ATLS - Atlas Energy, LP & Atlas Energy Group, LLC

[HWWProject]

This merger looks like a go, and the market continues to significantly undervalue the Spin-off.  Purchased ATLS today, write-up here:

 

http://www.healthywealthywiseproject.com/wealthy-blog/thesecurityilikebestatls-atlasenergylp

 

Even if the merger doesn't go thru, ATLS (and ARP) is offering a historically high yield and spread over treasuries.  It'd seem a small cut to the distribution would still leave a decent yield, and the market may react positively.  Would take a very large cut/cancellation to negatively impact prices.  Indications from management a large cut not likely.

 

JAllen this looks like you're specialty, aren't we at a point where 'if we're wrong we don't lose much, and if we're right there is plenty upside'?

[Hielko]

Why would you expect only a small cut to the dividend? Have you tried modeling the impact of lower oil on cash flows?

 

hints: financial leverage + operating leverage.

[HWWProject]

Have you tried modeling the impact of lower oil on cash flows?

 

From a Targa Jan. 15th presentation (in a month we would be TRGP shareholders):

 

Given our hedge position and our large fee-based operating margin, we estimate the following sensitivities for Targa standalone

2015 EBITDA:

 

-A $5 drop in crude price would decrease EBITDA

by ~$3 million

 

-A $0.05 drop in the weighted average NGLs price

would decrease EBITDA by ~$12 million

 

-A $0.25 drop in natural gas price would decrease

EBITDA by ~$5 million

 

This $20 million is only 2% of Targa's 2014 estimated EBITDA of $950 million.  Not sure how much it affects distributable cash flow but that seems a low %. 

 

The above is for Targa standalone without adding ATLS - which was expected to be accretive to earnings.

[Hielko]

The picture at Atlas Energy Group - the part where you think the value is - is very different though. Here you have a financially leveraged entity whose biggest asset are its LP, GP and IDR interests in ARP, another entity with more financial leverage and significant operating leverage as well. If that isn't enough the IDR interests themselves have massive inbuilt leverage given how they are structured.

 

Based on management's estimates almost 50% of Atlas Energy Group is derived from ARPs IDR cash flows. You don't need a lot of fancy math to figure out what will happen to those cash flows as soon as hedges start rolling off: they will disappear faster than you can blink your eyes!

[HWWProject]

You don't need a lot of fancy math to figure out what will happen to those cash flows as soon as hedges start rolling off: they will disappear faster than you can blink your eyes!

 

Unless the hedges roll off at higher nat gas prices.  The future of all these energy MLP's is of course very dependent on nat. gas prices, and I just don't think they can stay this low forever -

 

http://seekingalpha.com/article/2793225-u-s-natural-gas-economics-4-works-3-is-too-low

 

The US power industry continues to move away from coal, toward natural gas.  These current low prices should speed this process.  Also Obama's recent proposed regulations around coal would significantly raise its price as an alternate.

 

Even today's bad news about CBI (cost overruns at its nuclear plant construction) would seem to support the move to natural gas by the power industry. 

 

I'm of course hoping this is a good short-term play, but the long run here seems very positive.  Just wish I knew for sure what natural gas will sell for next month!

 

[JAllen]

I definitely agree with Hielko here.  Closed out our position in December after the market continued to deteriorate.

 

 

I would focus on post-hedge expiration Debt/EBITDA multiples.  That's only in one year.

 

 

Also, don't forget that shale economics just went down by 100%, not the 55% price reduction. 

[writser]

I would also urge you to not try to predict commodity prices, or at least not to blend this in with your business assessment. It encourages irrational decision making. Initially your rationale is "this is a great business" but that easily morphs into "well it's not great but gas prices are too low anyway" if things don't work out. Slippery slope.

[netnet]

I'm not sure what I think about ATLS, but nevertheless it looks

[*]As if their are hedged through 2017

[*]They are really a partnership promotion company, i.e. they sell partnership units to finance acquisition, whatever you may think about that. If they can do this through the down cycle, and it seems as if they have done this before, they will be buying assets that EARN them money two ways- fees and actual production.

 

I would never buy them as a speculation on the movement of gas and oil prices one way or another.  Also, in the conference call they say they are hedged 70% or more on natural gas (and I believe also in oil, a much smaller % of their revenue but climbing) but unless I'm reading the info wrong, I don't get a similar number hedging % when I work through the numbers myself.

[Hielko]

Their hedges are a nice, but what is the value of being hedged for ~2 years in gas and ~1.5 years in oil on the total lifetime value of ARP? Their hedges are currently worth ~$475 million if we mark them to market, but they also have $1,385 million in debt. If you simply subtract the value of their hedges from their debt and try to figure out what CFs will be in the new unhedged situation I think you have a hard time making the numbers work (and meeting the DEBT/EBITDA covenant will also be a problem, even with the significantly lower debt load).

 

The only 'positive' for Atlas Energy Group is that because of hedge accounting they will be able to post sufficient EBITDA in the near future and pay cash to the LP,GP and IDR units for a limited time. At the same time that would imply bigger problems for ARP after hedges roll off, and with Atlas Energy Group owning a bunch of ARP LP units that is also going to hurt.

[jwelborn93]

What do people think about ATLS now, post-spin? The stock has decreased almost 40% since the spin, and management expects it to yield between 11-13% this year at current prices ($.7 to $.8 annual distribution).

 

As of now, the mcap is 160m, and it owns a 28% share of ARP which is valued at $121m in the market today. In addition, through its investment in Lightfoot partners, it owns $12m in Arc Logistic partners. Therefore, the market is placing a $27m valuation on its 100% GP interests in ARP, 16% GP interest in Lightfoot Partners, and partial ownership in an E&P subsidiary. Because the latter elements are so hard to value, I can't find enough margin of safety. But complexity does sometimes present opportunities. Does anyone have a better idea of what they believe its worth?

 

 

[claphands22]

Leon has been buying a lot more of ATLS recently.

http://www.dataroma.com/m/stock.php?sym=ATLS

 

I see the potential for upside in ATLS, but I don't see strong downside protection.

[Gopinath]

Anyone know the debt is re coursed to Atlas Energy LLC(ATLS) as they own 23% of Atlas Resource Partners, L.P(ARP)?

 

If not, the investment seems to be hinged on Arc Logistics Partners, LP (NYSE: ARCX), a master limited partnership of which approximately  16% of its general partner interest and approximately 12% of its limited partner interest is owned by ATLS through the Company's interest in Lightfoot Capital Partners.