Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Regency Energy Partners LP Earnings Conference Call. My name is Anna. I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to Shannon Ming, Senior Vice President of Finance and Investor Relations. Please proceed.

Good morning, everyone, and welcome to today's call. Today, we will cover Regency's performance for the second quarter of 2011 as well as review industry trends and fundamentals. Presenting on today's call would be Mike Bradley, our President and Chief Executive Officer; and Tom Long, our Chief Financial Officer. Following our prepared remarks, Regency will open the call to participants for questions. You may access the earnings release and presentation news on today's call through Regency's website at regencyenergy.com. Our call is being recorded and is also being broadcast live over the Internet on the Regency corporate website. An archive of the webcast and presentation will be available on the corporate website following today's call. Slide 2 of the presentation describes our use of forward-looking statements and lists some of the risk factors that may affect actual results. Also included in the presentation today are various non-GAAP measures that have been reconciled back to GAAP. I would also like to note that we will be filing our Form 10-Q on Monday, August 8. With that, I'll turn the call over to Mike Bradley, our President and CEO.

Thanks, Shannon. And good morning, everyone, and thank you for joining us today. I'm very pleased to say that Regency had a strong quarter during which we continued to grow our adjusted EBITDA, announced several growth initiatives and also increased our cash distribution for outstanding common units. Before I go into our second quarter highlights, I would like to take the opportunity to discuss a more recent announcement. On July 29, Regency announced that it was approved to list its common units on the New York Stock Exchange, and we anticipate that our common units will begin trading on NYSE under the new ticker symbol, RGP, on August 9. We're excited to make this move to the New York Stock Exchange, which is a leading listing venue for energy companies. And many of our energy industry peers, including our general partner, ETE, are listed on NYSE. Now taking a closer look at Regency's highlights for the second quarter on Slide 3. Regency delivered solid financial results in the second quarter of 2011 with our adjusted EBITDA increasing to $103 million, which represents a 40% increase over the second quarter of 2010 and a 13% increase from the first quarter of 2011. In addition, we announced a quarterly distribution of $0.45 per outstanding common unit, which represents a $0.005 increase over our first quarter distribution. For the second quarter, Regency generated $71 million in cash available for distribution, which represents a coverage ratio of 1.03x. And then in May, we completed our public offering of $500 million of 6 1/2% senior notes due in 2021 to refinance revolver borrowings used primarily to fund the acquisition of the Lone Star Joint Venture. Looking at our operational highlights. Total Gathering and Processing segment volumes increased to 1.1 million MMbtus per day or 6%…

Yes, thanks, Mike, and good morning, everyone. Taking a closer look at our second quarter performance on Slide #8. As Mike mentioned, we are pleased with Regency's second quarter results. From the second quarter of 2010 to the second quarter of 2011, adjusted EBITDA increased by 40% from $74 million to $103 million. This increase was primarily driven by the acquisitions of a 49.9% interest in the Midcontinent Express Pipeline; Zephyr Gas Services, our contract Treating business; and most recently, a 30% interest in the Lone Star Joint Venture. These were partially offset by lower hedge prices in 2011 compared to 2010. Moving on to the segment margin, and we'll start with the Gathering and Processing. Adjusted segment margin decreased from $55 million for Q2 of 2010 to $53 million for Q2 of 2011. This decrease was primarily due to a $5 million impact from lower hedge prices. That was partially offset by higher volumes, which increased from 1 million MMbtus per day to 1. million -- to 1.1 million MMbtus per day in the Q2 of 2011. While total volumes increased overall, we saw the largest increase in our South Texas gathering system. NGL production increased to 28,000 barrels per day for Q2 of 2011 compared to 25,000 barrels a day for Q2 of 2010 primarily due to the increased production in South Texas. Taking a closer look at our volumes by region. For North Louisiana, volumes increased 2% comparing the second quarter of 2010 to the second quarter of 2011. This was primarily due to Logansport, where volumes from the expansion completed last year continued to ramp up as well as the drilling in the Logansport area of the Haynesville Shale. This was partially offset by declines around our Dubach system due to lower Cotton Valley production, as…

[Operator Instructions] And our first question comes from the line of Bernie Colson with Oppenheimer.

A question about -- I guess, well, it looks like excluding, well, the assets that, well -- proceeds that you're kind of right around 1, a little bit below. But we got an aid [ph] in the distribution. And I guess from past conversations that your target for coverage is around 1.1x. So I just kind of wanted to ask you philosophically how all that stuff fits together.

Yes. And Bernie, when we look at the decision to increase our distribution, it's really based on the outlook for our business. We felt very comfortable making a bump in second quarter. I think when you look at the fact that with the recent acquisition of Lone Star, the growth -- in fact, we've announced almost $800 million of growth projects that are all organic and primarily fee-based. So we got very comfortable with the distribution bump at this time. We'll continue to look at that on a quarterly basis and believe our coverage will continue to improve.

Okay. So no change, I guess, from that kind of 1.1 over the longer term?

That's correct.

Okay. Okay. And then can you just, I guess, remind us if I missed them, about timing of the projects for the Lone Star, Eagle Ford shale, when those are expected to come online?

Yes, both the NGL pipeline and the fractionator are expected to come online in early 2013.

Okay. Okay. And then one more question really is about Contract Compression. So clearly, the -- so you guys have kind of -- you're going to report it differently going forward? It looks like the margin is the same as the previous reporting, but the revenue-generating horsepower has been restated. Is that correct?

That's correct, Bernie. Once again, what we're focusing on is the external piece of it, and that's the -- these numbers are just stating the third party with a small piece of Gathering and Processing still in there, so.

Okay. So the margin numbers historically will not be restated. Is that correct?

Yes, that's correct. What you have to do, Bernie, is take out the -- in our segment margins, and so if you look back at our -- the charts that we've provided, now sitting down at the bottom shows you how much to back out. So the horsepower numbers we've provided in previous quarters with -- our Page 20 of our presentation gives you the chart, the historical chart. But if you look at our historical horsepower numbers, you would take the numbers we have today plus the incremental horsepower that we had for the Gathering and Processing segment. And then you would be able to get to -- you'll be able to tie those numbers out.

Okay. and then that last one, still on Compression here. It looks like quarter-over-quarter, the margin's down about $4.5 million or so. And since -- that, I assume, is -- I'm just having a hard time figuring out where -- whether that indicates a decline in the profitability there or that is going to show up -- did that show up in a different segment? Or how do we think about that?

It's -- the profitability in our Compression business is a still a very strong. That $4 million decline that you're seeing is the transfer of over 100,000 of horsepower that Tom mentioned in his talking points. This was Regency-owned compression that was operated by CDM. So that $4 million decline is absolutely associated with that.

Okay. And then so do we -- should we expect to see that in a different segment? I mean, I guess I'm just having a hard time figuring out how to...

Yes, Bernie, you should expect to see that in a different segment as far as segment margin goes. Keep in mind when you get to the EBITDA line that all the inter-company stuff is eliminated from an adjusted EBITDA standpoint.

Okay. All right, okay.

And our next question comes from the line of Heejung Ryoo with Barclays Capital.

Just on the Contract Compression segment, you mentioned you had some idle fleet capacity, and at the same -- and which will be used for some of these new contracts you brought in. But you're also spending $95 million for this year. So I'm just curious whether you would -- you are building more capacity in anticipation of robust outlook. If you could comment on that.

Sure. A couple things is, one, as we stated, we've recently contracted for 50,000 of incremental horsepower that come online in 2012. Some of that will be coming out of our idle fleet, and some of that will be new horsepower that we will purchase and package for those applications. Sometimes, in our idle fleet, applications come up where the idle fleet is not a good fit and we require new horsepower. On the other hand, we'll continue to work down our idle fleet as we go forward. So we don't -- we always want to keep a certain percent idle because I think that allows us to respond very quickly in case some new horsepower needs to be put in. So we're very comfortable with what we're targeting and the utilization that we expect to see over the next 6 to 12 months.

Okay. And then just a follow-up to that. What kind -- on your idle fleet, what's the -- is there a certain concentration of horsepower on your idle fleet versus men [ph] on new horsepower that is concentrated out on a different, I guess, different size or a different horsepower?

We have various [indiscernible] units in our idle fleet. They're are not concentrated all in one...

Not concentrated. Okay, got it. And then just switching gears on your new $450 million Eagle Ford gathering project. Could you comment on the return profile of that project? And also, you're not involved in the processing side, but just curious where that -- after you gather those -- I assume it's a rich gas gathering. And where are the downstream providers? Or who will be handling the downstream side of the processing and also for the downstream?

Our producer -- this is Mark Anthony. The producer will be handling the downstream transportation on that. We'll be gathering and conditioning the gas. We're moving the liquids and re-delivering that gas downstream for the producer.

Okay, And then just on the return profile?

Yes, on return profile, we haven't stated what the return is. But this project, we expect to be very accretive.

[Operator Instructions] And our next question comes from the line of Scott Fogleman with Morgan Keegan.

I just -- I hate to beat the dead horse here. But regarding the Compression segment and just the restructuring of it, you had mentioned in your prepared remarks that roughly 110,000 are currently idle. Should we think of those, that 110,000, as the remaining in the Contract Compression segment and are available for customers? Or is that going to be divvied up between the G&P segment and the Contract Compression segment?

That is available to be deployed for third party.

Okay, so it's going to be split between the 2?

No, no, when I say -- that -- those units are available to be deployed for our outside external customers.

All right, okay. And your -- you wanted to be about 90% utilized, and that would just be in your Contract Compression segment, correct?

Yes. First of all, let me just briefly -- I'll cover this, is we think the best strategy for our Contract Compression is to focus on third-party horsepower. CDM provided a lot of good service over the past couple of years in operating some of their Regency units. But we feel like the better strategy and the strategy that's going to provide the most growth in earnings is going to be the focus on third party. With the Energy Transfer operating agreement, we'll shift that horsepower over. And so now CDM is going to be 100% focused on growing our third-party business and servicing our existing client. We think that is the right move to make with this business. And in terms of the idle fleet, like I said, we've got a plan to reduce that fleet with some of the recently contracted horsepower, and we'll continue to move that down. But we think long term, this is a much better focus for our Contract Compression business.

Okay. And -- yes, and just to clarify the future spend. When you're buying more contract machines for Compression, I assume that those will go into the -- I mean, the lion's share of those are going to go into the Contract Compression segment, right, the new machines?

Yes, we expect all of them to go into the Contract Compression segment.

And one last question, just regarding the whole Energy Transfer Southern Union acquisition bid. Considering Regency's cost of equity capital is so much lower than ETP's, why does Regency not seem to be mentioned as a possible home for some of those assets to make it more accretive for all parties involved?

Well I think first of all, this is a transaction that's being worked on between ETE and Southern, and it's really not something that we can comment on at this point. Obviously, we're excited about it and there are some possibilities. But at this point in time, it's really not appropriate for us to discuss, nor have there been any discussions about what the future of those assets would be.

Ladies and gentlemen, there being no further questions, this concludes today's question-and-answer session. I would now like to turn the call back over to Mr. Mike Bradley for closing remarks.

Well, thanks again, everybody. And in conclusion, we are very excited about our business, the increase in distribution, the growth announcements and additional opportunities, we believe, they'll create for our Gathering and Processing business, Compression and Treating business as well as our recently acquired natural gas liquid business. As I stated, on top of the recent acquisition of the Lone Star Joint Venture, we have already announced over $800 million in organic projects. Almost 90%-plus is all fee-based business. So we are very excited about the outlook for our business and the potential to grow distributions over the next several years. We believe these projects put Regency again in an excellent position to achieve additional growth and expand our service offering, very importantly, for existing customers as well as new customers. And again, I want to reiterate our focus is to increase shareholder value and grow quarterly distributions, and that is what this management team is focused on every single day. Thanks again and have a great day.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.