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Article by DailyStocks_admin    (11-27-08 03:35 AM)

Filed with the SEC from Nov 13 to Nov 19:

TransMontaigne Partners (TLP)
Morgan Stanley (MS) reported holding 839,842 common limited-partner units (8.4%) on November 19.

BUSINESS OVERVIEW


TransMontaigne Partners L.P. is a publicly traded Delaware limited partnership formed in February 2005 by TransMontaigne Inc. We commenced operations upon the closing of our initial public offering on May 27, 2005. Effective December 31, 2005, we changed our year end for financial and tax reporting purposes from June 30 to December 31. Our common units are traded on the New York Stock Exchange under the symbol "TLP." Our principal executive offices are located at 1670 Broadway, Denver, Colorado 80202; our telephone number is (303) 626-8200. Unless the context requires otherwise, references to "we," "us," "our," "TransMontaigne Partners," "Partners" or the "partnership" are intended to mean TransMontaigne Partners L.P., our wholly owned and controlled operating limited partnerships and their subsidiaries. References to TransMontaigne Inc. are intended to mean TransMontaigne Inc. and its subsidiaries other than TransMontaigne GP L.L.C., our general partner, TransMontaigne Partners and subsidiaries of TransMontaigne Partners.

OVERVIEW

We are a terminaling and transportation company with operations along the Gulf Coast, in the Midwest, in Brownsville, Texas, along the Mississippi and Ohio Rivers, and in the Southeastern United States. We provide integrated terminaling, storage, transportation and related services for customers engaged in the distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers and other liquid products. Light refined products include gasolines, diesel fuels, heating oil and jet fuels. Heavy refined products include residual fuel oils and asphalt. We do not purchase or market products that we handle or transport. Therefore, we do not have material direct exposure to changes in commodity prices, except for the value of refined product gains and losses arising from terminaling services agreements with certain customers. The volume of product that is handled, transported through or stored in our terminals and pipelines is directly affected by the level of supply and demand in the wholesale markets served by our terminals and pipelines. Overall supply of refined products in the wholesale markets is influenced by the products' absolute prices, the availability of capacity on delivering pipelines and vessels, fluctuating refinery margins and the markets' perception of future product prices. The demand for gasoline peaks during the summer driving season, which extends from April to September, and declines during the fall and winter months. The demand for marine fuels typically peaks in the winter months due to the increase in the number of cruise ships originating from the Florida ports. Despite these seasonalities, the overall impact on the volume of product throughput in our terminals and pipeline is not material.

TransMontaigne Partners has no officers or employees and all of our management and operational activities are provided by officers and employees of TransMontaigne Services Inc. TransMontaigne Services Inc. is a wholly owned subsidiary of TransMontaigne Inc. We are controlled by our general partner, TransMontaigne GP L.L.C., which is an indirect wholly owned subsidiary of TransMontaigne Inc. TransMontaigne GP L.L.C. is a holding company with no independent assets or operations other than its general partner interest in TransMontaigne Partners L.P. TransMontaigne GP L.L.C. is dependent upon the cash distributions it receives from TransMontaigne Partners L.P. to service any obligations it may incur. Effective September 1, 2006, Morgan Stanley Capital Group Inc., which we refer to as Morgan Stanley Capital Group, purchased all of the issued and outstanding capital stock of TransMontaigne Inc.

TransMontaigne Inc. is a leading distributor of unbranded refined petroleum products to independent wholesalers and industrial and commercial end users, delivering approximately 0.3 million barrels per day throughout the United States, primarily in the Gulf Coast, Southeast and Midwest regions. TransMontaigne Inc. also provides supply chain management services to various customers throughout the United States. TransMontaigne Inc. currently relies on us to provide substantially all of the integrated terminaling services it requires to support its operations in these geographic regions.

Morgan Stanley is a leading global trading company with extensive trading activities focused on the energy markets, including crude oil and refined petroleum products. Morgan Stanley Capital Group is the principal commodities trading arm of Morgan Stanley. Morgan Stanley Capital Group's trading and risk management activities cover a broad spectrum of the energy industry with extensive resources dedicated to refined product supply and transportation. Morgan Stanley Capital Group engages in trading both physical commodities, like the refined petroleum products that we handle in our terminals, and exchange or over-the-counter commodities derivative instruments. Morgan Stanley Capital Group has access to substantial strategic long-term storage capacity located on all three coasts of the United States, in Northwest Europe and Asia.

Our existing facilities are located in five geographic regions, which we refer to as our Gulf Coast, Brownsville, River, Midwest and Southeast facilities.


Gulf Coast. Our Gulf Coast facilities consist of eight refined product terminals, seven of which are located in Florida and one of which is located in Mobile, Alabama. These facilities currently have approximately 6.2 million barrels of aggregate active storage capacity.


Midwest. Our Midwest facilities consist of a 67-mile, interstate refined products pipeline between Arkansas and Missouri, which we refer to as the Razorback pipeline, and three refined product terminals with approximately 0.6 million barrels of aggregate active storage capacity.


Brownsville. Our terminal in Brownsville, Texas has approximately 2.1 million barrels of aggregate active storage capacity, which includes a liquefied petroleum gas terminaling facility with aggregate active storage capacity of approximately 15,000 barrels. We operate a bi-directional refined products pipeline for an affiliate of Mexico's state-owned petroleum company for deliveries to and from Brownsville and Reynosa and Cadereyta, Mexico. We also own and operate a liquified petroleum gas ("LPG") pipeline from our Brownsville facilities to our terminal in Matamoros, Mexico, and a parallel pipeline which can be utilized in the future to transport additional LPG or refined petroleum products to Mexico, which we collectively refer to as the Diamondback pipelines. Our Matamoros terminal has approximately 6,000 barrels of aggregate active storage capacity.


River. Our River facilities are comprised of 12 refined product terminals located along the Mississippi and Ohio Rivers with approximately 2.8 million barrels of aggregate active storage capacity. Our River facilities also include a dock facility in Baton Rouge, Louisiana that is connected to the Colonial pipeline.


Southeast. Our Southeast facilities consist of 22 refined petroleum products terminals located along the Colonial and Plantation pipelines in Alabama, Georgia, North Carolina, Mississippi, South Carolina, and Virginia with an aggregate active storage capacity of approximately 9.0 million barrels.

Recent Developments

Senior Secured Credit Facility

On July 12, 2007, we amended our existing senior secured credit facility to increase the maximum amount of the revolving credit line from $150 million to $200 million. In addition, at our request, the revolving loan commitment can be increased up to an additional $50 million, in the aggregate, without the approval of the lenders, but subject to the approval of the administrative agent and the receipt of additional commitments from one or more lenders.

Secondary Offering of Common Units

On May 23, 2007, we issued, pursuant to an underwritten public offering, 4.8 million common units representing limited partner interests at a public offering price of $36.80 per common unit. On June 20, 2007, the underwriters of our secondary offering exercised a portion of their over-allotment option to purchase an additional 349,800 common units representing limited partnership interests at a price of $36.80 per common unit. The net proceeds from the offering were approximately $179.9 million, after deducting underwriting discounts, commissions, and offering expenses of approximately $9.6 million. Additionally, TransMontaigne GP L.L.C., our general partner, made a cash contribution of approximately $3.9 million to us to maintain its 2% general partner interest.

Acquisition of Southeast Facilities and Related Transactions

On December 31, 2007, we acquired the Southeast facilities along the Colonial and Plantation pipelines from TransMontaigne Inc. for a cash payment of approximately $118.6 million. The Southeast facilities have aggregate active storage capacity of approximately 9.0 million barrels. We borrowed approximately $118.6 million under our senior secured credit facility to finance the acquisition. The transaction was approved by the conflicts committee of the board of directors of our general partner.

Morgan Stanley Terminaling Services Agreement—Southeast Terminals. In connection with the acquisition of the Southeast facilities, we entered into a terminaling services agreement with Morgan Stanley Capital Group. The terminaling services agreement commenced on January 1, 2008, and expires on December 31, 2014, subject to Morgan Stanley Capital Group's right to renew the agreement for an additional seven years. Under this agreement, Morgan Stanley Capital Group has agreed to throughput a volume of refined product that will result in minimum throughput payments to the Partnership of approximately $31.6 million for the contract year ending December 31, 2008, with stipulated annual increases in throughput fees each contract year thereafter. During the initial term, Morgan Stanley Capital Group has an exclusive right to utilize any tanks that may be constructed, refurbished or placed into operation at our Collins/Purvis terminal located in Collins, Mississippi. Any construction or refurbishment at the Collins/Purvis terminal will be undertaken only upon the mutual written agreement of the parties. We also agreed to return to Morgan Stanley Capital Group 50% of the proceeds we receive in excess of $4.2 million from the sale of product gains arising from our terminaling services agreement with Morgan Stanley Capital Group at our Southeast terminals.

Amended and Restated Omnibus Agreement. Concurrently with the execution of the facilities sale agreement, we amended and restated the omnibus agreement, which we refer to as the omnibus agreement, among TransMontaigne Inc., TransMontaigne Partners L.P. and certain affiliates. The amendment increased the administrative fee payable to TransMontaigne Inc. from approximately $7.0 million to $10.0 million and increased the insurance reimbursement payable to TransMontaigne Inc. from approximately $1.7 million to $2.9 million. The increase in the administrative fee and insurance reimbursement reflect the allocation of the costs expected to be incurred by TransMontaigne Inc. for providing management, legal, accounting and tax services for, and insurance on, the Southeast terminals on our behalf. We also agreed to reimburse TransMontaigne Inc. and its affiliates up to $1.5 million for incentive payment grants to key employees of TransMontaigne Inc. and its affiliates under the TransMontaigne Services Inc. savings and retention plan provided the compensation committee of our general partner determines that an adequate portion of the incentive payment grants are allocated to an investment fund indexed to the performance of our common units. In addition, the term of the omnibus agreement was extended through December 31, 2014. If Morgan Stanley Capital Group elects to renew the terminaling and services agreement for the Southeast terminals, we have the right to extend the term of the omnibus agreement for an additional seven years.

Matamoros, Mexico and Brownsville, Texas Facilities

On December 31, 2007, we acquired from Rio Vista Energy Partners L.P. a terminal facility in Matamoros, Mexico, two pipelines running from Brownsville, Texas to Matamoros, Mexico, which we refer to as the Diamondback pipelines, with associated rights of way and easements and 47 acres of land, together with a permit to distribute LPG to Mexico's state-owned petroleum company for a cash payment of approximately $9.0 million.

Industry Overview

Refined product terminaling and transportation companies, such as TransMontaigne Partners, facilitate the movement of refined products to consumers around the country. Consumption of refined products in the United States exceeds domestic production, which necessitates the importing of refined products from other countries. Moreover, a substantial majority of the petroleum refining that occurs in the United States east of the Rocky Mountains is concentrated in the Gulf Coast region, which necessitates the transportation of domestic product to other areas, such as the East Coast, Florida, Southeast and Midwest regions of the country. Terminaling and transportation companies receive, store, blend, treat and distribute refined products, both domestic and imported, as they are transported from refineries to retailers and end-users.

Refining. Refineries in the Gulf Coast region refine crude oil into various light refined products and heavy refined products. Light refined products include gasolines, diesel fuels, heating oils and jet fuels. Heavy refined products include residual fuel oils and asphalt. Refined products of specific grade and characteristics are substantially identical in composition from one refinery to another and are referred to as being "fungible." The refined products initially are stored at the refineries' own terminal facilities. The refineries owned by major oil companies then schedule for delivery some of their refined product output to satisfy their own retail delivery obligations, for example, at branded gasoline stations, and sell the remainder of their refined product output to independent marketing and distribution companies or traders, such as TransMontaigne Inc. and Morgan Stanley Capital Group, for resale. The major refineries typically prefer to sell their excess refined product to independent marketing and distribution companies rather than to other refineries and integrated oil companies, which are their primary competitors.

Transportation. For independent distribution and marketing companies, such as TransMontaigne Inc. and Morgan Stanley Capital Group, to distribute refined petroleum products in the wholesale markets, it must first schedule that product for shipment by tankers or barges or on common carrier pipelines to a terminal.

Refined product is transported to marine terminals, such as our Gulf Coast terminals and Baton Rouge, Louisiana dock facility, by vessels or barges. Because there are economies of scale in transporting products by vessel, marine terminals with larger storage capacities for various commodities have the ability to offer their customers lower per-barrel freight costs to a greater extent than do terminals with smaller storage capacities.

Refined product reaches inland terminals, such as our Southeast and Midwest terminals, by common carrier pipelines. Common carrier pipelines are pipelines with published tariffs that are regulated by the Federal Energy Regulatory Commission, or FERC, or state authorities. These pipelines ship fungible refined products in batches, with each batch generally consisting of product owned by several different companies. As a batch of product is shipped on a pipeline, each terminal operator along the way draws the volume of product that is scheduled for that facility as the batch passes in the pipeline. Consequently, each terminal operator must monitor the type of product in the common carrier pipeline to determine when to draw product scheduled for delivery to that terminal. In addition, both the common carrier pipeline and the terminal operator monitor the volume of product drawn to ensure that the amount scheduled for delivery at that location is actually received.

At both inland and marine terminals, the various products are segregated and stored in tanks pending delivery to or on behalf of our customers.

Delivery. Most terminals have a tanker truck loading facility commonly referred to as a "rack." Often, commercial and industrial end-users and independent retailers rely on independent trucking companies to pick up product at the rack and transport it to the end-user or retailer at its location. Each truck holds an aggregate of approximately 8,000 gallons (approximately 190 barrels) of various refined products in different compartments. The driver swipes a magnetic card that identifies the customer purchasing the refined product, the carrier and the driver as well as the type or grade of refined products to be pumped into the truck. A computerized system electronically reviews the credentials of the carrier, including insurance and certain mandated certifications, and confirms the customer is within product allocation limits. When all conditions are verified as being current and correct, the system authorizes the delivery of the refined product to the truck. As refined product is being loaded into the truck, additives are injected into refined products, including all gasolines, to conform to government specifications and individual customer requirements. If a truck is loading gasoline for retail sale by an independent gasoline station, generic additives will be added to the gasoline as it is loaded into the truck. If the gasoline is for delivery to a branded retail gasoline station, the proprietary additive compound of that particular retailer will be added to the gasoline as it is loaded. The type and amount of additive are electronically and mechanically controlled by equipment located at the truck loading rack. Approximately one to two gallons of additive are injected into an 8,000 gallon truckload of gasoline.

At marine terminals, the refined product is stored in tanks and may be delivered to tanker trucks over a rack in the same manner as at an inland terminal. Refined product also may be delivered to cruise ships and other vessels, known as bunkering, either at the dock, through a pipeline or truck, or by barge. Cruise ships typically purchase approximately 6,000 to 8,000 barrels, the equivalent of approximately 42 tanker truckloads, of bunker fuel per refueling. Bunker fuel is a mixture of residual fuel oil and distillate. Each large vessel generally requires its own mixture of bunker fuel to match the distinct characteristics of that ship's engines and turbines. Because the mixture for each ship requires precision to mix and deliver, cruise ships often prefer to refuel in United States ports with experienced companies.

Our Operations

We are a terminaling and transportation company with operations along the Gulf Coast, in the Midwest, in Brownsville, Texas, along the Mississippi and Ohio Rivers, and in the Southeastern United States. We use our terminaling facilities to, among other things:


receive refined products from the pipeline, ship, barge or railcar making delivery on behalf of our customers, and transfer those products to the tanks located at our terminals;


store the refined products in our tanks for our customers;


monitor the volume of the refined products stored in our tanks;


distribute the refined products out of our terminals in small lots or truckloads via the truck racks and other distribution equipment located at our terminals, including pipelines; and


heat residual fuel oils and asphalt stored in our tanks, and provide other ancillary services related to the throughput process.

We principally derive revenue from our product terminals by charging fees for providing integrated terminaling and related services, including:


throughput and additive injection fees based on the volume of product distributed at a contracted rate per barrel;


terminaling storage fees based on a rate per barrel of storage capacity per month;


ancillary services including heating and mixing of stored products; and


product transfer services.

We generate revenue at the Razorback and Diamondback pipelines by charging a tariff regulated by the FERC, based on the volume of product transported and the distance from the origin point to the delivery point. We also generate management fees associated with our operation and management of a 17-mile bi-directional refined products pipeline that connects our Brownsville terminal complex to a pipeline in Mexico that terminates at terminal facilities located in Cadereyta and Reynosa, Mexico for an affiliate of Mexico's state-owned petroleum company. We manage and operate for another major oil company two terminals that are adjacent to our Southeast facilities and receive a reimbursement of its proportionate share of operating and maintenance costs. In addition, we manage and operate certain tank capacity at our Port Everglades (South) terminal for a major oil company and receive a reimbursement for its proportionate share of operating and maintenance costs. We also derive revenue from product gains or incur losses from product losses related to our terminaling services agreements with certain customers.

Morgan Stanley Capital Group and Marathon Petroleum Company LLC, which we refer to as Marathon, are the principal customers at our Gulf Coast facilities; Morgan Stanley Capital Group and Shell Oil Products U.S., which we refer to as Shell, are the principal customers at our Midwest facilities; Morgan Stanley Capital Group, Valero Marketing and Supply Company, which we refer to as Valero, TransMontaigne Inc. and PMI Trading Limited, an affiliate of Mexico's state-owned petroleum company, are the principal customers at our Brownsville, Texas facilities; Valero is our principal customer at our River facilities; and Morgan Stanley Capital Group and the United States government are the principal customers at our Southeast facilities.

Gulf Coast Operations. Our Gulf Coast operations include eight refined product terminals located in Florida and Alabama. At our Gulf Coast terminals, we handle refined products and crude oil on behalf of, and provide integrated terminaling services to customers engaged in the distribution and marketing of refined products and crude oil and the United States government. Our Gulf Coast terminals receive refined products from vessels on behalf of our customers. In addition, our Jacksonville terminal also receives asphalt by rail and our Port Everglades (North) terminal receives product by rail and truck as well as by barge. We distribute by truck or barge at all of our Gulf Coast terminals. In addition, we distribute refined products by pipeline at our Port Everglades and Tampa terminals and by rail at our Port Everglades (North) and Jacksonville terminals. Our Port Everglades (South) terminal is connected by pipeline to our Port Everglades (North) terminal. A major oil company retains an ownership interest, ranging from 25% to 50%, in specific tank capacity at our Port Everglades (South) terminal. We manage and operate the Port Everglades (South) terminal, and we are reimbursed by a major oil company for its proportionate share of our operating and maintenance costs. Our Mobile terminal facility receives and distributes refined product by truck and barge.

The principal customers at our Gulf Coast facilities are Morgan Stanley Capital Group and Marathon.

Midwest Terminals and Pipeline Operations. In Missouri and Arkansas we own and operate the Razorback pipeline and terminals in Rogers, Arkansas, at the terminus of the pipeline, and Mt. Vernon, Missouri, at the origin of the pipeline. The Razorback pipeline is a 67 mile, 8-inch diameter interstate common carrier pipeline that transports light refined product on behalf of Morgan Stanley Capital Group from our terminal at Mt. Vernon, where it is interconnected with a pipeline system owned by Magellan Midstream Partners, to our terminal at Rogers. The Razorback pipeline has a capacity of approximately 30,000 barrels per day. The FERC regulates the transportation tariffs for interstate shipments on the Razorback Pipeline. Morgan Stanley Capital Group currently is the only shipper on the Razorback pipeline and our sole customer at our Rogers and Mt. Vernon terminals.

We also own and operate a terminal facility at Oklahoma City, Oklahoma. Our Oklahoma City terminal receives gasolines and diesel fuels from a pipeline system owned by Magellan Midstream Partners for delivery via our truck rack to Shell's customers for redistribution to locations throughout the Oklahoma City region.

Brownsville, Texas Operations. In Brownsville, Texas, we own and operate six terminal facilities and the Diamondback pipelines which handle a large volume of liquid product movements between Mexico and south Texas including refined petroleum products, chemicals, vegetable oils, naphtha, wax and propane on behalf of, and provide integrated terminaling services to, third parties engaged in the distribution and marketing of refined products and natural gas liquids. Our Brownsville facilities receive refined products on behalf of our customers from vessels, by truck or railcar. We also receive natural gas liquids by pipeline.

The Diamondback pipelines consist of an 8" pipeline that transports LPG approximately 23 miles from our Brownsville facilities to our Matamoros terminal, with approximately 16 miles located in Texas and approximately 7 miles located in Mexico and a 6" pipeline, which runs parallel to the 8" pipeline that can be used by us in the future to transport additional LPG or refined products to our Matamoros terminal. The 8" pipeline has a capacity of approximately 7,500 barrels per day. The 6" pipeline has a capacity of approximately 4,300 barrels per day.

We also operate and maintain the United States portion of a 174-mile bi-directional refined products pipeline owned by PMI Services North America, Inc., an affiliate of Petroleos Mexicanos, or PEMEX, the state-owned, national petroleum company of Mexico. This pipeline connects our Brownsville terminal complex to a pipeline in Mexico that delivers to PEMEX's terminal located in Reynosa, Mexico and terminates at PEMEX's refinery, located in Cadereyta, Nuevo Leon, Mexico, a suburb of the large industrial city of Monterrey. The pipeline transports fully refined petroleum products and blending components. We operate and manage the 17-mile portion of the pipeline located in the United States for a fee that is based on the average daily volume handled during the month. Additionally we are reimbursed for non-routine maintenance expenses based on the actual costs plus a fee based on a fixed percentage of the expense.

The customers we serve at our Brownsville terminal facilities consist principally of wholesale and retail marketers of refined products and industrial and commercial end-users of refined products, waxes and industrial chemicals. Our principal customers are TransMontaigne Inc., Morgan Stanley Capital Group, Valero and PMI Trading Limited, an affiliate of Mexico's state-owned petroleum company.



MANAGEMENT DISCUSSION FROM LATEST 10K


The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the accompanying consolidated financial statements included elsewhere in this annual report.

OVERVIEW

We are a refined petroleum products terminaling and pipeline transportation company formed by TransMontaigne Inc. At December 31, 2007, our operations are composed of:


seven refined product terminals located in Florida, with an aggregate active storage capacity of approximately 6.0 million barrels, that provide integrated terminaling services to Morgan Stanley Capital Group Inc., other distribution and marketing companies and the United States government;


one refined product terminal located in Mobile, Alabama with aggregate active storage capacity of approximately 223,000 barrels that provides integrated terminaling services to TransMontaigne Inc. and other distribution and marketing companies;


a 67-mile, interstate refined products pipeline, which we refer to as the Razorback Pipeline, that currently transports gasolines and distillates for Morgan Stanley Capital Group Inc. from Mt. Vernon, Missouri to Rogers, Arkansas;


two refined product terminals, one located in Mt. Vernon, Missouri and the other located in Rogers, Arkansas, with an aggregate active storage capacity of approximately 404,000 barrels, that are connected to the Razorback Pipeline and provide integrated terminaling services to Morgan Stanley Capital Group Inc.;


one refined product terminal located in Oklahoma City, Oklahoma, with aggregate active storage capacity of approximately 157,000 barrels, that provides integrated terminaling services to a major oil company;


one refined product terminal located in Brownsville, Texas with aggregate active storage capacity of approximately 2.1 million barrels that provides integrated terminaling services to TransMontaigne Inc., Morgan Stanley Capital Group Inc., Valero, PMI Trading Ltd. and other distribution and marketing companies; and


twelve refined product terminals located along the Mississippi and Ohio rivers ("River terminals") with aggregate active storage capacity of approximately 2.8 million barrels and the Baton Rouge, Louisiana dock facility that provide integrated terminaling services to Valero and other distribution and marketing companies.


twenty two refined product terminals located along the Colonial and Plantation Pipelines ("Southeast terminals") with aggregate active storage capacity of approximately 9.0 million barrels that provides integrated terminaling services to Morgan Stanley Capital Group Inc. and the United States government.

We provide integrated terminaling, storage, transportation and related services for customers engaged in the distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers and other liquid products including TransMontaigne Inc. and Morgan Stanley Capital Group Inc. Light refined products include gasolines, diesel fuels, heating oil and jet fuels. Heavy refined products include residual fuel oils and asphalt.

We do not take ownership of or market products that we handle or transport and, therefore, we are not directly exposed to changes in commodity prices, except for the value of product gains and losses arising from certain of our terminaling services agreements with our customers. The volume of product that is handled, transported through or stored in our terminals and pipeline is directly affected by the level of supply and demand in the wholesale markets served by our terminals and pipeline. Overall supply of refined products in the wholesale markets is influenced by the products' absolute prices, the availability of capacity on delivering pipelines and vessels, fluctuating refinery margins and the markets' perception of future product prices. The demand for gasoline peaks during the summer driving season, which extends from April to September, and declines during the fall and winter months. The demand for marine fuels typically peaks in the winter months due to the increase in the number of cruise ships originating from the Florida ports. Despite these seasonalities, the overall impact on the volume of product throughput in our terminals and pipeline is not material.

The majority of our business is devoted to providing terminaling and transportation services to TransMontaigne Inc. and Morgan Stanley Capital Group. TransMontaigne Inc. and Morgan Stanley Capital Group, in the aggregate, accounted for approximately 58%, 60%, 70% and 64% of our revenue for the years ended December 31, 2007 and 2006, six months ended December 31, 2005 and for the year ended June 30, 2005, respectively. TransMontaigne Inc., formed in 1995, is a terminaling, distribution and marketing company that distributes and markets refined petroleum products to wholesalers, distributors, marketers and industrial and commercial end users throughout the United States, primarily in the Gulf Coast, East Coast and Midwest regions. TransMontaigne Inc. also provides supply chain management services to various customers throughout the United States. Morgan Stanley Capital Group, a wholly owned subsidiary of Morgan Stanley, is the principal commodities trading arm of Morgan Stanley. Morgan Stanley Capital Group is a leading global commodity trader involved in proprietary and counterparty-driven trading in numerous commodities including crude oil, refined petroleum products, natural gas and natural gas liquids, coal, electric power, base and precious metals, and others. Morgan Stanley Capital Group engages in trading both physical commodities, like the refined petroleum products that we handle in our terminals, and exchange or over-the-counter commodities derivative instruments. TransMontaigne Inc. and Morgan Stanley Capital Group currently rely on us to provide substantially all the integrated terminaling services they require to support their operations along the Gulf Coast, in Brownsville, Texas, along the Mississippi and Ohio rivers, along the Colonial and Plantation pipelines, and in the Midwest. Pursuant to the terms of terminaling services agreements we have executed with TransMontaigne Inc. and Morgan Stanley Capital Group, we expect to continue to derive a majority of our revenue from TransMontaigne Inc. and Morgan Stanley Capital Group for the foreseeable future.

We are controlled by our general partner, TransMontaigne GP L.L.C., which is an indirect wholly owned subsidiary of TransMontaigne Inc. Effective September 1, 2006, Morgan Stanley Capital Group Inc. purchased all of the issued and outstanding capital stock of TransMontaigne Inc. As a result of Morgan Stanley's acquisition of TransMontaigne Inc., Morgan Stanley became the indirect owner of our general partner. TransMontaigne Inc. and Morgan Stanley have a significant interest in our partnership through their indirect ownership of a 26.2% limited partner interest, a 2% general partner interest and the incentive distribution rights.

SIGNIFICANT DEVELOPMENTS DURING THE YEAR ENDED DECEMBER 31, 2007

On January 19, 2007, we announced a distribution of $0.43 per unit for the period from October 1, 2006 through December 31, 2006, payable on February 7, 2007 to unitholders of record on January 31, 2007.

On April 13, 2007, we filed a shelf registration statement with the Securities and Exchange Commission to issue up to $1.0 billion of common units and debt securities pursuant to one or more offerings in the future.

On April 20, 2007, we announced a distribution of $0.47 per unit for the period from January 1, 2007 through March 31, 2007, payable on May 8, 2007 to unitholders of record on April 30, 2007.

On May 7, 2007, we announced a program for the repurchase, from time to time, of outstanding common units of the Partnership for purposes of making subsequent grants of restricted units under the Partnership's Long-Term Incentive Plan to non-executive directors of our general partner. As of December 31, 2007, we have repurchased 1,680 common units pursuant to the program.

Effective June 1, 2007, we entered into a terminaling services agreement with Morgan Stanley Capital Group that replaced our terminaling services agreement with TransMontaigne Inc. relating to our Florida, Mt. Vernon, Missouri and Rogers, Arkansas terminals. The initial term expires on May 31, 2014. After the initial term, the terminaling services agreement will automatically renew for subsequent one-year periods, subject to either party's right to terminate with six months' notice prior to the end of the initial term or the then current renewal term. Under this agreement, Morgan Stanley Capital Group has agreed to throughput a volume of refined product that will result in minimum throughput payments to us of approximately $30.3 million for the contract year ending May 31, 2008; with stipulated annual increases in throughput payments each contract year thereafter.

On May 23, 2007, we issued, pursuant to an underwritten public offering, 4.8 million common units representing limited partner interests at a public offering price of $36.80 per common unit. On June 20, 2007, the underwriters of our secondary offering exercised a portion of their over-allotment option to purchase an additional 349,800 common units representing limited partnership interests at a price of $36.80 per common unit. The net proceeds from the offering were approximately $179.9 million, after deducting underwriting discounts, commissions, and offering expenses of approximately $9.6 million. Additionally, TransMontaigne GP L.L.C., our general partner, made a cash contribution of approximately $3.9 million to us to maintain its 2% general partner interest.

On May 23, 2007, we repaid in full our $75 million term loan outstanding under the senior secured credit facility.

On July 12, 2007, we amended the senior secured credit facility to increase the amount of revolving credit permissible under the facility from $150 million to $200 million.

On July 20, 2007, we announced a distribution of $0.50 per unit for the period from April 1, 2007 through June 30, 2007, payable on August 7, 2007 to unitholders of record on July 31, 2007.

On September 18, 2007, we signed a binding letter of intent with Rio Vista Energy Partners L.P. ("Rio Vista") to acquire Rio Vista's LPG terminal facility in Matamoras, Mexico; two pipelines, together with associated rights of way and easements, which run from Brownsville, Texas to Matamoras, Mexico; and a permit to distribute liquefied petroleum gas to Mexico's state-owned petroleum company. On December 31, 2007, we closed on the Rio Vista acquisition for a cash payment of approximately $9.0 million.

On October 19, 2007, we announced a distribution of $0.50 per unit for the period from July 1, 2007 through September 30, 2007, payable on November 6, 2007 to unitholders of record on October 31, 2007.

On December 31, 2007, we acquired from TransMontaigne Inc. the Southeast terminals for a cash payment of approximately $118.6 million. We financed the acquisition through additional borrowings under our amended and restated senior secured credit facility. In connection with the acquisition of the Southeast terminals, we entered into a terminaling services agreement with Morgan Stanley Capital Group. The terminaling services agreement commences on January 1, 2008 and has a seven-year term expiring on December 31, 2014, subject to a seven-year renewal option at the election of Morgan Stanley Capital Group. Under this agreement, Morgan Stanley Capital Group has agreed to throughput a volume of refined product that will result in minimum throughput payments to us of approximately $31.6 million for the contract year ending December 31, 2008; with stipulated annual increases in throughput payments each contract year thereafter.

SUBSEQUENT EVENTS

On January 7, 2008, we announced changes to the board of directors and senior management team of TransMontaigne GP L.L.C., our general partner. The following officer appointments became effective January 1, 2008: Gregory J. Pound as President and Chief Operating Officer of our general partner and operating subsidiaries; Frederick W. Boutin as Chief Financial Officer of our general partner and operating subsidiaries; and Deborah A. Davis as Chief Accounting Officer of our general partner and operating subsidiaries. Randall J. Larson will continue to serve as Chief Executive Officer of our general partner and operating subsidiaries. Also effective January 1, 2008, William S. Dickey resigned as Executive Vice President, Chief Operating Officer and member of the board of directors of the general partner.

On January 18, 2008, we announced a distribution of $0.52 per unit for the period from September 1, 2007 through December 31, 2007, payable on February 5, 2008 to unitholders of record on January 31, 2008.

At the March 5, 2008 meeting of the board of directors of our general partner, Donald H. Anderson, D. Dale Shaffer and Rex L. Utsler resigned as members of the board of directors, all to be effective March 17, 2008. In connection with their respective resignations, Messrs. Anderson, Shaffer and Utsler did not indicate that there were any disagreements between any of them and us or members of the board of directors of our general partner regarding our operations, policies or procedures. These changes were requested by representatives of Morgan Stanley Capital Group Inc. who serve on the board of directors of TransMontaigne Inc., which is the indirect owner of our general partner. To fill the resulting vacancies, the following individuals were appointed to the board of directors of our general partner, effective March 17, 2008: Duke R. Ligon as an independent director and Olav Refvik and Stephen R. Munger as affiliated directors. Mr. Munger was also appointed to serve as Chairman of the board of directors of our general partner. Based upon these appointments, and the anticipated appointment of a new independent director to fill the vacancy created by the resignation of William S. Dickey as a director of our general partner effective January 1, 2008, the board of directors of our general partner will be comprised of seven directors, three of who are affiliated directors and four of who are independent directors.

NATURE OF REVENUE AND EXPENSES

We derive revenue from our terminal and pipeline transportation operations by charging fees for providing integrated terminaling, transportation and related services. The fees we charge, our other sources of revenue and our direct operating costs and expenses are described below.

Throughput and Additive Injection Fees, Net. We earn throughput fees for each barrel of product that is distributed at our terminals by our customers. Terminal throughput fees are based on the volume of product distributed at the facility's truck loading racks, generally at a standard rate per barrel of product. We provide additive injection services in connection with the delivery of product at our terminals. These fees generally are based on the volume of product injected and delivered over the rack at our terminals.

Terminaling Storage Fees. We provide storage capacity at our terminals. Terminaling storage fees generally are based on a rate per barrel of storage capacity per month and vary with the duration of the terminaling services agreement and the type of product.

Pipeline Transportation Fees. We earn pipeline transportation fees at our Razorback pipeline based on the volume of product transported and the distance from the origin point to the delivery point. The Federal Energy Regulatory Commission regulates the tariff on the Razorback Pipeline.

Management Fees and Reimbursed Costs. We manage and operate certain tank capacity at our Port Everglades (South) terminal for a major oil company and receive a reimbursement of its proportionate share of operating and maintenance costs. We manage and operate for another major oil company two terminals that are adjacent to our Southeast facilities and receive a reimbursement of its proportionate share of operating and maintenance costs. We also manage and operate for an affiliate of Mexico's state-owned petroleum company a bi-directional products pipeline connected to our Brownsville, Texas terminal facility and receive a management fee and reimbursement of costs.

Other Revenue. We provide ancillary services including heating and mixing of stored products and product transfer services. We also recognize gains from the sale of product to our affiliates resulting from the excess of product deposited by certain of our customers into our terminals over the amount of product that the customer is contractually permitted to withdraw from those terminals.

Direct Operating Costs and Expenses. The direct operating costs and expenses of our operations include the directly related wages and employee benefits, utilities, communications, maintenance and repairs, property taxes, rent, vehicle expenses, environmental compliance costs, materials and supplies.

Direct General and Administrative Expenses. The direct general and administrative expenses of our operations include costs related to operating as a public entity, such as accounting and legal costs associated with annual and quarterly reports and tax return and Schedule K-1 preparation and distribution, independent director fees and amortization of deferred equity-based compensation.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of the significant accounting policies that we have adopted and followed in the preparation of our historical consolidated financial statements is detailed in Note 1 of Notes to consolidated financial statements. Certain of these accounting policies require the use of estimates. We have identified the following estimates that, in our opinion, are subjective in nature, require the exercise of judgment, and involve complex analyses. These estimates are based on our knowledge and understanding of current conditions and actions that we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations.

Allowance for Doubtful Accounts. At December 31, 2007, our allowance for doubtful accounts was approximately $150,000. Our allowance for doubtful accounts represents the amount of trade receivables that we do not expect to collect. The valuation of our allowance for doubtful accounts is based on our analysis of specific individual customer balances that are past due and, from that analysis, we estimate the amount of the receivable balance that we do not expect to collect. That estimate is based on various factors, including our experience in collecting past due amounts from the customer being evaluated, the customer's current financial condition, the current economic environment and the economic outlook for the future.

Accrued Environmental Obligations. At December 31, 2007, we have an accrued liability of approximately $1.1 million as our best estimate of the undiscounted future payments we expect to pay for environmental costs to remediate existing conditions. Estimates of our environmental obligations are subject to change due to a number of factors and judgments involved in the estimation process, including the early stage of investigation at certain sites, the lengthy time frames required to complete remediation, technology changes affecting remediation methods, alternative remediation methods and strategies, and changes in environmental laws and regulations. Changes in our estimates and assumptions may occur as a result of the passage of time and the occurrence of future events.

Costs incurred to remediate existing contamination at the terminals we acquired from TransMontaigne Inc. have been, and are expected in the future to be, insignificant. Pursuant to the omnibus agreement and subsequent facilities purchase agreements with TransMontaigne Inc., TransMontaigne Inc. retained 100% of these liabilities and indemnified us against certain potential environmental claims, losses and expenses associated with the operation of the acquired terminal facilities and occurring before our date of acquisition from TransMontaigne Inc., up to a maximum liability (not to exceed $15.0 million for the Florida and Midwest terminals acquired on May 27, 2005, not to exceed $2.5 million for the Mobile, Alabama terminal acquired on January 1, 2006, not to exceed $15.0 million for the Brownsville and River terminals acquired on December 29, 2006, and not to exceed $15.0 million for the Southeast terminals acquired on December 31, 2007) for these indemnification obligations (see Note 2 of Notes to consolidated financial statements).

RESULTS OF OPERATIONS—YEARS ENDED DECEMBER 31, 2007 AND 2006, SIX MONTHS ENDED DECEMBER 31, 2005 AND YEAR ENDED JUNE 30, 2005

In reviewing our historical results of operations, you should be aware that the accompanying consolidated financial statements include the assets, liabilities and results of operations of certain TransMontaigne Inc. terminal and pipeline transportation operations prior to their acquisition by us from TransMontaigne Inc. The results of operations of TransMontaigne Inc.'s terminals and pipelines prior to being acquired by us are reflected in the accompanying consolidated financial statements as being attributable to TransMontaigne Inc. ("Predecessor"). The acquired assets and liabilities have been recorded at TransMontaigne Inc.'s carryover basis. At the closing of our initial public offering on May 27, 2005, we acquired from TransMontaigne Inc. seven Florida terminals, including terminals located in Tampa, Port Manatee, Fisher Island, Port Everglades (North), Port Everglades (South), Cape Canaveral, and Jacksonville; and the Razorback Pipeline system, including the terminals located at Mt. Vernon, Missouri and Rogers, Arkansas in exchange for 120,000 common units, 2,872,266 subordinated units, a 2% general partner interest and a cash payment of approximately $111.5 million. On January 1, 2006, we acquired from TransMontaigne Inc. the Mobile, Alabama terminal in exchange for a cash payment of approximately $17.9 million. On December 29, 2006, we acquired from TransMontaigne Inc. the Brownsville, Texas terminal, 12 terminals along the Mississippi and Ohio rivers ("River terminals") and the Baton Rouge, Louisiana dock facility in exchange for a cash payment of approximately $135.0 million. On December 31, 2007, we acquired from TransMontaigne Inc. 22 terminals along the Colonial and Plantation pipelines (the "Southeast terminals") for a cash payment of approximately $118.6 million. The acquisitions of terminal and pipeline operations from TransMontaigne Inc. have been accounted for as transactions among entities under common control and, accordingly, prior periods include the activity of the acquired terminal and pipeline operations since the date they were purchased by TransMontaigne Inc. for acquisitions made by us prior to September 1, 2006, and since September 1, 2006 (the date of Morgan Stanley Capital Group Inc.'s acquisition of TransMontaigne Inc.) for acquisitions made by us on or after September 1, 2006. On February 28, 2003, TransMontaigne Inc. purchased the Port Manatee, Fisher Island, Port Everglades (North), Cape Canaveral and Jacksonville terminal operations from an affiliate of El Paso Corporation. On August 1, 2005, TransMontaigne Inc. purchased the Mobile terminal operations from Radcliff/Economy Marine Services, Inc.





MANAGEMENT DISCUSSION FOR LATEST QUARTER


SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2008

On July 8, 2008, we announced that effective July 8, 2008, Charles L. Dunlap has been appointed to serve as a member of the Board of Directors and as a member of the Conflicts Committee of our general partner. Since January 2005, Mr. Dunlap has served as Chief Executive Officer and President of Pasadena Refining System, Inc. based in Houston, Texas.

On July 18, 2008, we announced a distribution of $0.58 per unit payable on August 5, 2008 to unitholders of record on July 31, 2008.

On July 23, 2008, Hurricane Dolly damaged our Brownsville, Texas facilities. During the three months ended September 30, 2008, we incurred approximately $0.2 million in costs to remove debris and make repairs to damaged property. As of September 30, 2008, we expect to incur approximately $0.8 million in additional costs to repair the damaged property. The additional costs to repair the damaged property are expected to be incurred through March 31, 2009.

Our general partner is an indirect wholly-owned subsidiary of Morgan Stanley Capital Group Inc., which, in turn, is a wholly-owned subsidiary of Morgan Stanley. On September 21, 2008, Morgan Stanley obtained the approval of the Board of Governors of the Federal Reserve System (the "Fed") to become a bank holding company upon the conversion of its wholly owned indirect subsidiary, Morgan Stanley Bank, from a Utah industrial bank to a national bank. On September 23, 2008, the Office of the Comptroller of the Currency (the "OCC") authorized Morgan Stanley Bank to commence business as a national bank, operating as Morgan Stanley Bank, N.A. Concurrently with this conversion, Morgan Stanley became a financial holding company under the Bank Holding Company Act, as amended (the "BHC Act"). As a result, Morgan Stanley has become subject to the consolidated supervision and regulation of the Fed and Morgan Stanley Bank, N.A. has become subject to the supervision and regulation of the OCC.

As a financial holding company, Morgan Stanley will be able to engage in any activity that is financial in nature, incidental to a financial activity, or complementary to a financial activity. The BHC Act, by its terms, provides any company, such as Morgan Stanley, that becomes a financial holding company a two-year grace period to conform its existing nonfinancial activities and investments to the requirements of the BHC Act with the possibility of three one-year extensions. The BHC Act grandfathers "activities related to the trading, sale or investment in commodities and underlying physical properties" provided that Morgan Stanley conducted any of such type of activities as of September 30, 1997 and provided that certain other conditions are satisfied, which conditions are reasonably within the control of Morgan Stanley. In addition, the BHC Act permits the Fed to determine by regulation or order that certain activities are complementary to a financial activity and do not pose a risk to safety and soundness. The Fed has previously determined that a range of commodities activities are either financial in nature, incidental to a financial activity, or complementary to a financial activity.

Morgan Stanley has advised us that it is conducting an internal review to determine whether any of our activities or investments would be impermissible under the BHC Act in the absence of an order that such activities or investments are complementary to a financial activity. If it determines that any such activities or investments would fall into this category, Morgan Stanley will consider whether to file an application with the Fed seeking a determination that such activities and investments are complementary to a financial activity.

It is possible that, if such an application is filed, the Fed will not grant such relief and that certain of our activities or investments will not be deemed permissible under the BHC Act as a grandfathered, financial, incidental or complementary activity. If so, Morgan Stanley (i) may cause us to discontinue any such activity or divest any such investment or (ii) may transfer control of our general partner to an unaffiliated third party, prior to the end of the referenced grace period.

We are unable to predict whether Morgan Stanley will determine that any of our activities or investments would be impermissible under the BHC Act absent an order that such activity or investment is complementary to a financial activity. Nor are we able to predict whether the Fed would grant Morgan Stanley's request for a determination that any such activities or investments are complementary to a financial activity. We are therefore unable to predict whether Morgan Stanley would be required to cause us to discontinue any such activities or investments or whether Morgan Stanley would be required to transfer control of our general partner. We are, therefore, also unable to predict whether, if either of these actions is required, it would have a material adverse impact on our financial condition or results of operations.

SUBSEQUENT EVENTS

The contraction in the global financial and credit markets has adversely affected the liquidity and the credit available to many enterprises, including those involved in the supply and marketing of refined petroleum products. Moreover, the recent market conditions and extraordinary volatility of prices for refined petroleum products and other commodities has had an adverse effect on the United States economy and demand for refined petroleum products. These ongoing market conditions, which are further described in "Item 1A. Risk Factors" of this report, appear to have affected our customers. For the month ended October 31, 2008, we have experienced a reduction of approximately 10% in product throughput at our facilities as compared to the average monthly volume of product throughput at our facilities for the nine months ended September 30, 2008. At this time, we do not know whether this decline in product throughput at our facilities will continue in the future as it is driven in part by unpredictable market conditions and their effects.

On October 17, 2008, we announced a distribution of $0.59 per unit payable on November 10, 2008 to unitholders of record on October 31, 2008.

In connection with his resignation as a Managing Director of Morgan Stanley, on October 22, 2008, Olav N. Refvik resigned as a member of the Board of Directors of our general partner, effective October 22, 2008. In his letter of resignation, Mr. Refvik indicated that there were no disagreements between Mr. Refvik and us or members of the Board of Directors of our general partner regarding our operations, policies or practices. To fill the vacancy resulting from Mr. Refvik's resignation, we announced the appointment of Goran Trapp to serve as a member of the Board of Directors of our general partner, effective October 22, 2008. Mr. Trapp is a Managing Director at Morgan Stanley and has served as the Head of Global Oil Liquids in Commodities at Morgan Stanley since July 2008 and the Head of Europe, Middle East and Africa Commodities since January 2008.

On November 12, 2008, after payment on November 10, 2008 of the distribution of $0.59 per unit declared on October 17, 2008, approximately 0.8 million subordinated units will convert into an equal number of common units and will then participate pro rata with the other common units in the distributions of available cash.

RESULTS OF OPERATIONS—THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

In reviewing our historical results of operations, you should be aware that the accompanying consolidated financial statements include the assets, liabilities and results of operations of certain TransMontaigne Inc. terminal and pipeline transportation operations prior to their acquisition by us from TransMontaigne Inc. The results of operations of TransMontaigne Inc.'s terminals and pipelines prior to being acquired by us are reflected in the accompanying consolidated financial statements as being attributable to TransMontaigne Inc. ("Predecessor"). The acquired assets and liabilities have been recorded at TransMontaigne Inc.'s carryover basis.

At the closing of our initial public offering on May 27, 2005, we acquired from TransMontaigne Inc. seven Florida terminals, including terminals located in Tampa, Port Manatee, Fisher Island, Port Everglades (North), Port Everglades (South), Cape Canaveral, and Jacksonville; and the Razorback Pipeline system, including the terminals located at Mt. Vernon, Missouri and Rogers, Arkansas in exchange for 120,000 common units, 2,872,266 subordinated units, a 2% general partner interest, and a cash payment of approximately $111.5 million. On January 1, 2006, we acquired from TransMontaigne Inc. the Mobile, Alabama terminal in exchange for a cash payment of approximately $17.9 million. On December 29, 2006, we acquired from TransMontaigne Inc. the Brownsville, Texas terminal, twelve terminals along the Mississippi and Ohio Rivers ("River terminals"), and the Baton Rouge, Louisiana dock facility in exchange for a cash payment of approximately $135.0 million. On December 31, 2007, we acquired from TransMontaigne Inc. twenty-two terminals along the Colonial and Plantation Pipelines ("Southeast terminals") in exchange for a cash payment of approximately $118.6 million (see Note 3 of Notes to consolidated financial statements). The acquisitions of terminal and pipeline operations from TransMontaigne Inc. have been accounted for as transactions among entities under common control and, accordingly, prior periods include the activity of the acquired terminal and pipeline operations since the date they were purchased by TransMontaigne Inc. for acquisitions made by us prior to September 1, 2006, and since September 1, 2006, (the date of Morgan Stanley Capital Group Inc.'s acquisition of TransMontaigne Inc.) for acquisitions made by us on or after September 1, 2006.



CONF CALL


Fred Callon

Good morning. Thank you for taking the time to call in to our third quarter call. Before we begin the formal portion of the presentation this morning I would like to ask Terry Trovato who heads our Investor Relations to make a few comments.

Terry Trovato

Thank you, Fred. We’d like to remind everyone that some of the comments made during this call will be considered forward-looking statements. As such, no assurances can be given that these events will occur or that the projections will be attained. Please refer to the cautionary language included in our news release and in the risk factors described in our SEC filings.

We undertake no obligation to publicly update or revise such forward-looking statements. It is also important to note that the SEC permits us in our filings with them to disclose only proved reserves that we have demonstrated by actual production or conclusive formation tests to be economically and legally produce able under existing economic and operating conditions.

During today’s discussion, we may use terms like reserve potential and probable reserves that the SEC’s guidelines strictly prohibit us from using in our filings with them. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to a substantially greater risk of being actually realized by the company.

Finally, today we will be discussing 2008 cash flow which is considered a non-GAAP financial measure. Reconciliation and calculation schedules for the non-GAAP financial measure were stated in our third quarter 2008 results news release and can be referenced there on our website at www.callon.com for subsequent review. Fred.

Fred Callon

Thank you, Terry. I will begin with an update on our operations and then Bob Weatherly our CFO will discuss our financial results for the third quarter and the nine-month period ended September 30 and then we’ll conclude with guidance for the remainder of the year and follow that up with questions-and-answers.

Let me begin with an update of our largest mother important project, the development of our deep-water field in Toronto. In mid-August the Diamond Offshore rig Ocean Victory arrived on location at Entrada. Due to our scheduled drilling of Entrada, well three during the hurricane season and the relatively close proximity to the Magnolia TLP. One of the innermost requirements was we use a 12 point boring system and vertical load anchors, VLAs instead of the 8 point boring system and the conventional drag anchors.

We proceeded to set and test the required VLA anchors. Unfortunately the first six VL anchors failed during the test. The MMS then gave us permission to return to our original plan to use drag anchors. The removal of the VLA anchors and resetting of the drag anchors was successfully completed just as the first two hurricanes arrived.

The good news is that the conventional drag anchors did perform well during the two storms; however, we’ve been considerably delayed by the fail of VLA anchors setting experience and two back-to-back hurricanes resulting in two evacuations of the drilling rig and remobilization of the crews. The Ocean Victory did come through both hurricanes with minimal damage; however our schedule was adversely affected.

After drilling commenced in September, we also experienced several unrelated, but frustrating mechanical operational events that have collectively delayed the drilling time for the number three well. These various events have not only increased our drilling timetable, but also increased our cost estimates. As a result, of the days lost due to encountering these events, first production has been pushed into the second quarter of next year.

As of today the current status of our Entrada operations is as follows. We’re at 18,240 feet which is our last casing point before drilling the objective section. We plan to drill total depth of approximately 21,100 feet.

The gas and oil flow lines have been laid within 1,500 feet of the Magnolia TLP. The steel risers connecting the flow lines to the TLP are scheduled to be installed in January. All the long lead items for both wells are in hand and ready to install and ConocoPhillips is working on the top side modifications to the Magnolia platform.

Our project management team for Entrada and engineering staff are closely monitoring cost of Entrada development, estimated costs, drilling, complete both wells and the infrastructure required for subsea production to Magnolia has increased to approximately $440 million to $460 million.

Although costs have increased, the project economics obviously are still very good. As you’re aware our share of the development costs are being funded; about $150 million loan from our joint venture partners CIECO Energy plus cash on hand and cash flow from properties as well as draws under our senior secured credit facility which has a borrowing base of $70 million.

Once we get Entrada on line it has the potential to double our production and cash flow. We’ll then redirect our focus towards moving forward, exploring new opportunities, as well as increasing our 2009 CapEx budget. Our focus will continue to be on attractive drilling opportunities as well as looking at some selective producing property acquisitions. Obviously this is the plan going forward to help us continue to place our reserve base and declining production.

Now, let me review the status of our major producing properties. While we did not sustain any significant damage to our major production facilities as a result of hurricane Gustav and Ike, the industry is still dealing with the damage of the pipeline infrastructure, the storms had a greater impact on the offshore oil and gas industry than perhaps first reported; MMS estimates 19% of oil production and 29% of the gas production; and the Gulf of Mexico is still shut in.

As a result of these storms, we deferred production of 12.6 million cubic feet of gas a day for the third quarter. We continue to feel the impact of down time in the fourth quarter and are estimating additional deferred production of 18 million a day for the fourth quarter.

Medusa is currently producing 8,000 barrels of oil and we’re flaring 5 million cubic feet of goes a day. The gas transmission line was damaged during the hurricanes as in the process of being repaired. The repairs should be complete in the second half of November, at which time it should go back to approximately 15,000 barrels a day and 14 million cubic feet of gas a day. As you recall we own a 15% interest in the Medusa field that Murphy operates.

At Habanero we’re still shut in; however, shale operators in the process of getting Habanero ready to bring back on time to their Haba facility sometime this week. Pre-hurricane production from Habanero of oil and 8 million cubic feet of natural gas from two wells, both producing from the Habanero to the oil reservoir; we own 11.25% interest in the number two and 25% interest in the number one well.

At west Cameron 295 field we’re also still shut in as a result of a damaged transmission line. The current estimate is to return this line to service in mid- to late December. Production was at the rate of 19 million cubic feet of gas and 120 barrels of oil a day from the number two to number four wells before the hurricanes.

The number three well was shut in prior to the hurricanes due to sand production and a remediate work over that was not successful. Additional work is planned to return the wells production and in addition another well may be drilled in 2009 depending on well performance, number two and four wells are operated now by Mayor; although number three well is operated by Simrex and we own a 25% working interest in the wells.

Highland block 165 field production was resumed on October 4 and is currently 17 million a day and 100 barrels of oil a day from the Highland 130 number two well, which produces from a Giro K2 and the Highland 130 number well which has been re-completed to a Rob L then. We own a 16.7% working interest in Rob L and 11.7% interest in deeper sands. These wells are also operated by mayor inner.

We also drilled and completed our north pronghorn prospect, first production commenced in the third quarter and the well is currently producing 17 million cubic feet of gas and 165 barrels of oil a day. Apache operates and we have a 42.5% working interest in the well; while our current daily production is approximately 16 million cubic feet equivalent a day. This should of course increase significantly over the next several weeks as we bring Habanero inline and Medusa back up to full production.

Now Bob will review the results of operations for the third quarter and nine-month period ended September 30 and hen following that an update on guidance.

Bob Weatherly

Thank you, Fred. For the third quarter of 2008 we reported net income of $5.9 million or $0.27 per diluted share. Third quarter consensus estimate was $0.22. As Fred has already discussed, our third quarter results were significantly impacted by production down time as a result of down stream pipeline issues resulting from hurricanes Gustav and Ike. This production shortfall caused some of our derivative contracts be deemed ineffective which resulted in derivative expense in the third quarter of $1.4 million or $0.04 per share net of tax.

Included in the derivative expense was $690,000 of non-cash expense. For the nine month period ended September 30, net income was $18.6 billion or $0.85 per diluted share. Our daily production rate for the third quarter was 25.9 million cubic feet equivalent per day. Hurricane down time resulted in daily production rate reduction of 12.6 million cubic feet equivalent per day in the third quarter. Natural gas and oil production were 1.2 billion cubic feet and 205,000 barrels respectively and were below our guidance ranges.

Year-to-date natural gas production was 4.9 Bcf and oil production was 780,000 barrels for an average daily production rate of 35 million cubic feet equivalent. Oil and gas revenue for the third quarter of 2008 totaled $32.8 million. For the nine-month period ended September 30, 2008, oil and gas revenue was $125.8 million.

Average realized oil prices for the third quarter of 2008 were $99.40 per barrel, a substantial improvement of over $79.21 per barrel for the same quarter last year. The benchmark oil price for the third quarter measured or the average closing price of NYMEX contracts or delivery of WTI averaged $117.98 per barrel.

As discussed in previous conference calls, the spread between the benchmark oil price and our average realized oil price is due primarily to quality adjustments incurred in the sale of our oil production from Medusa and Habenero which combined accounted for 96% of our oil production in the third quarter of 2008.

Please refer to the news release for a reconciliation of our realized oil price for the average NYMEX price. In addition to these quality adjustments, previously established crude oil hedging positions decreased our average realized price by $18.56 per barrel for the three month period ended September 30. Natural gas price realization there reached $10.53 mcf for the third quarter of 2008. This is an increase of 32% compared to the same quarter last year.

On the expense side, LOE for the third quarter of 2008 was $3.7 million or $1.55 per equivalent mcf of production and was below the guidance range of $5.4 million to $5.9 million. G&A expense for the third quarter of 2008 was $1.5 million or $0.61 per equivalent mcf of production. This was below our guidance range of $2.6 million to $3.0 million.

Interest expense was $5 million below the guidance range of $5.3 million to $5.8 million for the third quarter. Depletion, depreciation and amortization for the third quarter totaled $11.5 million which was below our guidance range due to lower production volumes resulting from down time as discussed.

Discretionary cash flow in the third quarter totaled $21.9 million or $0.99 per share. Discretionary cash flow is a non-GAAP measure and in our news release we have provided reconciliation to cash provided by operating activities. Cash flow for the quarter was used to find capital expenditures and abandonment obligations.

On September 25, 2008, we completed $250 million amended, restated senior secured credit facility, led by the union bank of California with an initial borrowing base of $70 million which is a $20 million increase over our previous borrowing base. The other participating banks in the credit agreement are Region’s Bank and Capital One. Presently there are no outstanding draws in the line, but our current availability is $55 million due to an outstanding letter of credit of $15 million.

Following is a summary of the guidance for the full year 2008 that was provided in our news release. As previously discussed, our third quarter production was and fourth quarter offshore production will be impacted by pipeline issues as a result of damage due to hurricanes Gustav and Ike.

As a result, for the full year we’re now projecting a daily production rate of $31 million to $33 million cubic feet equivalent per day. Approximately 55% much this production will be oil. Lease operating expense should be approximately $19.5 million or $20.5 million for the full year of 2008.

G&A expense was [inaudible] to $9.5 million for the full year of 2008. Interest expense should range between $25.5 million to $26.5 million for the full year. With regard to DD&A we’re projecting ranges of $51 million to $53 million for the full year of 2008. For the remainder of the year 825,000 million cubic feet of gas is hedged using collars with an average ceiling price of $10.15 and an average floor of $7.68. Most of our production is sold in the general area of Henry hub which is comparable to NYMEX.

For the year we have 135,000 barrels of oil hedged, 45,000 barrels of swaps 90,000 barrels of collars. The average swap price is $91. With regard to the collars, the average ceiling price of $81.50, the average floor is $65. Just to remind you that realized oil prices will continue to be affected by quality adjustments and transportation costs. We anticipate transportation costs should average about $1.30 to $1.35 per barrel.

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