They have said the North Texas Pipeline (aka the Barnett Shale straw) is forcasted to cost 98 million and will bring in 17.5 million with 80% capacity. I do not know what the fixed costs and variable costs are to know what 100% capacity would bring in as far as cash flow, but I think it is safe to assume it would probably be close to 20 million. Keep in mind that they have also mentioned that if demand is strong enough and management has already "predicted" that that will happen mid 06 to mid 07. That expansion is billed as a 15 million dollar expansion (just adding compression) and will add an additional 17.5 million in cash flow (as Yves put it, its a high class problem to have to add compression).
So anyway. I assume the expansion does not come online right away. We know they have a penchant for keeping everything financed 50/50 to keep the debt to cap down. So we know that they issued around 1.5 million units (at $33.50) in a private offering at the end of the 2Q. These units don't get distributions until 1Q 06 and partially explains the discount to market price. We know that they will finance the 2nd half with debt. Their borrowing costs are super low, probably at 5%, I'll use 5.5% because that is more realistic going forward. Between the units and the interest the total financing cost is 6.9 million (about 3 million in debt cost and about 3.9 million in equity cost[i.e. the 1.88 distribution plus the .54/unit GP take multiplied by the 1.5 million units issued]). So, accretive cash left to be distributed comes out around 10.6 million. I we consider they keep a 1.1x coverage ratio, then they hold back around 1.6 million and now have 9.6 million to distribute. The GP and the LP's split that 50/50. So that means 4.8 million is spread evenly over 19.5 million XTEX units. That comes out to .24/unit, which is close the .22/unit that they forcasted. The GP gets the 4.8 million(the half of the accretive cash left after financing costs), it gets the .22 or .24 per unit increase on each of the 10 million XTEX units that it owns(a total of 2.2 or 2.4 million), plus it gets the GP take on the newly issued units (.52*1.5 or a total of .78 million) so all together XTXI gets around 5.5 million. When you assume a tax rate of 23%, and 13 million share of XTXI outstanding, you get a dividend increase of .43/share. That is close to the .40/share that they have projected and remember, I haven't been netting out any SG&A costs, so it looks like they are running a pretty lean operation(lite on the SG&A-no complaints).
Ok, this is the tricky part because this deal may actually close prior to the completion of the Barnett Shale pipeline. It is tricky because, they will need to raise a lot of equity for this and I have no crystal ball to see what the unit price will be when they do the follow up offering. I have no way of knowing if they do this offering in say late 1st Q or early 2nd Q after the Barnett Shale line has kicked in(and the distribution has been raised-which one would assume would drive the price up). I settled on a less than optimal case in which I assume the distribution has been increased(and the GP take also going up) but the price of XTXE not going up. This is a bit conservative, something I was trying to avoid in this model, but I am more or less forcd to make a guesstimate and that is my swag. So, lets start doing the number crunching on that piece. The XTEX distribution is now $2.10 and the GP take is .74/unit. Note the .22 increase for both, due to the 50/50 splits. Also remember that they bought this at around a 8.93x multiple or 56 million a year in cash flow.
They will again, probably finance it 50/50 debt and equity. So, that means they need to raise around 250 million. So, assuming a price of $40.00 which seems reasonable because, while the distribution may have gone up, XTEX was already "un-cheap" to start with and they will be hitting the market with a lot of units and they will have a tough time to demand much higher than say $42 or $44. If we assume $40 issue price, that means a total of 6.25 million units issued. That is an equity cost of around 20 million or(6.25 million x (2.1+.74) x 1.1(for coverage). The debt portion would run (I assume 6.5% borrowing ,not the 5.5% I mentioned in the previous post), so it costs around 16.25 million in interest. That leaves about 20 million in accretive surplus cash. Assuming they hold back about 10%(for coverage) that gives about 18 million to distribute. 9 milion goes to XTXI(the GP) and the rest is split between the now 25.75 million XTEX units. That comes out to around .35/unit in accretion. That is a little higher than the .30 that I believe I remember hearing them mention on the conference call. On the flip side, XTXI will net around 9 million from the 50% of the accretive cash, about 3.5 million from the .35/unit increase on the 10 million units that they own and an additional .74/unit x 6.25 million newly issued units or an additional 4.6 million in cash. That is a net total of 17 million. After tax that comes out to around 13 million. That comes out to around $1.00/share at XTXI. Note that this is a little higher than the .80/share that they have projected. I don't know where my analysis has strayed other than maybe they have built in a little cushion to the acquisition. Note, the XTEX distribution would be at $2.45/unit and XTXI dividend would be at $3.18/share.
Ok, suffice it to say that everything from here on out is just a wild guess because I have no way of knowing what XTEX will be trading for and they need to issue units to finance the deal, so if you remove the cost part of the equation, it makes things a little more difficult to project, but I will give it a stab.
I assume the LIG project is the 225 million, 40 million dollar deal( I did not bake the extra 10 million that could be tacked on for minimal expenditures-upsizing the project).
Again assuming a 50/50 run rate, they will need to finance about 110 million. I again assume a unit price of just $42/unit. That menas they issue 2.7 million units. The equity cost comes out to around 9.5 million (2.7 million units x the $2.45 distribution plus the .78/unit GP cut). That along with a 1.1x coverage comes to 9.5 million. So the debt cost comes to around 7.5 million. That leaves a total of 23 million in accretive surplus cash. Holding back 10% gives a total of 21 million in cash. That then gets split between XTXI and XTEX 50/50. So XTXI gets 10.5 million, XTEX gets 10.5 million divided over the now 28.5 million units for a total increase of .36/unit. XTXI get their 10.5 million, 2.1 million for the GP interest in the newly issued shares and 3.6 million from the .36/unit increase on the 10 million units that they own. This is a total of 16.2 million which after tax and spread over the 13 million shares of XTXI is around .95/share. That brings the dividend to around $4.09/share.
Now I left out a few things like the Barnett Shale expansion, cost 15 million, cash flow of 17.5 million. I left out the fact that the El Paso deal is supposed to eventually come down to a 7x multiple on the purchase price. That would mean 71 million in cash flow which is 15 million more than the current 56 million. I also neglected the fact that LIG might end up with 50 million rather than 40 million if it gets up-sized. I also did not bake in the potential Neches acquisition or the potential 150 million dollar South Louisiana project that I have heard a few mentions of. I will run these later and post...