Atlas Pipeline Partners, L.P. Reports Third Quarter 2008 Results
PHILADELPHIA--(BUSINESS WIRE)--Atlas Pipeline Partners, L.P. (NYSE:APL) (“APL” or the “Partnership”) today reported financial results for the third quarter 2008.
The results of the third quarter 2008 include:
- Adjusted EBITDA(1), a non-GAAP measure, of $79.8 million, representing an increase of $13.4 million or 20% when compared with $66.4 million for the prior year third quarter. The quarter-over-quarter results were favorably impacted by higher aggregate processing and natural gas liquids (“NGL”) volumes on its systems and higher commodity prices. A reconciliation of non-GAAP measures, including adjusted EBITDA, distributable cash flow, and adjusted net income, is provided within the financial tables of this release;
- Distributable cash flow, a non-GAAP measure, of $56.7 million, an increase of $11.0 million or 24%, when compared to the prior year third quarter. The Partnership declared a quarterly cash distribution for the third quarter 2008 of $0.96 per common limited partner unit. This distribution represented an increase of $0.05 per unit, or 5%, when compared to the prior year third quarter. The Partnership’s distribution coverage ratio for the third quarter 2008 was 1.1x;
- Adjusted net income, a non-GAAP measure, of $35.4 million for the third quarter 2008, an increase of $9.2 million or 35%, when compared to the prior year third quarter. Due to the non-cash and non-recurring derivative gains and losses recognized in the current quarter as described below, on a GAAP basis the Partnership recognized net income of $198.6 million for the third quarter 2008 compared with a net loss of $24.5 million for the prior year third quarter;
- System-wide volumes of 1,324.8 million cubic feet per day (“MMcfd”) for the third quarter 2008 compared to volumes of approximately 1,166.4 MMcfd for the prior year third quarter, an increase of approximately 13.6%;
The Partnership’s financial results for the third quarter 2008 include a $71.5 million cash derivative expense resulting from the completion of the early termination of approximately 85% of its crude oil derivative contracts that it entered into as proxy hedges for the prices it receives for the ethane and propane portion of its NGL equity volume. The Partnership funded this transaction through its June 24, 2008 sale of 7,140,000 common units for aggregate net proceeds of approximately $262.1 million, including a capital contribution of approximately $5.4 million from its general partner to maintain its aggregate 2% general partner interest in the Partnership. These hedges, which related to production periods ranging from the end of second quarter of 2008 through the fourth quarter of 2009, were put in place in connection with the Partnership’s acquisition of the Chaney Dell and Midkiff/Benedum systems in July 2007 and became less effective as a result of significant increases in the price of crude oil and less significant increases in the price of ethane and propane. The Partnership terminated these derivative contracts during June and July 2008 at an aggregate net cost of approximately $264.0 million. The Partnership’s $71.5 million cash derivative expense recognized during the third quarter 2008 resulted from July 2008 net payments of $93.6 million to terminate the remaining portion of these derivative contracts. The attached hedge schedule reflects the current hedge position of the Partnership, adjusted for the crude oil derivative contracts that were terminated in June and July 2008. As a result of the termination of these hedge contracts, the Partnership’s future cash flow should more accurately reflect the revenues generated from its ethane and propane volumes produced in its natural gas processing operations.
APL further announces that it is evaluating the potential combination of the Partnership and Atlas Pipeline Holdings, L.P., which owns our General Partner, and other potential strategic alternatives for the Partnership. APL is exploring deleveraging through the sale of all or portions of individual pipeline and/or processing assets. UBS Investment Bank has been engaged as an independent financial advisor to assist in the review of these and other strategic alternatives. Furthermore, the company is currently in discussions internally and with its affiliates. The Partnership provides no assurance that the evaluation of these options will result in any specific transaction.
Mid-Continent Segment Results
- Mid-Continent segment total revenue increased $176.6 million, or approximately 73%, compared with the prior year third quarter to $418.2 million for the third quarter 2008, excluding the effect of non-cash derivative expenses and the non-recurring cash derivative early termination expense. This increase principally reflects a full quarter’s contribution from the Chaney Dell and Midkiff/Benedum systems and higher volumes and commodity prices on its Velma and Elk City/Sweetwater systems.
- The NOARK Ozark Gas Transmission (“OGT”) system’s throughput volume increased 120.1 MMcfd, or 37%, compared with the prior year third quarter to 445.7 MMcfd for the third quarter 2008. The Partnership has previously announced its intention to further increase OGT’s throughput capacity during 2008 from 400 MMcfd to 500 MMcfd through additional compression added to the system.
- The Elk City/Sweetwater system’s average natural gas processed volume increased to 243.4 MMcfd for the third quarter 2008, an increase of 12.3 MMcfd or 5% when compared with the prior year third quarter. However, the system’s efficiency rose significantly when compared with the prior year third quarter as average NGL production increased 1,704 barrels per day (“bpd”) for the third quarter 2008, or approximately 17%, when compared with the prior year comparable period. The Partnership connected 17 new wells to the Elk City/Sweetwater system during the third quarter 2008.
- The Velma system’s average natural gas processed volume decreased 1.1 MMcfd, or approximately 2%, when compared with the prior year third quarter to 60.9 MMcfd for the third quarter 2008. However, the system’s efficiency rose significantly when compared with the prior year third quarter as average NGL production increased 380 bpd for the third quarter 2008, or approximately 6%, when compared with the prior year comparable period. The Partnership connected 8 new wells to its Velma system during the third quarter 2008.
- The Chaney Dell system’s average natural gas processed volume decreased 15.5 MMcfd, or approximately 6%, when compared with the prior year third quarter to 234.5 MMcfd for the third quarter 2008. In addition, NGL production volumes increased 1,450 bpd to 14,128 bpd, or 11% when compared to the prior year third quarter. The Partnership connected 75 new wells to its Chaney Dell system during the third quarter 2008.
- The Midkiff/Benedum system’s average natural gas processed volume decreased 7.6 MMcfd, or approximately 5%, when compared with the prior year third quarter to 136.7 MMcfd for the third quarter 2008. NGL production volumes also decreased 1,782 bpd to 18,920 bpd, or 9% when compared to the prior year third quarter. The Partnership connected 32 new wells to its Midkiff/Benedum system during the third quarter 2008.
Appalachia Segment Results
- Total revenue for the Appalachia segment increased $4.4 million, or approximately 48%, when compared with the prior year third quarter to $13.5 million for the third quarter 2008, due principally to higher throughput volume generated primarily through new wells connected to the Partnership’s gathering system, the acquisition of the McKean processing plant and gathering system in central Pennsylvania in August 2007, and the acquisition of the Volunteer gathering system in northeastern Tennessee in February 2008. The increase in total revenue for the Appalachia segment was also due to an increase in the average transportation rate between periods.
- Throughput volume increased to a record 91.8 MMcfd for the third quarter 2008, an increase of 20.0 MMcfd or 28%, when compared with the prior year third quarter resulting from the connection of new wells to the Appalachia gathering system, primarily through its relationship with Atlas Energy Resources, LLC (NYSE:ATN) (“Atlas Energy”), and throughput associated with the McKean and Volunteer gathering systems. The Volunteer gathering system serves several counties northwest of Knoxville, Tennessee, an area of active drilling and production including that of Atlas Energy. In conjunction with the acquisition of this gathering system and other activities in the region, the Partnership has announced that it intends to construct two new processing facilities that will service natural gas produced in this northeastern Tennessee area.
- During the third quarter 2008, 214 new wells were connected to the Appalachia gathering system compared with 189 new wells for the prior year third quarter.
Corporate and Other
- General and administrative expense, including amounts reimbursed to affiliates, decreased $39.6 million to income of $1.8 million for the third quarter 2008 when compared with expense of $37.8 million for the prior year third quarter. This decrease was primarily related to a $44.5 million decrease in non-cash compensation expense, partially offset by higher costs of managing the Partnership’s operations, including the Chaney Dell and Midkiff/Benedum systems acquired in late July 2007 and acquisition and capital raising activities. The decrease in non-cash compensation expense was principally attributable to a $13.3 million mark-to-market gain recognized for certain common unit awards for which the ultimate amount to be issued will be determined after the completion of the Partnership’s 2008 fiscal year and is based upon the financial performance of certain acquired assets. The mark-to-market gain was the result of a decrease in the Partnership’s common unit market price at September 30, 2008 when compared with the June 30, 2008 price, which is utilized in the estimate of the non-cash compensation expense for these awards. Non-cash compensation expense of $31.8 million for the three months ended September 30, 2007 included $31.2 million recognized in connection with these common unit awards as a result of the effect the Chaney Dell and Midkiff/Benedum acquisition had on the calculation of the awards.
- Depreciation and amortization increased $6.4 million when compared with the prior year third quarter to $22.6 million for the third quarter 2008 due primarily to a full quarter’s depreciation associated with the Chaney Dell and Midkiff/Benedum assets, which were acquired by the Partnership in late July 2007, and the Partnership’s expansion capital expenditures incurred subsequent to the third quarter 2007.
- Interest expense decreased $2.2 million to $21.8 million for third quarter 2008 when compared with the prior year third quarter due primarily to a $4.6 million decrease in amortization expense related to deferred financing costs and a $3.3 million decrease in interest expense associated with the term loan issued in connection with the Partnership’s acquisition of the Chaney Dell and Midkiff/Benedum systems, partially offset by a $5.5 million increase in interest expense related to the Partnership’s additional senior notes issued during June 2008. In June 2008, the Partnership issued $250.0 million of 10-year 8.75% senior unsecured notes in a private placement transaction, of which it utilized $122.8 million to repay a portion of the indebtedness under its senior secured term loan. Interest expense for the three months ended September 30, 2007 included $5.0 million of accelerated amortization associated with the replacement of the Partnership’s previous credit facility with a new credit facility in July 2007.
At September 30, 2008, the Partnership had $1,426.5 million of total debt, including $707.2 million outstanding on its term loan that matures in 2014, $544.3 million of senior unsecured notes that mature in 2015 and 2018, and $175.0 million of outstanding borrowings under its revolving credit facility that matures in 2013. The Partnership also has interest rate swap contracts for a notional principal amount totaling $450.0 million which expire during the first half of 2010. These contracts convert a portion of the Partnership’s LIBOR-based floating rate exposure under its term loan and revolving credit facility to a fixed LIBOR rate averaging 3.02%, plus the applicable margin as defined under the terms credit facility.
(1) Adjusted EBITDA represents adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”), a non-GAAP (generally accepted accounting principles) measure.
Interested parties are invited to access the live webcast of an investor call with management regarding the Partnership’s third quarter 2008 results on Wednesday, November 5, 2008 at 9:00 am ET by going to the Investor Relations section of the Partnership’s website at www.atlaspipelinepartners.com. An audio replay of the conference call will also be available beginning at 11:00 pm ET on Wednesday, November 5, 2008. To access the replay, dial 1-888-286-8010 and enter conference code 88966328.
Atlas Pipeline Partners, L.P. is active in the transmission, gathering and processing segments of the midstream natural gas industry. In the Mid-Continent region of Oklahoma, Arkansas, southern Kansas, northern and western Texas and the Texas panhandle, the Partnership owns and operates eight active gas processing plants and a treating facility, as well as approximately 7,900 miles of active intrastate gas gathering pipeline and a 565-mile interstate natural gas pipeline. In Appalachia, it owns and operates approximately 1,600 miles of natural gas gathering pipelines in western Pennsylvania, western New York, eastern Ohio and northeastern Tennessee. For more information, visit the Partnership’s website at www.atlaspipelinepartners.com or contact bbegley@atlaspipelinepartners.com.
Atlas Pipeline Holdings, L.P. is a limited partnership which owns and operates the general partner of Atlas Pipeline Partners, L.P., through which it owns a 2% general partner interest, all the incentive distribution rights and approximately 5.8 million common units of Atlas Pipeline Partners.
Atlas Energy Resources, LLC develops and produces domestic natural gas and to a lesser extent, oil. Atlas Energy is one of the largest independent energy producers in the Appalachian Basin and northern Michigan. The Company sponsors and manages tax-advantaged investment partnerships, in which it co-invests, to finance the exploration and development of the Company’s acreage in the Appalachian Basin. Atlas Energy is active principally in Pennsylvania, Michigan and Tennessee. For more information, visit Atlas Energy’s website at www.atlasenergyresources.com or contact investor relations at bbegley@atlasamerica.com.
Atlas America, Inc. owns an approximate 64% limited partner interest in Atlas Pipeline Holdings, L.P., an approximate 2% direct limited partner interest in Atlas Pipeline Partners and an approximate 48% common unit interest and all of the Class A and management incentive interests in Atlas Energy Resources, LLC. For more information, please visit its website at www.atlasamerica.com, or contact Investor Relations at bbegley@atlasamerica.com.
Certain matters discussed within this press release are forward-looking statements. Although Atlas Pipeline Partners, L.P. believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from expectations include financial performance, inability of the Partnership to successfully integrate the operations at the acquired systems, regulatory changes, changes in local or national economic conditions and other risks detailed from time to time in Atlas Pipeline’s reports filed with the SEC, including quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on Form 10-K.
| ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES | ||||||||||||||||
| Financial Summary | ||||||||||||||||
| (in thousands, except per unit amounts) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
| STATEMENTS OF OPERATIONS | 2008 | 2007 | 2008 | 2007 | ||||||||||||
| Revenue: | ||||||||||||||||
| Natural gas and liquids | $ | 404,182 | $ | 229,891 | $ | 1,209,587 | $ | 436,859 | ||||||||
| Transportation, compression, and other fees – affiliates | 11,916 | 8,495 | 32,496 | 24,673 | ||||||||||||
| Transportation, compression, and other fees – third parties | 12,153 | 12,948 | 39,724 | 33,374 | ||||||||||||
| Other income (loss), net | 153,875 | (9,034 | ) | (247,140 | ) | (39,654 | ) | |||||||||
| Total revenue and other income (loss), net | 582,126 | 242,300 | 1,034,667 | 455,252 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Natural gas and liquids | 316,917 | 174,727 | 943,561 | 349,639 | ||||||||||||
| Plant operating | 16,652 | 9,108 | 46,418 | 18,153 | ||||||||||||
| Transportation and compression | 4,768 | 3,555 | 12,881 | 9,877 | ||||||||||||
| General and administrative | (2,946 | ) | 36,424 | 10,055 | 48,735 | |||||||||||
| Compensation reimbursement – affiliates | 1,175 | 1,392 | 3,694 | 2,820 | ||||||||||||
| Depreciation and amortization | 22,550 | 16,176 | 74,571 | 29,381 | ||||||||||||
| Interest | 21,846 | 24,040 | 61,612 | 38,126 | ||||||||||||
| Minority interest | 2,591 | 1,376 | 7,793 | 1,376 | ||||||||||||
| Total costs and expenses | 383,553 | 266,798 | 1,160,585 | 498,107 | ||||||||||||
| Net income (loss) | 198,573 | (24,498 | ) | (125,918 | ) | (42,855 | ) | |||||||||
| Preferred unit dividend effect | − | − | − | (3,756 | ) | |||||||||||
| Preferred unit dividends | (650 | ) | − | (1,437 | ) | − | ||||||||||
| Preferred unit imputed dividend cost | − | (624 | ) | (505 | ) | (1,858 | ) | |||||||||
|
Net income (loss) attributable to common limited partners and the general partner |
$ |
197,923 |
$ | (25,122 | ) | $ | (127,860 | ) | $ | (48,469 | ) | |||||
|
Allocation of net income (loss) attributable to common limited partners and the general partner: |
||||||||||||||||
| Common limited partners’ interest | $ | 117,203 | $ | (28,242 | ) | $ | (216,960 | ) | $ | (58,854 | ) | |||||
| General partner’s interest | 80,720 | 3,120 | 89,100 | 10,385 | ||||||||||||
| Net income (loss) attributable to common limited partners and the general partner |
$ |
197,923 |
$ |
(25,122 |
) |
$ |
(127,860 |
) |
$ |
(48,469 |
) |
|||||
| Net income (loss) attributable to common limited partners per unit: | ||||||||||||||||
| Basic | $ | 2.55 | $ | (0.90 | ) | $ | (5.25 | ) | $ | (3.05 | ) | |||||
| Diluted | $ | 2.43 | $ | (0.90 | ) | $ | (5.25 | ) | $ | (3.05 | ) | |||||
| Weighted average common limited partner units outstanding: | ||||||||||||||||
| Basic | 45,937 | 31,449 | 41,360 | 19,270 | ||||||||||||
| Diluted | 48,187 | 31,449 | 41,360 | 19,270 | ||||||||||||
|
Capital expenditure data: |
||||||||||||||||
| Maintenance capital expenditures | $ | 1,711 | $ | 2,328 | $ | 5,375 | $ | 3,800 | ||||||||
| Expansion capital expenditures | 87,413 | 32,216 | 241,019 | 72,628 | ||||||||||||
| Total | $ | 89,124 | $ | 34,544 | $ | 246,394 | $ | 76,428 | ||||||||
| September 30, | December 31, | |||||
|
Balance Sheet Data (at period end): |
2008 | 2007 | ||||
| Cash and cash equivalents | $ | 43,813 | $ | 11,980 | ||
| Total assets | 3,056,762 | 2,877,614 | ||||
| Total debt | 1,426,498 | 1,229,426 | ||||
| Total partners’ capital | 1,204,911 | 1,273,960 | ||||
| ATLAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES | ||||||||||||||||
| Segment Information | ||||||||||||||||
| (in thousands) | ||||||||||||||||
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
|
Mid-Continent |
||||||||||||||||
| Revenue: | ||||||||||||||||
| Natural gas and liquids | $ | 403,064 | $ | 229,511 | $ | 1,206,386 | $ | 436,479 | ||||||||
| Transportation, compression, and other fees | 11,769 | 12,793 | 38,772 | 33,183 | ||||||||||||
| Other income (loss), net | 153,802 | (9,133 | ) | (247,413 | ) | (39,918 | ) | |||||||||
| Total revenue and other income (loss), net | 568,635 | 233,171 | 997,745 | 429,744 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Natural gas and liquids | 316,365 | 174,471 | 942,022 | 349,383 | ||||||||||||
| Plant operating | 16,652 | 9,108 | 46,418 | 18,153 | ||||||||||||
| Transportation and compression | 1,885 | 1,943 | 5,039 | 5,443 | ||||||||||||
| General and administrative | (4,494 | ) | 34,806 | 5,013 | 43,506 | |||||||||||
| Depreciation and amortization | 20,873 | 14,992 | 69,968 | 26,007 | ||||||||||||
| Minority interest | ||||||||||||||||