Crosstex Energy LP Earnings Call Insights: Clearfield Acquisition, Utica

On Tuesday, Crosstex Energy LP (NASDAQ:XTEX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Clearfield Acquisition

Darren Horowitz – Raymond James: A couple of questions for you. First on the acquisition of Clearfield, is that $50 million of additional investment that’s going to drive that EBITDA multiple down to five times is that associated with the Ohio rail loading terminal expansion and those new brine wells or do you also have something built in for the expansion of that truck fleet or possibly the expansion of that (existing) pipeline?

Barry E. Davis – President and CEO: Darren, it is a combination of a number of things. First of all, we’ve got significant optimization of the existing capacities that will drive the EBITDA. So if we were not investing at all we would have a lot capacity to fill within the operation. But there are a number of identified opportunities to optimize or to expand particular parts of the operation, including truck fleet, salt water disposal, rail and barge loading terminals, et cetera. So it’s a number of items.

Darren Horowitz – Raymond James: So it’s going to be – of the $50 million it’s going to be $20 million spent for the duration of 2012 and how does the remainder of that CapEx get split in years two and three?

Michael J. Garberding – SVP and CFO: The majority of the rest is really split as expense in the next year with just little trailing into the third year.

Darren Horowitz – Raymond James: Last question, Mike, and we appreciate the color on the PLO and processing exposure but given the heavier ethane shift and your focus over a longer term period, to be more fee based on a percentage of aggregate gross margin, has there been any change in the amount of (PLO) processing that you want to run in 2013 or 2014 as you expand capacity across PNGL?

Barry E. Davis – President and CEO: Really if you look at what we have done our (PLO) processing has remained somewhat stable and what’s happened is we have actually taken advantage of increasing our processing margin really when the margin was there. So if you look at an overall business standpoint we are still 75% fee-based, 25% commodity-based and you’ll see the ebb and flow probably in the processing margin businesses not the POL business.

Utica

John Edwards – Credit Suisse: Just a couple of questions. I guess Mike or Bill could you provide any details regarding the potential magnitude of the impact of the frac turn around that’s coming later this quarter.

William W. Davis – EVP and COO: Well it could be anywhere between zero and $2 million of margin and it’s only a deferral to the extent it’s an impact, it (pushes) second quarter into the third quarter.

John Edwards – Credit Suisse: What kind of CapEx opportunity are you expecting beyond the $50 million you gave in the presentation for the Clearfield transaction what’s your best guess on the outlook right now.

Barry E. Davis – President and CEO: It’s very early goings as you know in the Utica we have the first couple of dozen wells that have been drilled and so it’s hard yet to, I mean we like everything we see we studied it very thoroughly and, we’re optimistic that we’re going to see some really good things come out of it, but it’s still early, it’s still premature to give any scope and size to the ultimate infrastructure build out that will be required there. We feel really good about being exposed to all of that growth opportunity with basically a platform and an organizational capability and experience to really take advantage of that.

John Edwards – Credit Suisse: Then just curious how long have you been looking at the Clearfield transaction?

Barry E. Davis – President and CEO: Yeah. Well, first of all, I’d say, we’ve been focused on the Utica now for probably a year and a half or so as we improve relationships with some of the earliest movers there. We began to look at organic opportunities to build something there to start with, and as we always do, when we look at new areas, we look around at other things, it would be platforms. So, really kind of from the beginning, we started seeing this opportunity and entered into discussions through relationships sometime ago, several months ago.