Nice pin action in the ATLS names last couple days. The tax selling must be ending. Furthermore, the capital raise for the ARP syndicate business must be coming to a close. The units are acting like they are about to have a good closing. Lastly, the unhedged production of roughly 10% of total and any excess should benefit from higher NG and propane prices. Based on latest presentations, I suspect S. Texas at APL still not operating at potential but my guess ARP probably had a good quarter. Looking for a $0.50 - 0.54 4Q distribution from ATLS. News flow should pick up second week of January.
Cooperman has a larger position in ATLS in terms of dollars owned........ If ARP works, ATLS works on steroids given the 50% IDR carry. This explains the divergence in returns for the last 3 years with APL as well. ATLS distribution is set to grow by at least 50% in 2014 and probably another 50% in 2015. The looking forward yield arbitrage between ARP & ATLS narrows considerably and the market is a forward looking mechanism..... Happy New Years! I own both ARP and ATLS in major size!!
ATLS had another great year in terms of total return. I was expecting an even higher return for ATLS but the ARP bottlenecks in Marcellus and fire at processing plant in Utica, combined with slower than expected take-up of S. Texas capacity at APL, caused slower distribution growth in 3Q. I suspect the 4Q will still be impacted by the S. Texas performance at APL. ARP should have some upside in 4Q given the processing bottlenecks started to lift in Marcellus and the NG price improved as well. Utica could be a real surprise. The wildcard is the weather in Texas in Dec and any potential impact. Nonetheless, I am expecting a distribution of $0.50-0.54 in 4Q for ATLS and somewhere north of $2.50 in 2014, up 50% isn over the $1.70 or so in 2013.
Assuming ATLS holds a 4% yield, the units should trade up to somewhere between $62.50 and $71.25 for a return potential of 33% - 52% for 2014, excluding dividends.
Happy New Year!!
At end of December, ARP terminated an agreement with Deutsche Bank Securities to distribute ARP common units. DB held about $17 MM of undistributed common units. I suspect these were left over from last offering. This offering probably takes this into account. I suspect this filing will spawn a press release on any substantive events since the last quarterly filing in September. This, of course, should include an update on the partnership syndicate capital raise. I suspect prospective buyers of these units being offered would view this information as important in their decision to buy.
Let's see if he plugs ARP and/or ATLS. APL should be announcing distribution to be paid in February quickly followed by ARP/ATLS the following day if history holds. Expect ATLS to go from $0.46 to $0.50.
ARP & ATLS probably tomorrow. I imagine DCF coverage is not that great at APL given weather, etc.
Don't quite understand the math as distribution was up at ARP to $0.58 from $0.56. There are 59.5 MM shares at ARP vs 51.4 at ATLS. Therefore a $0.02 increase at ARP should translate into a $0.03 increase at ATLS given share count difference and IDR kicker. So, either ATLS held back $1.5 MM and had a coverage ratio in excess of 1.0, or they spent the money on something. I bet they spent the money on the start-up of Atlas Growth Partners.........
No, the 4Q quarterly distribution to be paid in February and the the January monthly distribution to be paid in March......
It will be interesting to see how they deal with number of days in the month. with only 28 days in Feb, the cash flow is less than 31 days in January. My guess is they will even this out by adjusting coverage ratio. Since they only disclose their DCF quarterly still, they have the flexibility to adjust DCF coverage of distribution. My guess is $0.59/3 for January, $0.60/3 for February and $0.61/3 for March.
Interestingly, the $0.02 increase at ARP should have translated into a $0.03 increase at ATLS given share differences and IDR kicker for ATLS. However, ATLS only paid out $0.46, flat to 3Q. This translates into about $1.5 MM. My guess ATLS spent the $0.03 on Atlas Growth Partners, the third MLP in the Atlas family. If I'm correct, and ARP increases as above and we get a couple pennies out of APL, plus the one-time spend in 4Q on AGP is gone as speculated, we could get a big increase in ATLS distribution for 1Q. Long both ARP and ATLS although favor ATLS 2 to 1.
ATLS should have increased 4Q distribution to $0.49 from $0.46 given $0.02 increase at ARP. Given share difference (59.5MM at ARP and 51.4 MM at ATLS) and IDR kicker at ATLS, this how is should have translated to $0.03 to ATLS. I speculate they spent the $0.03 on start-up expenses of Atlas Growth Partners, a private MLP that will form the 3rd IDR stream for ATLS. Therefore, if this spend is one-time in nature, we can bank $0.03 for 1Q. Furthermore, should APL increase by a couple pennies and ARP increase by a couple pennies, this could translate into another $0.06 - $0.08 for ATLS. (We will get a faster read through on ARP with them going monthly distribution). Overall, when you add this all up, we could be looking at a $0.10 increase in distribution for ATLS in 1Q. Although largely hedged, the small unhedged portion of production should be benefitting from higher commodity prices which should further support the thesis.
The news flow should also be pretty good. We have conference calls, some news on syndicate capital raise at ARP and hopefully some color on Atlas Growth Partners. Long and Strong! Good to be owning rising distribution plays in a sloppy market with a falling 10-year treasury. Oh yeah, I forgot ARCX that went public in 4Q. ATLS has a 20% interest in Lightfoot that took ARCX public. Although small, it looks like ARCX will throw off $1 MM annually to ATLS which is another $0.02 to the good guys!!
It will not be three equal monthly installments. They will be gradually increasing the Distribution over time. Last year, 2013 distributions totaled $2.19, including the distribution paid Feb 2014. My guess is they will be closer to $2.60 in 2014. Therefore, the distribution will be gradually rising over time and month to month, sometimes flat, sometimes up.
Chevron has put it's Texas pipeline for sale. APL owns 20% of the pipe. The dilemma for APL is buying the 80% owned by Chevron, selling it's 20% interest with Chevron, or just holding the 20% and settling in with a new partner and operator. For Chevron, it probably gets a higher value if it can sell 100% as buyers are reluctant to take on an unknown partner. Obviously, APL will play the card of trying to buy the 80% cheaper than if went to auction. Chevron might take a cheaper price to avoid the auction selling process and cost. It would be a big deal for APL as the pipe is reportedly worth $1.0 B. I think this would come down to how much paper in the form of APL Chevron would be willing to take. Chevron taking the equity would make it easier to raise debt capital for APL.
When Chevron announced the sale of it's pipe, APL's units traded down about $2 as the market anticipated more shares from APL and it has weighed on APL's trading performance ever since. I have no idea if APL paid $1.0 B if the deal would be accretive or how much future capital the pipe requires. One thing I do know is APL cannot afford to do non-accretive deals.
Yes, I'm a big bull. By end of this year, ATLS should be annualizing $2.80 in distributions, or $0.70 per quarter. At a 4% yield, this gets you to a $70 unit price. By the second half of 2015, we will be annualizing $3.50+ which would get you a $88 unit price at 4%. Hard to find those types of names in a market that has been picked over. Plus, one gets the downside protection of the yield.
I do believe they are up to something. My guess is APL is trying to figure out how to buy the other 80% of the Chevron pipe they don't own and make it accretive. We know they are forming a 3rd MLP at Atlas Growth Partners which will give us a new IDR stream down the road. Plus, we will have a liquidity event when they take it public. ARP has filed a very broad shelf registration so I'm sure you are right that they are up to something on the acquisition front.
I believe they are awaiting their engineering report on the state of ARP's reserves. My guess is their reserve position has improved meaningfully given the uplift in NG prices recently making more drilling locations economic. Once they have this in hand, they will announce 4Q results. In addition, ARP will announce results of their syndicate fund raising which I believe will come in better than $150 MM.
Enjoy the ride!
Your numbers are correct. There are a couple Wall Street earnings models that are pretty good. One thing you have to remember is ATLS holds roughly 7.5 MM preferred units of ARP that participate in the dividends one for one and convert into common units I believe in 3 years. APL does get an IDR holiday between 0.65 - 0.70 based on a deal from long ago. I believe it is a $$$ driven holiday and it kicks in at $0.65 so the high end may change with share issuance.
I think the 4Q earnings call has been delayed as they are waiting for the Engineering Reserve report for both ARP and ATLS. After doing a little more home work, I believe the reason ATLS did show an increase in distribution this quarter was due to the timing impact on the drawdown of their credit line (interest charges) to fund the asset purchase's of the preferred and E&P from the last ARP transaction.
Interesting, ARP may actually announce it's January distribution payable in March prior to the 4Q conference call...... This will give us a tell on the ATLS distribution for the March quarter given the math discussed above.
My back of envelope calculation is about $0.10 of DCF to ATLS given high splits on IDRs. We are in the money. They are probably working on more deals at ARP. I also think APL buys Chevrons 80% share of the TX pipe. More accretion.....
They are calling for an annualized exit run rate for 2014 of $2.60 which is $0.65 per unit. Not much in distribution growth rate in 2014 from APL. However, I suspect this is an expectations game and they have probably learned their lesson. My guess is they beat this number a fair margin.......The projects they list are actually fairly impressive and they set for nice growth in out years.........
Interesting timing. I bet this secondary is geared toward showing Jeffries, Chevron's advisor, that APL has the financial flexibility to bid and close on the Texas pipeline 20% owned by APL and 80% by Chevron. Atlas and Chevron have done a few deals over the years. I bet this secondary will be followed up by APL buying the 80% of the pipeline it doesn't own from Chevron. On the conference call, Dubay said they were interested in buying as long as accretive. This is a positive for APL & ATLS.