Why Atlas projects higher distribution and EBITDA for 2014

Market Realist

Must-know: Atlas Pipeline's 1Q14 earnings analysis (Part 3 of 7)

(Continued from Part 2)

On April 22, 2014, Atlas Pipelines Partners (APL) declared a cash distribution of $0.62 per unit, or $2.48 per unit annualized, for 1Q14. This amounts to a distribution yield of ~7.7% for a stock price of $32.33 as of May 12, 2014. The distributable cash flow for 1Q14 was $60.8 million with a distribution coverage ratio of ~1.1x. In comparison, distributable cash flow for 4Q13 was $51.7 million or distribution coverage of ~0.9x. The first quarter cash distribution represents an increase of 17.7% compared to the 4Q13 and an increase of ~40%, compared to 1Q13. Adjusted earnings before interest, depreciation, amortization, and tax (or EBITDA) for 1Q14 was $90.8 million against $86.7 million in 4Q13.

Update on distribution, hedging, and EBITDA guidance

In 2014, Atlas Pipelines expects to increase its annualized distribution to $2.60 per unit from the current annualized distribution of $2.48 per unit. Trey Karlovich, the chief financial officer of APL, commented in the conference call of 1Q14, “The recent announcements of the new processing facility with Pioneer and West Texas and the acceleration of an expansion at Stonewall with MarkWest do not change our current CapEx guidance for the year. We have a financing strategy that we are executing and with increased EBITDA from recent and upcoming projects, our bank covenant leverage will decrease, while we increase our distribution to $2.60 annualized per limited partner unit or more by the end of the year. Our first quarter results are right in line with this strategy and obviously the proceeds we expect receive on the West Texas LPG sale are part of that plan.”

Previously, during the release of 4Q13 and 2013 financial results, APL forecasted an adjusted EBITDA of between $400 million and $425 million for 2014, or approximately a 27% increase at the mid-point of the range, from the adjusted EBITDA of approximately $325 million for 2013. The growth in EBITDA is based on a projected volume increase across the gas gathering and processing segments of the company. The forecasted adjusted EBITDA for 2014 assumes the price of $4.375 per million British thermal units on an average for natural gas, a weighted average on natural gas liquids (or NGLs) price of $1.065 per gallon, and an average crude oil price of $92.785 per barrel. The company also projected the natural gas gathering and processing system volume to reach 1.8 billion cubic feet per day.

APL is forecasting growth capital expenditure between $450 and $500 million for 2014, due primarily to the strong backlog of projects across the company’s rich NGL-based operating areas.

In 1Q14, APL had approximately 80% of its propane position hedged at approximately $0.98 per gallon average price. The overall hedge position resulted in a loss of about $10 million to 1Q14 distributable cash flow including approximately $3 million cost of option premiums. APL has 71% of its distributable cash flow protected through hedging for the rest of 2014, 49% protected for 2015, and 11% protected for 2016.

Atlas Pipeline Partners (APL) is a master limited partnership operating in the midstream energy space. APL’s general partner is owned by Atlas Energy L.P. (ATLS). APL is a component of Alerian MLP ETF (AMLP), MLP ETF (MLPA), and Global X MLP & Energy Infrastructure ETF (MLPX).

Continue to Part 4

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