Q3 2019 Earnings Call

Greetings and welcome to core energy third quarter 2019 earnings Conference call.

At this time, all participants are gonna listen only mode. They question answer session will follow the formal presentation.

If anyone should require operator assistance during the call. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

I'd now like to turn the conference room do your host Jeff <unk>, Vice President Finance for core energy. Thank you you may begin.

Thank you for joining core energy infrastructure Trust third quarter 2019 earnings call.

I'm joined today by David Shelby, Chairman, President and CEO , and Becky Sandring, our senior Vice President.

As a reminder, the presentation materials for this call as well as information included in our press release issued Wednesday, and an audio replay of this conference call will be available on core Energy's website.

Statements made during the course of this presentation, they're not purely historical maybe forward looking statement and are subject to the safe Harbor protection available under the applicable securities laws.

Important factors that could cause actual results could differ materially from those in the forward looking statements are discussed in our filings with the FCC.

These documents are available on the Investor Relations section of our website <unk>.

I mean, not update our forward looking statements reconciliations between GAAP and non-GAAP results, which we discussed in this call can be found in our related earnings release and thank you pilot.

I'll turn the call over to Dave Shelby will discuss core Energys third quarter.

Thanks, Jeff beginning on slide three last week, we declared our 17th consecutive 75 set quarterly dividend for core shareholders. Our team had a productive third quarter, bringing to a conclusion the FERC rate case for our mode gas Interstate gas pipeline.

And taking important actions to further strengthen our capital structure with the offering up $120 million in convertible notes.

We have a couple of slides to summarize the outcomes of these two events.

Slide four.

The Mogas pipeline rate case that we discussed last quarter has now formally finished with final approval from the commission in August of our settlement with all parties, which is effective in September .

We gained a couple of additional benefits in the settlement of the rate case, principally that the new arrangement includes five year from transportation service agreements with most of our customers.

Exchange for modest discounts so that provide stable revenues through December of 2023.

Our long term contract aspire runs until October of 2030.

The Mogas pipeline supports Corenergys model.

Of long life energy infrastructure with predictable cash flows.

Slide five we completed a 120 million dollar private offering a convertible notes in August we used about $64 million or the proceeds plus an issuance of 33 million in common stock.

The repurchase most of the remaining balance on our earlier issue of convertible notes.

Although paid in capital increased to reflect the issuance of common stock retained earnings reflects the impact of a loss on extinguishment of debt of just under 29 million.

These two actions, which we see us balance sheet management have strengthened our financial position the benefits to Corenergy are shown here.

We have enhanced our liquidity substantially and we'll look at those numbers at the moment.

We added five years to the maturity of the debt instruments since the old notes, we're set to mature in June of 2020, and the new notes mature in August 2025.

In the near term this exchange removed a limitation on our access to the revolver, which would have occurred in February of next year.

The 5.875% interest rate on the 2025 notes compared with 7% interest on a 2020 notes.

Substantially reduces our weighted average cost of capital.

On slide six.

Referring to our financial metrics, the net loss to our common stockholders for the third quarter was affected by the onetime loss on extinguishment of debt as were the nave read FM FFO and AFFO for the quarter. However, as you can see our adjusted funds from operations have remained relatively consistent over the past four quarters.

The decline or revenue from our December 2018 sale of the Portland terminal was offset by higher participating rent higher transportation and distribution margins and lower gionee expense and interest expense and the first nine months of 2019.

It is our practice to reserve participating rents for reinvestment and debt payment. We set our long term target a F. F O to provide a dividend coverage ratio of 1.5 times.

Because our assets terminal values are driven by the long life, but nonetheless, depleting reserves that they serve or the third quarter cores, a AFFO per basic share suggested dividend coverage ratio of approximately 1.3 times slightly below our target.

Slide seven provides an overview of our capital structure with the main changes coming from the convertible notes offering and exchange in the third quarter.

Our total liquidity increased by 75 million over the second quarter level.

With 257 million it now available for potential growth investments.

The amount convertible bonds outstanding increased substantially but total debt to total capitalization at 25% remains at the low end of our target range.

Were eager to put our liquidity to work and are actively assessing assets that fit our due diligence profile.

On slide eight we want to comment on the capital markets environment for oil and gas industry, which is a backdrop for creating opportunities for core energy to get looks at attractive assets and infrastructure.

Constraints on the equity markets and lending are causing many producers to limit their drilling activity to operating cash flow.

Well this fall Haynes I'm doing survey asked where producers are planning to source capital in 2020, 28% set operating cash flow up from year ago.

Producers are looking to alternatives such as debt from private equity sources or joint ventures.

Well, both the public debt and equity markets are virtually dried up.

The majority don't expect to public equity markets to reopen for oil and gas producers until 2021 or later so this is creating opportunities.

To add potential deals to core energy's pipeline for growth.

On slide nine.

Corenergys reap model has been generating attention lately, both in the capital markets and among operators and energy industry.

The table is a summary, we've shared many times, which compares cores attributes as a result versus other energy infrastructure vehicles.

Note in the table that reach share entity level packs characteristics southern <unk> MLP with the shareholder reporting of a C Corp, including no you BTI or K ones.

Some investment banking and law firms have published presentations recently on the scope of the restructure for holding energy infrastructure assets.

The reports referred to the private letter ruling that core energy received from the IRS, which brought under the asset types and contract types, we can pursue as qualifying for retreatment.

Their messages that both partnerships and see Corp.'s should consider using a rate structure for suitable assets to expand the investor base to include traditional institutional tax exempt and foreign investors and we began this process in 2011.

Giving investors direct investment opportunities and energy infrastructure assets, while utilizing a restructure.

This P.L.R. expands that concept such that the rebound now look at broad applications of capacity usage revenue streams accompanying those assets that are qualifying we're very pleased to achieve this recognition.

To sum up on slide 10, we're in active discussions with several operators seeking transactions that are both accretive and create long term value for core shareholders.

We believe we're in a position to complete one or two acquisitions in the next year and our targeted size range of 50 to 250 million.

Meanwhile, we continue pursuing measures to strengthen our balance sheet, our financial ability to complete acquisitions is supported by our liquidity and by our ability to use other funding sources, such as asset level or corporate debt joint ventures, and private placements with institutional investors as we demonstrated in third quarter. The capital markets remain open for core energy.

And our infrastructure Reed business model now operator, I'll turn it back over to you to open the call up for questions.

Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad confirmation tell when do you get your line is in the question Q You May Press Star too if you like to remove your question from the Q.

<unk> participants use and speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment. Please why we poll for questions.

My first question comes from Barry, Oxford with D.A. Davidson. Please proceed with your question.

Great. Thanks, Hey, Dave.

Real quick when you're looking at the acquisitions going into 2020, you kind of indicated that you think some more acquisition opportunities will avail itself given.

The lack of availability of like of these companies to access the capital markets.

Is that what's your thinking right now or are you actually eyeballing some assets right now.

Barry we are inactive review of actual asset opportunities.

The ones that we are most interested in our negotiated transactions that we are originating directly with companies that have looked like our prior existing portfolio with with assets that are of the type that we previously have have acquired so they would be companies for which doesn't.

Missions, we described are affecting their there.

Capital availability and they are very.

Very interested in considering what alternatives are out there. So we're getting inbounds now not just a not not just out bounds and we're not.

Talking about simply participating in in auctions.

Okay. Okay. So the environment is there at the margin changing.

We believe that it is and we're trying to show the reasons for it on that slide yes, right right. Yeah exactly exactly it did I think the mall gaps I mean that looks like a very favorable outcome do you agree with that it's are you happy with it.

It's within the parameters, we expected but of course.

You don't know until you're done, but we're very pleased with the outcome yes. Okay.

Great I'll be able to four thanks guys.

Thank you Barry.

As a reminder, if he'd like to ask a question. Please press star one on your telephone keypad. One moment. Please why we poll for questions.

Our next question comes from Selman Apple with Stifel. Please proceed with your question.

Thank you first I'll just is there any update on Grand Island.

What's going on with gigs.

No not from last quarter as we described the profile last quarter the.

We're still in.

Deficit mode on getting financial statements from them, which are required under the lease.

But there's no other update then theyre paying rent on time and.

As we said before although otherwise business as usual [noise].

Got it. Thank you and then can you just talk a little bit about maybe some.

Types of assets that you're seeing out there that you're looking at.

Sure.

The.

Types of assets that were reviewing today include.

Gathering systems that have a upstream connectivity with what we believed to be or we will expect to be long relatively long life reserves.

In fields, where there's still active drilling taking place and expected to continue to take place.

We have a handful of.

Dedicated.

Refinery support opportunities that are mainly.

Storage related infrastructure or pipelines.

And finally, we have been looking at a handful of downstream assets that have contracts to what we've done more demand pull contracts like low gas. Those are very have NR experienced had been more competitive and have more likely been auctions and as we've described.

In the past.

We've seen.

Infrastructure funds.

Be aggressive in those circumstances, but we are looking at those as well.

Got it and then just going back to the gathering can you talk about maybe geographically, which parts of the country or.

Focused on.

Uh huh.

Really it's a variety of geography is some enough nothing in an area, where we currently have.

Dedicated at assets.

The so there'll be other basins that diversify S.

And we are open to offshore type of assets that are broader than what we own today. The people are that we are received did include specifically the ability to own.

Production platforms.

And.

So we're open to considering those.

But that will be different than our existing.

Thanks pipeline in both the scope of whats.

They are used for in the number of customers that they are exposed to.

So we've got I would say diversifying.

Aspects to the upstream basins, where reviewing today.

Very good thanks very much.

Thanks for the question.

As a reminder, if you'd like to ask the question. Please press star one on your telephone keypad one moment, please while we poll for questions.

There are no further questions at this time at this point I'd like to turn the call back to David guilty for closing comments.

Thank you everyone for your continued interest in our company and we think we had a very good quarter and we hope to and expect to continue to deliver.

Similar consistent results in the future.

This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.