourth quarter 2003, compared with $4.8 million for fourth quarter 2002. The increase resulted primarily from higher transportation volumes attributable to the assets acquired from Genesis Pipeline on Nov. 1, 2003, and lower depreciation expense. Since the acquisition, the Genesis assets have contributed approximately 26,000 barrels-per-day of additional throughput to our South Texas system.
Total year 2003 operating income for the upstream segment was $28.4 million, compared with $26.4 million for the corresponding 2002 period. The increase was due to higher transportation volumes throughout the year on the Red River, South Texas and Basin systems, and a $3.9 million gain on the sale of assets during second quarter 2003. These increases were partially offset by higher operating and legal expenses and settlement of customer crude oil imbalances. The gain on the sale of assets resulted from the sale of a portion of our interest in the Rancho Pipeline, which provided crude oil service from West Texas to Houston, and ceased operations in March 2003. In connection with the transaction, TEPPCO retained a 58-mile portion of the Rancho Pipeline extending from Sealy, Texas, to Houston.
Equity earnings from the investment in Seaway Crude Pipeline were $0.6 million for fourth quarter 2003, compared with $4.7 million for fourth quarter 2002. The decrease was primarily due to lower transportation revenue on Seaway during fourth quarter 2003, as a result of an annual incentive tariff structure that decreases rates as greater volumes are transported. This tariff structure originated in 2003 and resets annually in March. Operating expenses also increased as a result of increased maintenance at the Texas City, Texas, and Freeport, Texas, locations. Additionally, TEPPCO’s portion of equity earnings for 2003 was 60 percent, compared with 67 percent in 2002, which reflects the terms of the Seaway partnership agreement.
For the year ended Dec. 31, 2003, equity earnings from Seaway were $21 million, compared with $18.8 million for the corresponding 2002 period. The increase in equity earnings was primarily due to increased long-haul transportation volumes and related revenues and lower operating expenses during the earlier part of the year, partially offset by TEPPCO’s pro-rata portion of equity earnings being reduced to 60 percent in 2003 as previously noted. Long-haul volumes on Seaway averaged 174,000 barrels-per-day in fourth quarter 2003, compared with 171,000 barrels-per-day for the 2002 quarter, and 194,000 barrels-per-day for the year ended Dec. 31, 2003, compared with 182,000 barrels-per-day for the corresponding 2002 period.
Operating income for the midstream segment was $20.4 million for fourth quarter 2003, compared with $22.3 million for fourth quarter 2002. The decrease was due to lower gathering volumes on the Val Verde Gas Gathering System, partially offset by lower amortization expense on the Val Verde system due to lower gathering volumes in 2003.
For the year ended Dec. 31, 2003, operating income was $80.3 million, compared with $60.7 million for the 2002 period. The Val Verde system contributed an additional $11.5 million to operating income, and the expansion of the Jonah system resulted in a net increase in operating income of $11.8 million. These increases were partially offset by lower NGL transportation revenues on the Dean and Panola systems.
Downstream operating income was $20.1 million for fourth quarter 2003, compared with $21.1 million for fourth quarter 2002. The decrease was due to increased pipeline integrity management costs and increased depreciation expense. The decrease was also due to $4.1 million of Mont Belvieu revenues being reclassified to equity earnings as a result of the contribution of the Mont Belvieu assets to Mont Belvieu Storage Partners, L.P., a venture with Louis Dreyfus Energy Services L.P., which was established effective Jan. 1, 2003. These decreases were partially offset by an increase of $2.9 million in revenues as a result of increased demand for refined products and LPGs in the Midwest markets and LPGs in the Northeast markets.
For the year ended Dec. 31, 2003, operating income was $83.7 million, compared with $83.1 million for the 2002 period. The increase was due to higher refined products and LPG transportation revenues attributable to increased volumes received into our system from Centennial Pipeline at Creal Springs, Ill., and lower property tax expense, which offset increased pipeline integrity management costs and the $15.2 million of the 2002 Mont Belvieu revenues reclassified to equity earnings as described above.
The equity loss from unconsolidated investments was $1.4 million in fourth quarter 2003, compared with an equity loss of $1.8 million for fourth quarter 2002. For the year ended Dec. 31, 2003, the equity loss from unconsolidated investments was $4.1 million, compared with an equity loss from unconsolidated investments of $6.8 million for the corresponding 2002 period. The improved performance in the 2003 periods reflects equity earnings from the formation of Mont Belvieu Storage Partners, L.P., partially offset by increased equity losses from the investment in Centennial due to the acquisition of the additional 16.7 percent ownership interest in February 2003. TEPPCO’s equity earnings from Centennial’s performance in the 2003 periods excludes the impact of approximately $3.8 million of TEPPCO’s pipeline capacity lease with Centennial.
FINANCING ACTIVITIES AND OTHER INCOME
TEPPCO completed a public offering in August 2003 of 5.2 million limited partner units. The net proceeds totaled approximately $171 million. The net proceeds were used for revenue generating capital expenditures, including $45 million for the Jonah system expansion, $53 million to repay debt on the revolving credit facility, $21 million for the acquisition of crude oil pipeline assets from Genesis Pipeline Texas, L.P. and the balance for general partnership purposes.
Fourth quarter 2003 interest expense -- net was $19.9 million, compared with fourth quarter 2002 interest expense -- net of $17.3 million. For the year ended Dec. 31, 2003, interest expense -- net was $84.3 million, including capitalized interest of $5.3 million. Interest expense -- net was $66.2 million for the year ended Dec. 31, 2002, including capitalized interest of $4.3 million. The increase in interest expense in 2003 was due to a higher percentage of fixed-rate debt in 2003, which carried a higher interest rate than variable rate debt, $1.3 million of debt issuance costs written off in second quarter 2003 related to the refinancing of our revolving credit facility, and $1 million of additional interest expense in 2003 related to a discontinued portion of a cash flow hedge.
NON-GAAP FINANCIAL MEASURES
The Financial Highlights table accompanying this earnings release and other disclosures herein include references to EBITDA, which is a non-GAAP (Generally Accepted Accounting Principles) measure under the rules of the Securities and Exchange Commission (SEC). We define EBITDA as net income plus interest expense -- net, depreciation and amortization, and a pro-rata portion, based on our equity ownership, of the interest expense and depreciation and amortization of each of our joint ventures.
We believe EBITDA provides useful information to our investors regarding the performance of our assets without regard to financing methods, capital structures or historical costs basis. EBITDA should not be considered an alternative to net income, as an indicator of our operating performance or as a measure of liquidity, including as an alternative to cash flows from operating activities or other cash flow data calculated in accordance with GAAP. Our EBITDA may not be comparable to EBITDA of other entities because other entities may not calculate EBITDA in the same manner as we do. Reconciliations of historical and projected EBITDA to historical and projected net income are provided in the Financial Highlights and Business Segment Data tables accompanying this earnings release.
Information in the accompanying Operating Data table includes margin of the upstream segment, which is a non-GAAP financial measure under the rules of the SEC. Margin is calculated as revenues generated from the sale of crude oil and lubrication oil, and transportation of crude oil, less the costs of purchases of crude oil and lubrication oil. We believe margin is a more meaningful measure of financial performance than operating revenues and operating expenses due to the significant fluctuations in revenues and expenses caused by variations in the level of marketing activity and prices for products marketed. A reconciliation of margin to operating revenues and operating expenses is provided in the Operating Data table accompanying this earnings release.
TEPPCO will host a conference call related to earnings performance at 8 a.m. CT on Thursday, Feb. 12, 2004. Interested parties may listen via the Internet at www.teppco.com or by dialing 800/478-6251. The confirmation code is 571756. Please call in five to 10 minutes prior to the scheduled start time. An audio replay of the conference call will be available for seven days by dialing 888/203-1112 with a confirmation code of 571756. A replay and transcript will also be available by accessing the investor section of the company’s Web site at www.teppco.com.
TEPPCO Partners, L.P. is a publicly traded master limited partnership, which conducts business through various subsidiary operating companies. TEPPCO owns and operates one of the largest common carrier pipelines of refined petroleum products and liquefied petroleum gases in the United States; owns and operates petrochemical and natural gas liquid pipelines; is engaged in crude oil transportation, storage, gathering and marketing; owns and operates natural gas gathering systems; and owns 50-percent interests in Seaway Crude Pipeline Company, Centennial Pipeline LLC, and Mont Belvieu Storage partners, L.P., and an undivided ownership interest in the Basin Pipeline. Texas Eastern Products Pipeline Company, LLC, an indirect wholly owned subsidiary of Duke Energy Field Services, LLC, is the general partner of TEPPCO Partners, L.P. For more information, visit TEPPCO’s Web site at www.teppco.com.