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  • rrb1981 rrb1981 Sep 20, 2005 8:44 PM Flag

    Dividend Model Projections Part 1

    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.

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    • You didn't get into the El Paso assets - what happens if the multiple turns out to be 7x rather than almost 9x.

      Personally I don't think they would have done the deal unless they thought with a decent degree of confidence that they could squeeze the multiple down.

    • OK. Have read your analysis and certainly agree with the upside. The El Paso purchase was made at fire sale prices much like those assets EPD ended up with.

      I note my company research at this point is limited to the MLPs. They obviously behave more like bonds and have limited upside is a rising interest rate environment. RBC agrees that XTEX should have an annualized $2.40 distribution in 2006 but little upside price appreciation. The DCF going forward as you stated is wonderful growing at some 175 a year.

      The only warts are a high price to book and the fact future distribution increases for 2006 are already priced into the units. Most others currently yield upward of 6.5% vs XTEX about 1/2% lower.

      I understand the GP incentive distribution and other structure. What I don't understand is why I should buy XTXI rather than XTEX? Lets leave tax considerations out as I usually hold stuff forever.