NiSource Earnings Call INSIGHTS: Bigger Picture on Joint Venture, Aggressive Drilling Program

On Tuesday, NiSource Inc (NYSE:NI) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Bigger Picture on Joint Venture

Stephen Maresca – Morgan Stanley: Just hoping or may from a bigger picture on the joint venture can you discuss at all any sort of commodity sensitivity that you would have around some of these joint venture arrangements or is that something of you can’t talk about right now?

Robert C. Skaggs Jr. – President and CEO: Well, again in the spirit of big picture 50,000 feet the exposure to commodity is middle of, if any. On the infrastructure side, we have the dedication of the entire multi-county area of interest. So that’s going to be supported by that drilling program and production. It’s not a percentage of proceeds or anything like that it’s going to be fee based. Our working interest, royalty interest again at 50,000 feets, relatively small in the big scheme of thing.

Stephen Maresca – Morgan Stanley: You said, you contribute on the developing of the hydrocarbon potential, you’re contributing 14,000 acres or so, how much more acreage do you have to contribute? Could you replicate this or is that other acreage on that to go towards something with Hilcorp?

Robert C. Skaggs Jr. – President and CEO: The other acreage is standalone, it’s not dedicated or pledged or contracted to Hilcorp, so in the western portion of the Utica window, that acreage is NiSource’s. We’ve mentioned in the past that we are waiting for that area to be delineated, further defined, until all that activity unfolds, we continue to hold that acreage.

Stephen Maresca – Morgan Stanley: On the backhaul that you are doing, is there anything that need to be done to your system and do you see more of this happening at the Marcellus grows?

Robert C. Skaggs Jr. – President and CEO: Again in the big scheme of things, the engineering is very, very manageable. It’s relatively modest for the entire project, both the Columbia Gas Transmission work and the Columbia Gulf work, the total is roughly $200 million. The work on Columbia Gulf is for the most part compressor station valving and that added, it’s not a backhaul per se on Columbia Gulf, we are going to render one of our three Columbia Gulf legs bidirectional, one leg would become fully bidirectional and for this gas would in fact move south. The other portion of your question, could we see more of this occurring and the answer would be, yes, that’s possibility. First things first; we’ll see what this project it was warmly received – well-received by the marketplace and we’ll look at the other two legs as the interest develop.

Aggressive Drilling Program

Paul Ridzon – KeyBanc: Just on the Hilcorp you mentioned $1 billion potential. How many years do you see that unfolding over or is that going to be something we need to wait for September 12?

Robert C. Skaggs Jr. – President and CEO: I think it is sooner rather than later. As suggested in my prepared comments, the agreement does include drilling program – (alliance) drilling program. We’d say that the drilling program is aggressive. Hilcorp has a well-established record of going at this at pretty good clip and I think if you look at their track record in the Southwest, the Eagle Ford, for instance, you will see a production track that looks pretty aggressive. So, we see this occurring over the next five years or so.

Paul Ridzon – KeyBanc: You kind of broke up on the call, I am sorry, but you said with regard to the modernization projects you expected about something by year end. Could you just – I think I missed the details there, sorry?

Robert C. Skaggs Jr. – President and CEO: There weren’t a lot of details because we are working under confidentiality agreement – non-disclosure agreement with customers. So, we said, Paul, for now the better part of year that our game plan was to deal with this in 2012 and our hope was to have FERC action approval of an arrangement by year-end 2012.

Paul Ridzon – KeyBanc: Currently the rate structure on the pipes is a postage stamp tariff, as opposed to a pancake. Is that correct?

Robert C. Skaggs Jr. – President and CEO: Well, Columbia gas transmission and modernization applies to Columbia gas transmission. So it’s the market area grid pipeline and your correct that rate on Columbia gas transmission is a stoppage stamp.

Paul Ridzon – KeyBanc: You mentioned something before the Indiana Commission with regards to Michigan City environmental. Would that be incremental to the $850 billion of environmental CapEx you had outlined before?

Robert C. Skaggs Jr. – President and CEO: It would be included in the $850 billion.