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EV Energy Partners LP Message Board

  • speaker8000 speaker8000 Jun 23, 2009 9:40 PM Flag

    Wachovia EVEP Report

    This report is from a week or two ago, but figured I'd post it since someone posted the Citi report.

    EVEP: Acquisition & Equity Enhance Liquidity -- Lowering Ests

    Key Takeaways. EVEP's $70MM equity raise (completed 6/11/09) was a positive step, in our view. The transaction is $0.49/unit dilutive to our 2010 DCF estimates, but eliminates borrowing base concerns for the partnership. In connection with the equity offering, EVEP announced a small, but accretive $12MM bolt-on acquisition in the Austin Chalk as well as new hedge positions. The recent equity offering puts EVEP in the unique and enviable position of being one of the few upstream MLPs able to consummate acquisitions in scale this year.

    Equity Raise Eliminates Borrowing Base Concerns. Pro forma for the equity offering, we estimate EVEP will be 75% drawn on its credit facility. Assuming an additional 10% borrowing base reduction in October, we forecast the partnership will still be just 82% drawn on its borrowing base, which implies about $30-40MM of additional liquidity that could be used to fund growth capex and/or acquisitions. We would note that EVEP's $12MM acquisition and new hedge positions are likely to provide additional support to the partnership's borrowing base.

    But Transaction Dilutive To Our 2010 Forecast. While EVEP should realize $3-4MM of annual interest savings following the equity raise, this is more than offset by the 3.5MM increase in units. We calculate a $0.49/unit reduction to our 2010 DCF/unit forecast (excluding est. benefits of $0.04 from the acquisition and $0.02 from new hedges). Assuming strip prices, we forecast 1.00x distrib. coverage in 2010. However, we would note that coverage markedly improves in 2011-12, as EVEP should realize an incremental $10-15MM of annual cash flow from higher priced hedges. Accordingly, even if coverage falls slightly below 1.0x in 2010, we do not anticipate a distribution reduction; rather, any temporary shortfall will likely be funded with short-term debt until coverage improves in 2011-12.

    Favorable Acquisition Metrics--Forward EBITDA Multiple Of 4.3x And PV-17. Assuming current strip prices for crude oil and natural gas, we estimate the acquired assets could generate $2.9MM of EBITDA in 2010, implying a 4.3x transaction multiple. By our calculations, this should equate to $0.04/unit of DCF accretion in 2010 ($0.02/unit longer term). Alternatively, on a present value basis, we estimate EVEP paid approximately PV-17. At 17%, the rate of return on the acquired assets is comfortably ahead of EVEP's current cost of capital of 14%.

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    • La. Terminal Gets First LNG Shipment

      Sempra Energy received its first shipment of LNG at its new terminal near Lake Charles, La., on Sunday, making it the fourth LNG terminal opened in the U.S. in a little over a year.
      The 945-foot-long tanker British Diamond carried the approximately 4.8mmcf of LNG from a liquefaction plant in Trinidad. A second shipment is expected later this month as part of the initial "cool-down" of the $900 million facility.

      Analysts are expecting a surge in LNG imports into the U.S. this year despite low natural gas prices and ample stockpiles that have followed an increase in domestic production and a lack of demand due to the slowed economy. The surge is expected because of the start-up of a number of massive natural gas liquefaction projects overseas where production costs are well below current U.S. gas prices. One sign of the surge is Chevron's announcement this month it signed an LNG supply agreement with Qatar's RasGas for delivery through Cheniere Energy's Sabine Pass, La., terminal in July.
      In April 2008, Houston-based Cheniere took its first shipment of LNG at Sabine Pass, as did the Freeport LNG Terminal on Quintana Island, about 60 miles south of Houston. The
      Woodlands-based Excelerate Energy opened a floating terminal off Louisiana in 2005 and another off Massachusetts last year.

    • thx for posting this report. Positive news along with the Citi post. Didn't see any reference to being budget positive in relation to their capital budget spending which I would think helps DCF even more.

    • Okay, I give up, maybe the distribution isn't going to $2.50. I'll nibble here and hope these analyst guys know what they're talking about, which would be a novelty.

33.03-0.09(-0.27%)Oct 17 4:00 PMEDT

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