JAllen Posted December 4, 2014 Share Posted December 4, 2014 We wrote up the Atlas Energy Group stub. The idea has gotten quite a bit more interesting over the last handful of days due to the continued oil price declines. Please let us know your thoughts. One question we still have is what is the best way to take a full-sized position in the Atlas Energy Group stub without taking an oversized position in ATLS. http://jallencapitalmanagement.com/posts/atlas-energy-spinoff-atls.html Link to comment Share on other sites More sharing options...
netnet Posted December 9, 2014 Share Posted December 9, 2014 It looks as if you have three options: Buy Atlas out right. Buy ALTS and short the fraction of Targa. Wait until the stub trades on a when issued basis. That is what I'm going to do. Thanks for the idea. I had seen it earlier and had discarded it as I am not a fan of MLP's but that kind of yield should support it and I did no realize that Atlas was as 'gassy' as it is, so the price collapse in oil is not as dire. (That said I have a quibble with your writeup which is excellent by the way: it remains to be seen how much of the effect the lower oil prices will have on gas production. In the near term, I suspect that although capital budgets are being cut back that is not going to affect the production of gas from gassy wells. you imply that gas production will decrease.) Other than that, your report looks good. How did you find this? Is it a local, do you look for spinoffs or comb through the MLP looking for mispricing? Link to comment Share on other sites More sharing options...
scorpioncapital Posted December 9, 2014 Share Posted December 9, 2014 what about investing in the debt? I think it's yielding 13% and due in 5 years. Link to comment Share on other sites More sharing options...
JAllen Posted December 9, 2014 Author Share Posted December 9, 2014 Netnet: I try and look at every spinoff (I've been using the feed of spinoff news [that I built] at http://stockbase.com/news/spinoffs) and also have a Google alert. There are so many happening right now that there's almost too much work to do on them. We've looked at BEAV/KLX, PTR, CRC, ATLS, HE over the past few days alone. But yes, after thinking about the effects on natural gas more, I really don't know what the effect will be on gas from the oil price decline. I do think there is tons of accidental gas - gas that is produced from producers focused on oil. SD is a prime example. Their ML acreage is quite gassy too. I can't quantify the percentage of total gas that could be affected though. Service costs will absolutely go down though. But yeah, ATLS is 70% hedged next year and is somewhat hedged the year after that. I assume they're putting on more hedges as we speak, along with the rest of the industry, which is probably why the price was down more than oil today. And yes, the mechanics of actually putting this position on are difficult. That's really up to each investor to decide. One option is to sell both TRGP AND ARP short, for more than it costs to buy ATLS right now. We haven't chosen to do that, however. BTW, discussion about ATLS kind of took off on Twitter and not here, in case anyone wants to participate or read the discussion there. See our tweets from the last few days at twitter.com/jallencapmgmt Link to comment Share on other sites More sharing options...
henrysalt Posted December 11, 2014 Share Posted December 11, 2014 Bumping the thread as it's getting views on Seeking Alpha as well: http://seekingalpha.com/article/2745075-atlas-energy-a-mispriced-equity-that-is-a-unique-value-play Link to comment Share on other sites More sharing options...
Picasso Posted December 11, 2014 Share Posted December 11, 2014 If the deal falls through, any idea where ATLS should trade in relation to other peers? Link to comment Share on other sites More sharing options...
usdtor05 Posted December 12, 2014 Share Posted December 12, 2014 they came out yesterday and reaffirmed the guidance...i thought it might fall through but that would be odd to do with that around the corner. Link to comment Share on other sites More sharing options...
JAllen Posted December 12, 2014 Author Share Posted December 12, 2014 At these levels for ATLS you have to be quite pessimistic about the future of the midstream business too, if the merger is totally cancelled. But then, maybe the merger will be cancelled only if the business suddenly deteriorates much more than it has. Link to comment Share on other sites More sharing options...
netnet Posted December 12, 2014 Share Posted December 12, 2014 The question is what is the best way to play this name. The good (the really good) thing about this transaction is the disruption in the oil market, which also could affect, i.e. scotch the sale, but which makes the potential return really attractive. I had thought that the best thing to do would be to wait until the stub starts to trade. But I'm not sure. The market may wake up to this sooner. Now, the volume of the put options in TRGP is just too small to do anything. And had you bought ATLS naked, well you would be 30% under water on the trade, which you may or may not make up with the stub! I have not checked the borrow in TRGP but you could get whip sawed in that one too. Say you short and the deal falls through and oil rebounds on you--ouch! What was Munger's comment about making money with smooth, uncalloused hands--it ain't so easy. I just convinced myself to wait for the stub! Link to comment Share on other sites More sharing options...
abcd Posted December 12, 2014 Share Posted December 12, 2014 Leon Cooperman's Form 4 for 455K Shares http://www.streetinsider.com/SEC+Filings/Form+4+Atlas+Energy,+L.P.+For%3A+Dec+08+Filed+by%3A+COOPERMAN+LEON+G/10086282.html Link to comment Share on other sites More sharing options...
roughlyright Posted December 12, 2014 Share Posted December 12, 2014 Jallen, Do you think it is a good idea to play with options in this case? I was thinking of buying ATLS calls and buy puts on TRGP ( in ratio). At the same time, I am concerned about when the deal is done how does the call holders of ATLS get the stock in the stub? will the strike price be reduced by the cash given by TRGP? Any thoughts on this are greatly appreciated. Link to comment Share on other sites More sharing options...
hillfronter83 Posted December 12, 2014 Share Posted December 12, 2014 Jallen, Do you think it is a good idea to play with options in this case? I was thinking of buying ATLS calls and buy puts on TRGP ( in ratio). At the same time, I am concerned about when the deal is done how does the call holders of ATLS get the stock in the stub? will the strike price be reduced by the cash given by TRGP? Any thoughts on this are greatly appreciated. I looked at this and 4/2015 options are not very liquid and you pay high spread as a result. By my estimate you may be able to establish stub position around $5-6/share. Much worse deal than just buy ATLS and short TRGP, by which you can get stub at around $0.6/share or $2/share merger risk adjusted. Link to comment Share on other sites More sharing options...
JAllen Posted December 12, 2014 Author Share Posted December 12, 2014 TRGP has filed an All Employee presentation. Contains quotes like "Targa is well positioned to handle the challenges" ... "after Atlas close" http://www.sec.gov/Archives/edgar/data/1347218/000119312514441011/d837056d425.htm Link to comment Share on other sites More sharing options...
jmp8822 Posted December 12, 2014 Share Posted December 12, 2014 Jallen, Do you think it is a good idea to play with options in this case? I was thinking of buying ATLS calls and buy puts on TRGP ( in ratio). At the same time, I am concerned about when the deal is done how does the call holders of ATLS get the stock in the stub? will the strike price be reduced by the cash given by TRGP? Any thoughts on this are greatly appreciated. I looked at this and 4/2015 options are not very liquid and you pay high spread as a result. By my estimate you may be able to establish stub position around $5-6/share. Much worse deal than just buy ATLS and short TRGP, by which you can get stub at around $0.6/share or $2/share merger risk adjusted. How are you creating it for $2/share merger risk adjusted? I.e. are you able to short out all risk of merger somehow? Link to comment Share on other sites More sharing options...
hillfronter83 Posted December 12, 2014 Share Posted December 12, 2014 Jallen, Do you think it is a good idea to play with options in this case? I was thinking of buying ATLS calls and buy puts on TRGP ( in ratio). At the same time, I am concerned about when the deal is done how does the call holders of ATLS get the stock in the stub? will the strike price be reduced by the cash given by TRGP? Any thoughts on this are greatly appreciated. I looked at this and 4/2015 options are not very liquid and you pay high spread as a result. By my estimate you may be able to establish stub position around $5-6/share. Much worse deal than just buy ATLS and short TRGP, by which you can get stub at around $0.6/share or $2/share merger risk adjusted. How are you creating it for $2/share merger risk adjusted? I.e. are you able to short out all risk of merger somehow? I used APL and NGLS to estimate the merger premium. See here: http://alphavulture.com/ Link to comment Share on other sites More sharing options...
wbr Posted December 14, 2014 Share Posted December 14, 2014 I'm trying to find out whether TRGP is cheap and might be worth owning after the price decline. It looks like the distributions of NGLS are icreasing quite a bit in 2014. I was looking at some presentations and annual reports, but I couldnt find the exact compensation scheme for the GP so I don't know the threshold that would increase their share. For NGLS maintenance capex is pretty low ($80M in 2014) compared to OCF. They are spending heavily on growth capex and margins seem to be expanding in some segments. Given that the majority of their business consists of fee based midstream assets the outlook for growing dividends of NGLS and thus increasing GP incentives seems to be good. Can someone play devil's advocat on this? Link to comment Share on other sites More sharing options...
mateo999 Posted December 17, 2014 Share Posted December 17, 2014 Can someone explain (like I'm 5) what the tax consequences are for me to establish a new position in ATLS units (an LP) at $25-26 but which are then going to be acquired by TRGP, a C Corp.? For what it's worth, I'm heavily leaning toward shorting out the TRGP consideration piece. There were some questions about this topic on the call hosted for the deal announcement, but management simply pointed to Kinder Morgan as the model and I'm just not sure how LP/GP/MLP taxation all works. Link to comment Share on other sites More sharing options...
jawn619 Posted December 17, 2014 Share Posted December 17, 2014 Leon Cooperman just referenced the thesis on CNBC Link to comment Share on other sites More sharing options...
mateo999 Posted December 17, 2014 Share Posted December 17, 2014 fuck you, leon Link to comment Share on other sites More sharing options...
jawn619 Posted December 17, 2014 Share Posted December 17, 2014 fuck you, leon +1 Link to comment Share on other sites More sharing options...
Hielko Posted December 17, 2014 Share Posted December 17, 2014 I guess I should thank Leon. Exited my position at a profit even though merger risk has increased significantly (as measured by the spread between APL/NGLS) Link to comment Share on other sites More sharing options...
netnet Posted December 17, 2014 Share Posted December 17, 2014 It looks like others are exiting the trade. Seems prudent to me. I decided to wait the stub to trade. So you lose some returns. I prefer WEB's admonition to only shoot fish in a DRAINED barrel! Link to comment Share on other sites More sharing options...
JAllen Posted December 17, 2014 Author Share Posted December 17, 2014 Yeah, we closed our position on Monday after the continued deterioration in the industry. Hoping for way better opportunities over the next year. ARP didn't hedge additional volumes either per the AEG update on Monday. Link to comment Share on other sites More sharing options...
muscleman Posted December 22, 2014 Share Posted December 22, 2014 I'm trying to find out whether TRGP is cheap and might be worth owning after the price decline. It looks like the distributions of NGLS are icreasing quite a bit in 2014. I was looking at some presentations and annual reports, but I couldnt find the exact compensation scheme for the GP so I don't know the threshold that would increase their share. For NGLS maintenance capex is pretty low ($80M in 2014) compared to OCF. They are spending heavily on growth capex and margins seem to be expanding in some segments. Given that the majority of their business consists of fee based midstream assets the outlook for growing dividends of NGLS and thus increasing GP incentives seems to be good. Can someone play devil's advocat on this? I just started looking at targa right now. Please share your insights. Link to comment Share on other sites More sharing options...
Josh4580 Posted January 28, 2015 Share Posted January 28, 2015 Atlas Energy Announces Record And Distribution Dates For Spin-Off Of Atlas Energy Group, LLC http://phx.corporate-ir.net/phoenix.zhtml?c=197317&p=irol-newsArticle&ID=2011459 Atlas Energy, L.P. Announces Distribution Of $0.52 For The Fourth Quarter 2014 http://phx.corporate-ir.net/phoenix.zhtml?c=197317&p=irol-newsArticle&ID=2011458 PITTSBURGH, Jan. 28, 2015 /PRNewswire/ -- Atlas Energy, L.P. (NYSE: ATLS) today declared a quarterly distribution for the fourth quarter 2014 of $0.52 per common unit. The fourth quarter 2014 distribution is payable Thursday, February 19, 2015 to holders of record as of Monday, February 9, 2015. Link to comment Share on other sites More sharing options...
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