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

Good morning, everyone, and welcome to today's call. Today, we will cover Regency's performance for the third quarter of 2011. Presenting on today's call will be Mike Bradley, President and Chief Executive Officer; and Tom Long, our Chief Financial Officer. Following our prepared remarks, Regency will open the call to participants for question. 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, November 7. With that, I will turn the call over to Mike Bradley, our President and CEO.

Thanks, Shannon, and good morning. And thanks everyone for joining us today. I'm pleased to say that Regency had a strong quarter, during which we continue to grow our adjusted EBITDA, had a significant increase in volumes in our Gathering and Processing segment, and for the second quarter in a row, announced $0.05 increased to our cash distribution for outstanding common unit. Taking a closer look at Regency's highlights from the third quarter on Slide 3, we delivered solid financial results in the third quarter of 2011 with our adjusted EBITDA increasing to $112 million, which represents a 25% increase over the third quarter of 2010 and a 9% increase from the second quarter of 2011. For the third quarter, Regency generated $73 million in cash available for distribution and this represents a coverage ratio of 0.98x. If you exclude 11.5 million units of equity issued in October of 2011, the coverage ratio would have been 1.06x. And very importantly, we continue to grow our business organically, investing $134 million in the third quarter. Now I'd like to provide you with an update on some of our growth projects. On Slide 4, you will find an update for our Eagle Ford expansion project. Construction on the $450 million project is underway, and an average of 128 million MMbtus per day flowed on a portion of the system in the third quarter. Additional volumes will be phased in as the project is completed, with all capital expected to deployed by early 2014. Upon completion, we expect our entire South Texas system to gather, compress, treat and transport up to 1 Bcf a day of natural gas. Moving on to Lone Star on Slide 5. We are very pleased with this acquisition and are very excited with the opportunities we see going…

Thanks, Mike, and good morning. First, looking at our performance for the third quarter. For the third quarter of 2010 to the third quarter of 2011, adjusted EBITDA increased by 25% from $90 million to $112 million. This increase was primarily driven by the acquisition of a 30% interest in the Lone Star Joint Venture, and increased volumes in South and West Texas. These were partially offset by lower hedge pricing in 2011 compared to 2010. Now looking at Slide 8, it shows our Gathering and Processing segment. Adjusted segment margin increased from $57 million for Q3 2010 to $65 million for Q3 of 2011. This increase was primarily due to additional volumes, which grew by approximately 36% from 1 million MMbtus per day in Q3 of 2010 to 1.3 million MMbtus per day in Q3 of 2011, partially offset by a $6 million impact from lower hedge pricing in 2011 compared to 2010. While total volumes increased overall, we saw the largest increase on our South Texas gathering system and from new volumes related to our Eagle Ford expansion, which contributed an additional 128,000 MMbtus per day. NGL production increased to 35,000 barrels a day for Q3 of 2011 compared to 27,000 barrels per day for Q3 of 2010, primarily due to increased production in South Texas. Now taking a closer look at our volumes by region. Starting with North Louisiana volumes, they increased by 28% comparing the third quarter of 2010 to the third quarter of 2011. This was primarily due to additional Haynesville Shale volumes at our Logansport facility. This was partially offset by Elm Grove field declines around our Elm Grove and Beverly refrigeration plants. For the remainder 2011, we expect total volumes in North Louisiana to remain relatively flat as producers have moved rigs from…

[Operator Instructions] Your first question comes from the line of Scott Fogleman from Morgan Keegan.

You mentioned the drop in throughput on the Haynesville Joint Venture was from one customer having some internal issues and mentioned that at least some of that would come back. Approximately how much of the revenue that you're generating from that asset is from firm capacity versus throughput?

This is Jim Holotik. On our total capacity of our system, it's about 2.1 Bcf. We currently have about 1.9 Bcf that has a demand fee. Of that, about 90% of our revenue is from that demand fee.

Okay, because I'm showing that just -- I appreciate you all put the 100% of the joint venture that the net income, it just really dropped off with the drop in the throughput from Q-over-Q and I was just curious on the breakdown of that. Switching gears with compression, I mean you mentioned you're at about 87% utilization.

Yes, we did have some contracts on our legacy system that rolled-off during the first period of the third quarter.

Okay. And I mean you had guided that you want to get back -- I mean, I think your historical has always been around 90%, 91%. Are you still comfortable with that sort of guidance looking forward?

Our target is really in the 93% to 95% range, is where we'd like to be.

And then just one final question. The volumes growth in the Gathering and Processing, that's really -- I mean, you're attributing that to West and South Texas. Is this a good number looking forward, I mean what you reported this quarter? Or do you expect that to continue to escalate?

We would expect our West and South Texas, both areas to grow.

I mentioned earlier that for 2012 we are anticipating a 25% to 30% increase in total volumes from year-end 2011.

Yes. I apologize, I've been unable to get your slides. I mean it's timing out on me or something. I'm having trouble getting the slides. I was unable to pull out the presentation. I think there's probably other folks that are trying the same thing, but I'll make sure to double check with that.

And your next question comes from the line of Louis Shamie from Zimmer Lucas.

Wanted to talk a little bit about what's going on in South Texas and I know you guys announced a big gathering investments there. Can you talk a little bit about how you're building out that system, and what kind of the target ramp up of volumes is over the next couple of years?

Well, this is Jim Holotik again. Yes, we've got a very large system that we're building out in South Texas. One of the things that we are -- is going to benefit us down there is that we're able to more or less cookie-cutter what our gathering assets are down there, so we're reproducing the same assets over and over again within the dedicated acreage. And hopefully, one of the things that we've done is we've proven ourselves to be a very efficient gatherer in South Texas, and we plan to utilize this footprint or this blueprint with other customers in the future. As far as our ramp up is concerned, I think we should be somewhere -- we're anticipating to be somewhere around probably -- somewhere around double by the end of next year.

Wow. And I mean it seems that the returns on that investment are probably higher than your norm?

We're probably a little bit higher than our normal returns, but I think you'll see them in line with most of what we've done in the past.

Great. And then just the last question would be, is that all fee-based, that -- the returns on that investment?

Yes.

And your next question comes from the line of Avi Feinberg from Morningstar.

I had a question, on -- with some of the expansions at Lone Star, about the pipeline and the fractionation, I'm curious if that's helping to drive some of the Gathering and Processing volume expansions that you've also talked about either in West Texas or out of the Eagle Ford? And did you see that -- as you continue to invest in Lone Star down the road, I mean could you talk about how that will continue to drive some of those opportunities possibly?

Yes. I think a couple of things there is one, as we mentioned earlier in our discussion about the Lone Star acquisition, I think one of the benefits is the ability to offer our customers a full array of services that includes, not only Gathering and Processing, but access to NGL pipeline and fractionation and storage. And we still believe that is a huge benefit and opportunity for the Lone Star acquisition. I think secondly, is the NGL capacity coming out of West Texas and South Texas has been constrained, and with the recent announcement of the new NGL pipeline, as well as the interim expansion on the existing pipeline, it's going to open up a lot of potential for additional processing volumes and NGLs to move out of both those regions of which we would expect to benefit from as well. So we're very excited about that and see this as a huge opportunity.

Great. And would you say also some of the treating expansions in South Texas would -- do those also factor into securing additional Gathering and Processing volumes across your systems?

Absolutely. I mean, we're in an excellent position with regards to our treating capabilities, particularly in South Texas. And we continue to see a lot of potential opportunity to grow that business as well.

Is that both for volumes on your systems and for third-party volumes? And what does the mix look like there?

The majority of the volumes that come in to our treating facilities are on our existing systems. We're currently looking or utilizing our system for mainly for dedicated acreage that comes into our existing system. We will entertain other systems or other volumes coming in, but primarily right now it's on our existing system.

And your next question comes from the line of Ethan Bellamy from Baird.

There's a private contract treating business that's on the market right now. Would you guys be a bidder for that? Or would you expect all of your growth in treating to come from existing assets that you guys own?

Well, I think number one is we would not comment typically on acquisition opportunities at this point. I think secondly is we're very pleased with our Treating business. We continue to invest in it, and we'd always look at opportunities to expand through additional capital or potential acquisitions. So we see our existing business having opportunity, as we mentioned, particularly with the sour gas that's showing up in South Texas and West Texas.

Well, I'll go ahead and ask my next question. You probably won't answer it, but with the Kinder-El Paso deal potentially making them just score some assets from the FTC perspective, any chance you guys could pick up the other half of MEP?

I would say that one would be difficult to comment on as well without knowing what else really happens. We're very happy with our investment in MEP, and we're happy with our partner. Would we like more? Sure, but I think that all depends on what happens down the road.

And one last one. I missed your comments at the beginning about potential investment grade status. Can you give us what milestones, if any, see from the rating agencies about what you need to do to make that happen?

Well, we did feel like that we'll continue to work on getting the size, which we feel like we're -- we'd like to -- we got to a pretty good size there. I think from a overall balance sheet standpoint, leverage ration, et cetera, we feel like we do have strong metrics. I think probably the most I can say is, we'll continue to talk to the rating agencies and work with them on that to see when we can get there. But we do feel good about all of our financial metrics right now from a rating standpoint.

[Operator Instructions] Your next question comes from the line of Bernie Colson from Oppenheimer.

Just one follow-up to you about the ratings. I was wondering, the coverage ratio this quarter is about 1 and yet we still got a raise in the distribution, which is nice. But I'm kind of wondering if that signifies anything about your stance for achieving those investment grade ratings? Or you're just confident enough in 2012 that, that's not going to matter because clearly paying out more cash flows is probably not something that's strengthens your credit metrics?

Yes. And that's a -- as you can a probably appreciate, Bernie, when we look at the overall distribution, it's obviously a decision that's made by the Board. But when we look at it, we look at it from various metrics. We look at it, not only from as we look out and we look at the growth, we look at the makeup of our earnings. And as we mentioned, we're 82% fee-based. So as we look at the stability, we look at the growth in the business, when we look out for next few years, we'll make those recommendations to the Board based upon all of those factors and that's what drives what we wanted to do here. We feel good with it, so.

Do you feel like -- I mean, because clearly just waiting for the rating agencies to do something is -- can be frustrating. I'm just wondering if you think you're already there as far as what you need? Or is there more to go?

Well, that is always the tough one. Bernie, you're right. We do feel like -- we do feel very good about our metrics. We feel like we've got very strong metrics, like I say, from an overall leverage ratio to balance sheet to our mix of earnings. So we'll continue to work with them and talk with them. I don't -- we're not going to probably sit back and wait. We're going to probably more be very proactive in communicating with them, so.

Okay, okay. And I don't know if I missed this. There was a question about Haynesville and the margins. When you look at segment margin last quarter versus this quarter, I mean they fell about 10%. And so I'm not sure that, that question was answered. I wanted to figure out why the margin fell so much?

The majority of the reason is that we have an operator that's had some operational difficulties and their volumes have been off since -- and that's what causing the majority of the drop there.

Okay, I just thought that -- that most it, I mean, if you're still getting your demand charges, I was just trying to figure out how you could lose 10% of the margin at that segment if you lose one customer and that one customer is, what did you say, 90% demand charges that's...

That's 85%.

We have 15% commodity charge, Bernie. And we also had a few contracts roll off from our legacy system in the third quarter as well that contributed to that margin decline.

Okay, okay. Because when you look back at the margins, it kind of range between $47 million and $50 million for the last, I don't know, year or so. And so are we looking -- are we expecting that to bounce back up to that kind of high 40 level? Or is this kind of a new base?

No, in -- we're expecting our customer to get their operational problem fixed. We're looking forward to having those volumes coming back on beginning -- by the end of the year. So no, this would not be the new base.

Okay. And then I apologize, I think I probably missed this in your commentary earlier on. But did you address the segment margin if you look at dollars per revenue generating horsepower in the Compression business why you've seen a fall-off in that business to $45 from up in the kind of $50 range?

If you look at the -- I should probably know which numbers we're referring to. But if you look at the second quarter to third quarter for revenue generating horsepower per segment margin, we went from $34 million to $35 million and this is third-party revenue generating horsepower. And our compression increased by roughly 11,000 horsepower.

Okay. [indiscernible] segment margin for $234 million [ph].

The segment margin for the third quarter of 2011 was $35 million.

And the previous quarter, Q2, I have in here $37 million number, is that not right?

It's $34 million. You're including, in our segments, eliminations and that's the margin that is with our Gathering and Processing business.

I would now like to turn the call over to Mike Bradley, President and CEO, for closing remarks.

Well, again, thanks everyone for joining us today. I think in conclusion, we are very excited about our second distribution increase in a row. We have approximately $630 million to $680 million of organic growth projects coming online by 2013, and our assets are positioned to capitalize on more growth in the Eagle Ford and Permian Basin. We believe Regency is in an excellent position to achieve additional growth and further expand our service offerings to our customers. And again, I want to reiterate, our focus is to increase unitholder value and grow our distributions going forward. With that, have a great day and look forward to talking to you next quarter. Thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.