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  • rrb1981 rrb1981 Sep 19, 2005 8:47 PM Flag

    Dividend Model Projections Part 1

    El Paso Asset Acquisition

    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.


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    • LIG expansion project

      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...

      • 2 Replies to rrb1981
      • The Barnett Shale expansion w/ a cost of $15m for $17m of cash flo would be approximately $.50/share to $.75/share - this is just a wild guess, but there would obviously be very little cost of capital b/c there is very little capital required. Just the 50% IDR would be $17.5*.5=8.75m, divided by 13m shares is $.67/share, not including the distribution on the 10m xtex shares owned by xtxi.

        What is the math if the El Paso deal comes down to a 7x multiple? $15m more w/ no capital required would again be $.58/xtxi share just based on the 50% IDR. Those two stupidly simple estimates get you to $5.34/xtxi share. That in turn gets you to $133.5/share at a 4% yield.

        I'm waiting for some poor market maker to start selling LEPS....

      • Loose ends

        Ok, I will tackle the Barnett Shale expansion, the LIG expansion, the South Louisisana project.

        With the Barnett Shale, err North Texas Pipeline expansion, essentially they are adding compresion which they projected to run around 15 million. It would add cash flow of around 17.5 million.

        Because the project is relatively small and has such a high IRR, I assume that they will finance it with debt. I do some quick back of the envelope calcs and see that the 15 million would run them around 1 million a year in interest if they borrow the capital. So, the accretive cash becomes around 16.5 million. That number is then chopped down by 10% for coverage, so the available cash becomes 14.75 million. That is then split between the GP and the LP 50/50. So XTXI gets 7.375 million, the LP's spread the other 7.375 million over a total of 28.5 million units, which gives an increase of around .25/unit. So XTXI would rake in another 2.5 million from the 10 million XTEX units it owns. That would come out to around 7.2 million total after-tax. That is around another .55/share in free cash flow to XTXI.

        With the South Louisiana project, I don't have enough numbers or details but I thought the roughed in numbers were 150 million in cost and 25 million in cash flow, for a 6x multiple. I will not post all of the work but when I run the numbers, it looks like would add another .36/share to XTXI in after tax cash flow. That woul put the dividend at around $5.00/share. They are also looking at some other acquisitions in South Texas, although I believe they are very small.

        Oh, and the LIG expansion-expansion, that might add 10 million in cash flow, I don't know what the incremental cost is but I suspect it is less than 25-30 million. Probably another example of where the initial project paves the way for a lot of small expansions to optimize their assets. Those small expansions are always great because they seem to always come in at multiples of 3x or 4x.