Tortoise Midstream Energy Fund, Inc.

NATCO reported fourth-quarter 2008 revenue of $186 million, up 18% year over year and up 17% sequentially. Gross margin was 29.5% in Q4, a record, compared with 28.6% in Q4 2007 and 27.3% in Q3 2008; full-year consolidated gross margin was 28.7%, flat versus 2007. Net income available to common was $13.5 million, or $0.68 per share, versus $12.8 million, or $0.66 per share, in Q4 2007; full-year normalized net income was $41.5 million, or $2.10 per share, versus $45.1 million, or $2.36 per share, in 2007. Backlog ended the year at $280 million and then exceeded $350 million after the final $87 million Petronas-related PO was received; IES backlog was about $260 million as of February. For 2009, management did not provide quarterly guidance and said to expect no change to the full-year forecast at the time, but noted assumptions of an average U.S. rig count of 1,450 and average oil/gas prices of $55 and $5.55. They expect 2009 capital expenditures of $30 million to $35 million and free cash flow of $25 million to $35 million.

John Clarke said the company is focused on protecting near-term value while preserving long-term franchise value through the downturn. He emphasized execution on the existing backlog, resource allocation to better-positioned regions like the Haynesville, Barnett, Marcellus, and Rockies, and continued investment in talent, branding, and technology. His tone was cautious but confident, repeatedly stressing that demand will return and that NATCO’s global positioning, technology portfolio, and balance sheet leave it well prepared.

Brad Farnsworth highlighted a strong liquidity and capital position, with available liquidity of $128.2 million, debt of $13 million, and a credit facility expanded from $85 million to $137.7 million in December. He said 2008 SG&A rose to $122.9 million, including about $10.3 million of legal/compliance review costs, and noted further 2009 compliance costs should be under $1 million excluding any unknown penalties. He guided 2009 capex to $30 million to $35 million, with $25 million to $30 million for growth/strategic projects, and said free cash flow should be $25 million to $35 million; he also said depreciation/amortization should be about $14 million to $14.5 million next year.

Analysts focused on how much of 2009 is already embedded in guidance, how backlog will convert into revenue, and whether weaker rig counts and oil prices could pressure results later in the year. Management said the forecast already includes a reasonable estimate of core bookings, but results will move if rig count or commodity prices differ from assumptions; they also said they were not giving quarterly guidance. On the backlog, they said IES revenues should ramp slightly in the first three quarters and then decline, with most of the current backlog run off by early 2010; on Saudi, they reiterated the opportunity remains $50 million to $100 million of revenue potential when the market recovers, though downstream projects are delayed.