CenterPoint Energy Earnings Call NUGGETS: Seeing Significant Synergies, Commodity Risk

On Thursday, CenterPoint Energy Inc (NYSE:CNP) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Seeing Significant Synergies

Carl Kirst – BMO Capital Markets: If I could just follow-up on, Greg, on that last comment you made and appreciate the additional detail. Is that seven time EBITDA and I guess this is really more for Prism, the $28 million to $33 million of targeted income. Is the confidence in that coming from the level of synergy that you see – that you can take out, or is it more coming or equally coming from an ongoing expected activity ramp, drilling ramp in the area?

A Closer Look: CenterPoint Energy Earnings cheatsheet>>

C. Gregory Harper – SVP, and Group President Pipelines and Field Services: I think, but definitely there are three components that I point out, Carl. It is definitely a vicinities we expect to see significant synergies as we operate these amongst our – the Interstate Pipelines we have and obviously the existing Field Services facilities in that area. But we’re also seeing a richer gas stream already coming into the plant than what we saw last year and at the beginning of this year. We expect that to continue to increase in richness based on some of the deals that we’re negotiating and will be coming on by the end of the year plus the producers that we are in concert with have given us their production profiles through 2013. So, we see that ramp up coming in and that we expect the plant to be full by year-end.

Carl Kirst – BMO Capital Markets: Then one other question, if I could. Just the comment – to make sure I heard it correctly that looking at (indiscernible) crude oil gathering line and recognizing – we might be still in negotiating phase, but I’d be curious if you could give us more color, both how since you are not currently accrued gathering player, how that came about, as well as what type of investment size might we be dealing with?

C. Gregory Harper – SVP, and Group President Pipelines and Field Services: I’ll take the first part and I’ll let David just address the investment size, if we can. This is a relationship oriented deal, a very large producer major asked us to take a look at that with them as they are sole sourced gatherer, if we can negotiate it with them. As far as crude versus natural gas liquids, versus natural gas gathering, a few of the specs are little bit different based on codes, the OT codes, but other than that it’s welding pipe and operating a systems at some pumps versus compression. We have the technical capabilities in-house. I’d also say that the Prism acquisition was very strategic since they were picking up employees that actually have experience in that area as well. So we feel very good about it. I feel very confident in our ability to execute on the capital, this preliminary survey and investigation process is to confirm our capital that we anticipate, so that’s actually while we are doing it. We want to make sure that what we could on a preliminary basis is what we can go out there and execute on. David, on the investment size?

David M. McClanahan – President and CEO: I think it is going to depend in part on our conformation through this right away and survey work, but it’s between $100 million and $200 million is the relative size for just this particular system. Now of course our long-term desire is to be able to expand that system and serve other customers in the area as well. So – but certainly this individual – just this project would be in that range.

Commodity Risk

Andrew Weisel – Macquarie Capital: One thing that I am a little bit unsure of though is the commodity risk. So, when you think about these two deals and your plans to invest organically around them how do you think of the mix of fee based arrangements versus percentage of proceeds?

C. Gregory Harper – SVP, and Group President Pipelines and Field Services: As you know we are already 50% owners of Waskom, so we have doubled our commodity exposure. But I think David and I have addressed on several calls before that nearly 50% of the Waskom inlet is based on fee based and we also have the right if liquids prices go extremely down we have the right to convert all the volumes to fee based. So, the right balance, I think we have a very good balance right now with what we are taking on. We have added – again the Amoruso transaction is a volume commitment transaction so that gives us guaranteed revenues with that stream. So, I think, as we go and balance our field service portfolio we are looking at solid fee based investments with some investments have maybe at the moderate level of commodity exposure.

David M. McClanahan – President and CEO: I have one thing to add there. I think we are comfortable that with this amount of commodity exposure and the fact that we can move it into fixed fee if we decide that’s what we want to do.

Andrew Weisel – Macquarie Capital: Just one another question you talked about desire to keep the balance between the regulated and more unregulated businesses a lot of the commentary sounds like you have a ton of opportunities to invest in these non-regulated businesses but historically the Electric utility has been about half of the operating earnings becomes about two-thirds regulated when you add the gas distribution. Any high level thoughts on maybe what those percentages might look like in two, three years or so?

David M. McClanahan – President and CEO: It is hard to say. We are spending a lot more money now just organically in our Electric and Gas Distribution business than we did in the past. I expect that we are going to have more opportunities just in our current footprint to increase those investments and we are going to – we continue to look at things outside of our footprint, but when I think about our regulated side and I include the Interstate Pipes in that, certainly that’s going to represent 75% or more of our earnings for the next three to five years. We do expect Field Services to become a more important component, but our regulated business is going to be our predominant asset and business for our Company for the long-term.