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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (36806)	3/1/2010 12:56:09 PM
From: Jim P.	1 Recommendation Read Replies (1) \| Respond to of 78667

APL's report was not as good as I was hoping with the increase in NGL prices. Analyst are not expecting distributions to start this year but to be in the $2.50 range in 2011 and $3.00 in 2012. The 4th Q had about 65 cents a share in cash flow that could have been available for distributions if you add back hedge losses and capital expansion. This was not too bad as the liquids price jump really did not occur until 1/2 way through the Q. Hedges are pretty much done as they bought out most of the painful ones in February. They have hedged out by adding calls on natural gas and puts on product. The 1st Q will be good and the next 3 after will quickly increase cash flow. They did say there would be $70 million in capex this year when a short while ago they were talking about maintenance capex of only 20 million. This is due to well connects so very bullish. ATLS is planning on 500 million to a billion cubic feet of natural gas production but cannot tell the time frame. ATLS has negotiated 100 million firm take away this year and in talks for another 100 million. APL is building with a partner 500 million in pipeline capacity for ATLS's gas and the POP on the pipeline is %16. If you do the math it works out to well over $1 per share to APL in gross profit on their portion of the pipeline when at 1/2 billion per day flow rates. I believe APL needs to lock in about 3 more quarters of cash flow and they will be at a place of stability with debt and then resume distributions. They are actually turning into a growth story so less and less risk with each passing day. The sector itself, NGL processing and fractionation, particularly for propane and ethane are hot as products are being exported. The u.s. has a competitive advantage for the time being so product prices should mirror oil price trends with margins expanding account natural gas prices in dollars vs petroleum products in dollars. I think because APL is not diversified in its revenue stream the upside could be dramatic but the dollars of cash flow will not have as high a multiple as other MLP's Conservatively I would discount distributable cash 2 years out a a $3 per share per year at 8 times instead of the 10 to 12 times for the less cyclical players. So a $24 stock price within about 18 months if there are no changes to NGL pricing in the interim. That is my low return scenario as I would not view the $24 price as a sell. It would depend on what kind of dividend growth can be expected at that time with the Marcellus being a great low risk kicker. I hope this helps. The negatives I have for ATLS is not paying a dividend and they are not producing any meaningful liquids in the Marcellus. This will allow them to scale up quickly as they do not have to add processing but makes the gas way less valuable than the area of wet gas that Range Resources is in. Still hard to argue with potentially 30 years reserves at 500 million cubic feet per day. I hope this helps. Jim