The fact that they could afford to do this bolt-on AND
continue to develop the midstream bodes well for EVEP.
I would expect a $4 distribution sometime in 2015.
Much of the increase in income from the many of the big wells did
not hit until mid-way through the 3rd quarter. Given oil production growth as a
percentage of mix is increasing with prices over $100 a barrel, and NG prices above
$3.50 for our marginal and unhedged production of these monster wells, ARP should
have a great 3rd quarter and the 4th quarter will be even better if they execute.
The 4th quarter should be at .80 cents with a .68 cent distribution.
This would put us at a 1.17 ratio which is healthy.
With that kind of coverage they actually have extra funds to increase drilling or reduce the
As important will be the public LP raise, and we are looking for at least $150 million.
And updates on drilling and net production rates...I'd like to see a 280 mmcf per day
exit rate equivalent for the 3rd quarter and 300 for the 4th quarter.
I think ARP had a distribution coverage of .65 in the second quarter. I would expect
to see .75 for the 3rd quarter...If so, a .65 cent distribution will be met.
It does appear that the lower decline rates and the 60
workers that take care of the field were the reasons for
the somewhat higher price BOE equivalent for this transaction.
Perhaps ARP will use this as a model for integration other mergers, in a sense.
I also believe that the transaction was rushed to get to the high splits in a hurry. I would much rather wished we had purchased more of the Barnett. ARP has a lot of growth in its
future; it could double in size over the next few years and still not have Linn's problems. Once we get to .65 cents a quarter, which is likely for the 4th quarter, distribution growth can slow down as we build better coverage....I would like to see a 1.2 coverage ratio on a project forward basis for the year before raising the distribution above an annual rate of $2.60.
I would like to see the extra millions each quarter reinvested in more low decline properties and/or bolt-on's to our high IRR holdings in the portfolio to increase our inventory.
I am looking forward to the dividend increases that have been
telegraphed by senior management of .65 cents for the 3rd quarter.
ARP should be trading at a 10% yield if they execute reasonably well
going forward. The next conference call for this quarter's results should
give us a lot of forward info on the Marble Falls and the monster wells, all
of which should have been hooked up by now...and more being drilled.
And we will have a full quarter of the EP deal and clarity on the public LP
raise and the new vehicle that ARP should benefit from in some ways, even if
its just fees and a bit of carry based on land equity.
It is a "show me" situation: Next quarter's conference call and earning release and the
one after will be needed to prove the concept.
Good production results, a high IRR inventory, organic growth
and a $200 million LP raise projection along with distribution increases will get
us back to $25. A stock price that is needed for growth;
equity is our currency. 9.25% debt + issuing fees is too expensive.
We can do $300 million worth of drilling and acquisitions before we need to float more equity or debt. We should grow this way and organically until the rates decrease for
ARP or the stock goes above $25.
They better be good ones. I think management understands the situation well
$2.72 / 25 is nearly an 11% yield; That is where we are headed.
The sooner the better.
I'd like to see ARP deliver on all projects, some better than
others, with average IRR's for the entire company of around
35%. That should get us a distribution of about $3 in 2015,
along with a coverage ration above 1.1 and growing.
I'd like to see no equity raised below $24 a share, and a trend toward
higher PUD deals, with company average decline rates commensurate with adjusted IRR's. For expample, a 50% IRR program can have a higher decline rate because it is an exercise in capital recycling with higher IRR programs.....A very important factor is that they should grow coverage ratios as decline rates increase....That is to say, they would reinvest the excess coverage in more drilling and locations.
I think they should make a strong and growing coverage ratio
with a goal of 1.2 and trending up to 1.3 prior to increasing distributions above .70 a quarter. I would be happy with a high coverage ratio AND
a .70 a quarter. The market would then eventually assign, perhaps a 10% yield on that projected $2.80 which obviously would be $28 a share.
RRB, what do you think of that business plan?
If ARP executes, we could be looking at a .75 cent quarterly distribution
4 or 5 quarters from now. That would be nearly a 40% increase from last quarter's
.54 cents. Perhaps the stock will be at $25 by then; which would be a yield of 12%.
Agree that another billion of acquisitions with get us to a sweet
spot as to G&A. Senior management must be aware of this goal.
If we can do 5 years of hedging above $4 and oil above $90, all we
need to do is execute. There is no need to rush any more deals;
there will be ample opportunities over the next year to add opportunities.
Now that they are entering the high splits they will be very careful to add
only very strategic and accretive bolt-on's from here.
I would like to discuss the appropriateness of rolling ARP into ATLS.
They are both MLP's, It would be an easy vote to win because ATLS owns
a large share of APR and I think they will easily get over 50% of the vote.
It would align what seems to be the potential for self dealing and reduce costs
for management duplication, etc.
If they raise the distribution for the 3rd quarter to .65 from .54 cents (a 20%
increase from 2nd quarter), as telegraphed in the last call, the stock should move up.
We will know a lot more when results come out in a few weeks.
I also expect a net cash flow of at least .72 cents resulting in ample coverage. I also expect .75 cents or more coverage in the 4th quarter which will easily cover an expected .68 cents distribution. That puts ARP at an annual of $2.72 for 2014. There will likely be further, but smaller raises in 2014 to .70 cents a quarter for a $2.80 annualized distribution and perhaps a $25 stock price which will allow ARP to use its equity as currency for acquisitions.
And then we get to .75 cents a quarter for 2015 and probably not go higher until NG
works it way to at least $4.50 price deck average for 3 years out.
I always attempt to use conservative estimates:
If they hit on all cylinders we will have a distribution of
$3 in 2015 and a stock price in the high 20's.
There really is alignment between ARP and ATLS:
The Cohens' have a large stake in both.
Fact is that ARP can not issue equity for acretive transactions
at $21 a share. So it is in all interests to get the price up so ARP can grow through acquisition. They are not going to do an equity raise below $23 in my estimation...it should be $25.
I think the new drilling program will be aimed at institutional and very high net worth investors, a demographic mostly outside of the likely $10k ticket price of the average public Atlas investor.
If ARP gets to sell land, get fees for drilling and managing, carried interests, etc., then this will be a very acretive proposition for us going forward.
I am hopeful that we raise more than $150 million this year from our existing public program to be invested in our relatively high IRR inventory. This would add nicely to net cash flow next
year and get us to a $2.80 distribution in late 2014 or early 2015 and a higher stock price which can then be useful for equity based acquisitions.
My concern is that ARP only gets a little cash for the HBP land,
and nothing else! Is that possible.
On the next call in early Novemver, they will likely communicate the new program structure; drilling results of all the new wells, public partnership raise indication. Lots of potential good news.
Along with maybe 275 mcf a day average production for the 3rd quarter, a dividend raise to .65 cents (a 20% increase from last quarter), and an ample coverage ratio.
Maybe the stock will go up that day!
It is not rocket science, Cohen and his very capable team should take the board's advice
and acquire selectively, bolt-on type of liquidy opportunities, and optimize the drilling and
management of current inventory FBO the shareholders, please. We pay him $3 million a year,
just from ARP for his attention. Maybe someone will have the courage to forward to Dr. Cohen,
A colder than normal winter puts us in the $4's and is very
good ARP, affording the opportunity to layer hedges at higher
prices and benefit from current unhedged production at the margin.
The guy has a ph.d. and a good BOD.
And 30 years in PA area doing deals.
And he is worth over $200 million.
Maybe he has learned from his mistakes.
Every aspect of the biz is going well.
We are less than 4 weeks from the next conference
call and quarterly release.
Yes. They can not use equity for acquisitions below $23,
therefore, they will have to bolt-on, drill existing inventory,
and manage the company for growth. We all know that
their goal is to get into the high splits of above .60 a quarter.
We are aligned in that way, and they are restrained from doing
large acquisitions....I feel good about that.
The SG&A drop from the new entity will be helpful, and we should be "carried " in exchange for our land in the PUD drilling on the carve out.
That would be highly acretive. Let's say ARP gets a 15% royalty interest
for our land...along with hopefully increasing public partnership raises.
There is still a lot potential: The new growth entity will lower our G&A as they share
services, and we should get some kind of carried interest and perhaps some cash which
will allow ARP to increase drilling for its own account.
The problems with transportation, infrastructure and that plant fire will recover in the next quarter which will be very helpful going forward.
They should layer on NG hedges through the end of 2018 at above $4 for all of their base production.
They will only be able to do small deals until the stock price increases which is a mixed blessing. It looks like the operating team is solid and strong at ARP. They need to get the coverage to 1.2 and slowly increase the distribution each quarter from here.