Nov. 4, 2009 (PR Newswire) -- HOUSTON, Nov. 4 /PRNewswire-FirstCall/ -- Copano Energy, L.L.C. (Nasdaq: CPNO) today announced its financial results for the three and nine months ended September 30, 2009.

"Despite a difficult environment for our customers, we are pleased to report full coverage of our unitholder distribution for the nineteenth consecutive quarter," said John Eckel, Copano Energy's Chairman and Chief Executive Officer.

Third Quarter Financial Results

Revenue for the third quarter of 2009 decreased 53% to $189.5 million compared with $402.9 million for the third quarter of 2008. Total segment gross margin decreased 13% to $53.4 million for the third quarter of 2009 from $61.4 million for the same period a year ago.

Adjusted EBITDA for the third quarter of 2009 decreased 5% to $41.2 million compared with $43.5 million for the third quarter of 2008. Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, adjusted to include Copano's share of depreciation, amortization and interest costs attributable to its unconsolidated affiliates. Non-cash charges incurred during the third quarter of 2009 that were not added back in determining adjusted EBITDA include amortization expense of $9.2 million related to the option component of Copano's risk management portfolio.

Total distributable cash flow for the third quarter of 2009 totaled $33.4 million compared to $38.6 million for the third quarter of 2008. Third quarter 2009 total distributable cash flow represents 105% coverage of the third quarter 2009 distribution of $0.575 per unit.

Net income decreased by 57% to $3.7 million, or $0.06 per unit on a diluted basis, for the third quarter of 2009 compared to net income of $8.7 million, or $0.15 per unit on a diluted basis, for the third quarter of 2008. The drivers of Copano's net income for the third quarter of 2009 compared to the third quarter of 2008 included:

--  a decrease in total segment gross margin of $7.9 million consisting of a
$29.9 million decrease in operating segment gross margins primarily
reflecting average NGL price declines of 54% in the Conway index and 49%
in the Mt. Belvieu index and lower overall service throughput volumes,
offset by an increase of $22.0 million from Copano's commodity risk
management activities; and

--  an increase in depreciation and amortization expenses of $1.9 million
primarily related to expanded operations in north Texas;

partially offset by:

--  a decrease in operations and maintenance expenses of $2.0 million and
general and administrative expenses of $1.8 million primarily related to
successful cost reduction efforts, including reduced employee
compensation expense and third-party service provider fees;
--  an increase of $0.4 million in equity in earnings of unconsolidated
affiliates; and

--  an increase in interest and other income of $0.7 million.

Segment gross margin, total segment gross margin, EBITDA, adjusted EBITDA and total distributable cash flow are non-GAAP financial measures that are defined and reconciled to the most directly comparable GAAP measures at the end of this news release.

Third Quarter Operating Results by Segment

Copano manages its business in three geographical operating segments: Oklahoma, Texas and the Rocky Mountains.

Oklahoma

The Oklahoma segment provides midstream natural gas services in central and east Oklahoma. During the third quarter of 2009, segment gross margin for the Oklahoma segment decreased 45% to $18.3 million compared to $33.1 million for the third quarter of 2008. The decrease resulted primarily from a 49% decline in realized margins on service throughput from the third quarter of 2008 ($0.76 per MMBtu in 2009 compared with $1.48 per MMBtu in 2008), reflecting lower NGL and natural gas prices. During the third quarter of 2009, NGL prices based on Conway index prices and Copano's weighted average product production mix averaged $27.62 per barrel compared with $59.42 per barrel during the third quarter of last year, a decrease of $31.80, or 54%. During the third quarter of 2009, natural gas prices based on CenterPoint East index prices averaged $2.98 per MMBtu compared with $8.41 per MMBtu during the third quarter of 2008, a decrease of $5.43, or 65%.

The decrease in segment gross margin for the Oklahoma segment was partially offset by increased service throughput and processing volumes. The Oklahoma segment gathered an average of 260,296 MMBtu/d of natural gas, processed an average of 166,884 MMBtu/d of natural gas and produced an average of 16,474 Bbls/d of NGLs at its plants and third-party plants during the third quarter of 2009, representing increases of 7%, 6% and 8%, respectively, compared with the third quarter of 2008. The increase in throughput is primarily attributable to the residual effects of drilling activity initiated during the favorable pricing environment in early 2008. During the third quarter of last year, the Oklahoma segment gathered an average of 243,000 MMBtu/d of natural gas, processed an average of 158,047 MMBtu/d of natural gas and produced an average of 15,238 Bbls/d of NGLs.

Texas

The Texas segment provides midstream natural gas services in Texas and also owns a processing plant in southwest Louisiana.

Segment gross margin for the Texas segment decreased approximately 35% in the third quarter of 2009 to $26.9 million compared to $41.4 million for the third quarter of 2008. The decrease resulted primarily from a 28% decline in realized margins on service throughput from the third quarter of 2008 ($0.48 per MMBtu in 2009 compared with $0.67 per MMBtu in 2008), reflecting lower NGL prices. During the third quarter of 2009, NGL prices based on Mt. Belvieu index prices and Copano's weighted average product production mix averaged $35.09 per barrel compared with $69.12 per barrel during the third quarter of 2008, a decrease of $34.03, or 49%.

The decrease in segment gross margin for the Texas segment was also attributable to decreased service throughput and processing volumes. During the third quarter of 2009, the Texas segment provided gathering, transportation and processing services for an average of 613,234 MMBtu/d of natural gas compared with 666,686 MMBtu/d for the third quarter of 2008, a decrease of 8%. The Texas segment gathered an average of 296,003 MMBtu/d of natural gas, processed an average of 543,994 MMBtu/d of natural gas at its plants and third-party plants and produced an average of 18,197 Bbls/d of NGLs at its plants and third-party plants during the third quarter of 2009, representing decreases of 2% and 9%, and an increase of 7%, respectively, as compared with the third quarter of last year. During the third quarter of 2008, the Texas segment gathered an average of 301,279 MMBtu/d of natural gas, processed an average of 596,225 MMBtu/d of natural gas and produced an average of 16,957 Bbls/d of NGLs. Volumes originating from the Texas segment and delivered to the plant decreased approximately 7% from the third quarter of last year whereas natural gas delivered to the plant and originated from sources other than the Texas segment decreased approximately 23% from the third quarter of 2008.

Rocky Mountains

The Rocky Mountains segment provides services to producers in Wyoming's Powder River Basin and owns managing member interests in Bighorn Gas Gathering of 51% and in Fort Union Gas Gathering of 37.04%.

Segment gross margin for the Rocky Mountains segment was $0.6 million for the third quarter of 2009 compared with $1.3 million for the same period in 2008. Producer services throughput, which represents volumes purchased for resale, volumes gathered using firm capacity gathering agreements with Fort Union and volumes transported under firm capacity transportation agreements with Wyoming Interstate Gas Company (WIC), or using additional capacity that Copano obtains on WIC, averaged 157,362 MMBtu/d for the third quarter of 2009, as compared to 230,859 MMBtu/d for the same period in 2008.

The decrease in segment gross margin was the result of lower volumes and unit margins primarily due to a continuing weak pricing environment in the Rocky Mountains creating disincentives for producers to continue drilling programs or to initiate de-watering programs on wells previously drilled. The Rocky Mountains segment results do not include the financial results and volumes associated with Copano's interests in Bighorn and Fort Union, which are accounted for under the equity method of accounting and are shown under "Equity in earnings from unconsolidated affiliates." Average pipeline throughput for Bighorn and Fort Union on a combined basis increased 1% in the third quarter of 2009 as compared with the third quarter of 2008. Average pipeline throughput for Bighorn and Fort Union for the third quarter of 2009 totaled 190,229 MMBtu/d and 761,897 MMBtu/d, respectively, as compared to 211,353 MMBtu/d and 735,131 MMBtu/d, respectively, for the third quarter of 2008. Amine treating facilities placed in service during the fourth quarter of 2008 contributed to Fort Union's increase in average pipeline throughput.

Corporate and Other

Corporate and other gross margin includes Copano's commodity risk management activities. These activities produced a gain of $7.6 million for the third quarter of 2009 compared to a loss of $14.4 million for the third quarter of 2008. The gain for the third quarter of 2009 included $16.4 million of net cash settlements received for expired commodity derivative instruments and $0.4 million of unrealized mark-to-market gains on undesignated economic hedges offset by $9.2 million of non-cash amortization expense relating to the option component of Copano's risk management portfolio. The third quarter 2008 loss included $7.0 million of net cash settlements paid for expired commodity derivative instruments and $8.4 million of non-cash amortization expense relating to the option component of Copano's risk management portfolio offset by $1.0 million of unrealized mark-to-market gains on undesignated economic hedges.

Year-to-Date Financial Results

Revenue for the first nine months of 2009 decreased 52% to $570.8 million compared to $1.2 billion for the same period of last year. Total segment gross margin decreased 18% to $157.5 million for the nine months ended September 30, 2009 from $192.3 million for the same period in 2008. For the nine months ended September 30, 2009, total segment gross margin included a net gain of $34.5 million related to Copano's risk management activities, comprised of $62.3 million of net cash settlements received on expired commodity derivative instruments offset by $27.7 million of non-cash amortization expense relating to the option component of Copano's risk management portfolio and $0.1 million of unrealized mark-to-market losses on undesignated economic hedges. Total segment gross margin for the nine months ended September 30, 2008 included a net loss of $49.7 million related to Copano's risk management activities comprised of $19.4 million of net cash settlements paid on expired commodity derivative instruments, $24.5 million of non-cash amortization expense relating to the option component of Copano's risk management portfolio and $5.8 million of unrealized mark-to-market losses on undesignated economic hedges.

Adjusted EBITDA decreased 18% to $120.8 million for the first nine months of 2009 compared to $146.7 million for the same period of last year. Total distributable cash flow decreased 22% to $101.4 million for the nine months ended September 30, 2009 compared to $129.2 million for the same period of 2008.

Net income decreased by 66% to $15.7 million, or $0.27 per unit on a diluted basis, for the nine months ended September 30, 2009 compared to net income of $46.4 million, or $0.80 per unit on a diluted basis, for the nine months ended September 30, 2008. The drivers of net income for 2009 compared to 2008 included:

--  a decrease in total segment gross margin of $34.8 million consisting of
a $119.0 million decrease in operating segment gross margins primarily
reflecting average NGL price declines of 57% in the Conway index and 54%
in the Mt. Belvieu index and lower overall service throughput volumes,
offset by an increase of $84.2 million from commodity risk management
activities;
--  an increase in depreciation and amortization expenses of $4.1 million
primarily related to expanded operations in north Texas;
--  a decrease of $1.3 million in equity in earnings of unconsolidated
affiliates; and
--  a decrease in discontinued operations and income taxes of $1.0 million;
--  partially offset by:
--  a decrease in general and administrative expenses of $4.6 million and
operations and maintenance expenses of $1.0 million primarily related to
successful cost reduction efforts, including reduced employee
compensation expense and third-party service provider fees;
--  a gain of $3.9 million related to the repurchase and retirement of $18.2
million aggregate principal amount of 7.75% senior unsecured notes due
2018 at market prices averaging 78% of the face amount of the notes; and

--  a decrease of $1.0 million in interest expense as a result of (i) a
decrease of non-cash mark-to-market charges on interest rate swaps of
$5.2 million offset by (ii) an increase in interest expense of $4.2
million as a result of increased average outstanding borrowings slightly
offset by lower average interest rates between the periods.

Cash Distributions

On October 14, 2009, Copano announced a third quarter 2009 cash distribution of $0.575 per unit, or $2.30 per unit on an annualized basis, for all of its outstanding common units. This distribution is equal to Copano's distribution of $0.575 per unit for the second quarter of 2009 and is payable on November 12, 2009 to common unitholders of record at the close of business on November 2, 2009.

Conference Call Information

Copano will hold a conference call to discuss its third quarter 2009 financial results and recent developments on Thursday, November 5, 2009 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). To participate in the call, dial (480) 629-9869 and ask for the Copano call 10 minutes prior to the start time, or access it live over the internet at www.copanoenergy.com on the "Investor Overview" page of the "Investor Relations" section of Copano's website.

A replay of the audio webcast will be available shortly after the call on Copano's website. Additionally, a telephonic replay will be available through November 12, 2009 by calling (303) 590-3030 and using the pass code 4175140#.

Use of Non-GAAP Financial Measures

This news release and the accompanying schedules include the non-generally accepted accounting principles, or non-GAAP, financial measures of segment gross margin, total segment gross margin, EBITDA, adjusted EBITDA and total distributable cash flow. The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States, or GAAP. Non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, income from continuing operations, cash flows from operating activities or any other GAAP measure of liquidity or financial performance. Copano uses non-GAAP financial measures as measures of its core profitability or to assess the financial performance of its assets. Copano believes that investors benefit from having access to the same financial measures that its management uses in evaluating Copano's liquidity position or financial performance.

Copano defines segment gross margin as an operating segment's revenue minus cost of sales. Cost of sales includes the following: cost of natural gas and NGLs purchased, cost of crude oil purchased and costs for transportation of volumes.