I am bored and will post a note on APL.
APL distribution estimate put out by the company is $2.50 to $2.60 per share this year. 1st Q distribution in May should be close to the 4th Q distribution of 58 cents.
Events that will have a significant impact on distributable cash flow:
Southern Hills NGL pipeline and Sand Hills NGL pipeline both being build by DCP and Spectra energy.
One pipeline is takeaway from Permian and one is takeaway from Mid-continent Oklahoma Mississippi production.
Both NGL pipelines are Mt Belvue pricing vs current Conway for OK and Mt Belvue for Texas.
Both pipelines appear to be on schedule or a little early. Est timing of line fill is early 2nd Q on both.
Next event if the 60 million a day Velma plant goes on a take or pay fee basis in July so will generate its high fee basis for the next 10 years.
Another event is Sandridge energy contract change from Keep Whole to POP. On the whole it is a negative as Keep- whole has been very profitable as the processor is trading cheap natural gas for higher priced NGL's.
APL has mitigated the impact by timing the change of contract to the change in NGL sales from Conway to Mt Belvue. Current theory is that the spread between Mt Belvue and Conway will narrow but not close and producers with access to Mt Belvue will have an advantage on ethane pricing. Ethane is a very large part of the Mississippi play NGL barrel...50%.
When DCP completes the Southern Hills NGL pipeline the additional barrels above current contract takeaway will be priced Mt Belvue not Conway. Ethane rejection, by-passing gas and off loading gas to other processors has APL missing out on my estimate 8,000 barrels a day of tailgate NGL's in the form of natural gas or lost processing gains taken by the off loaded gas processors. Legacy Sandridge wells will stay on the old POP contract until mid 2014. At that time 100% of the tailgate NGL's will switch to DCP and receive Mt Belvue pricing. The POP should be at least 16% of tailgate so APL is missing out on higher pricing and over 1000 barrels a day of NGL's at over $30 a barrel. $30000 a day in lost margin is about 4 cents per share per Q. Significant for an MLP and this is a guestimate based on 4th Q run rate. Just Sandridge is adding at least 15 million a Q in processable gas every Q right now.
West Texas is even more significant. APL is flaring gas, running plants beyond capacity and operating a 60 million a day refrigeration plant in ethane rejection mode. When a refrigeration plant is run in ethane rejection there is a much higher loss of propane capture compared to a cryogenic plant operating efficiency.
West Texas gas also is only 25 to 30% ethane so much more valuable lost barrels then Oklahoma.
When the SandHills line is complete 2nd Q and the new 200 million a day Driver plant is up and running then the 60 million a day refrigeration plant will be put on standby. NGL's recovery should rise by a much higher amount and my guess based on gallons per thousand cubic feet processed potential vs realized NGLs recovered is closer to 15,000 barrels a day. Of this the equity POP for APL will be closer to 1600 barrels a day. If the increase in gas processed over comes the loss of NGL's sold as natural gas then this should drop to the bottom line. Estimate low ball 80 cents per gallon at 1500 barrels a day and 72% plant ownership would be a $36,000 a day bump in cash flows or 5 cents per Q per share.
These increases may be a bit off a bit but the exercise is to see the significant increases in cash flow that will happen caused by the new NGL take away not large increases in capital projects.
9 cents a quarter at 115% coverage ratio is close to 8 cents a share increase in distributable cash flow on the NGL takeaway based on 4th Q run rates.
If this puts APL in the high splits with the parent ATLS then the Q distribution on the NGL line would be 4 cents or 62 cents by 3rd Q 2013.
Ramp in distributions everything else constant would be 58, 60, 62, 62 or $2.42 for the year. APL has estimated cash distributions of $2.50 to 2.60 per
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The additional 8 to 18 cents per share can be attributed to my estimated impact being low, increased in processed gas increasing well above 4th Q rate throughout the year, no impact on the Velma plant going to fully utilized fee basis ect.
Run rate ramp will likely be closer to mid-range of $2.55 would be 58, 62, 65, 70. 70 cents in February of 2014 would be a 2.80 run rate at 7% yield would give you a $40 stock price compared to recent $33.
Reason for having the larger increase in 4th Q is drilling ramp in the Permian horizontal program with Pioneer is second and third Q ramp with wells put on line 3 months after drilling started so a one quarter lag in the ramp. Velma plant will not be fee basis until July which puts the increase only partly in 3rd Q distribution, plant startup efficiencies in the Driver plant and shutting down the refrigeration plant will impact margins possibly into the third Q and APL recently lowered the interest rate on a large chunk of long term bonds. The cost associated with the larger amount of long term debt at a lower interest rate is a short term negative when measured against the very low rate on the revolver.
So my expectation is that the stock price should appreciate to a low target of $40 by first Q of 2014.
I have higher expectations based on management comments that acquisitions are being looked at and APL has enough liquidity to pull off a significant $600 million acquisition without much trouble.
I think 75 cents a Quarterly or $3 annualized is more likely is there is not a significant drop in oil prices. Yield 6.3% on the lower side for a $47 price target.
Very good risk reward ratio on the stock. |
