Atlas Pipeline: As Dividend Continues, Why Is Stock Falling?

Atlas Pipeline Partners (APL) has declared a 3rd quarter dividend of 96¢, matching the 2nd quarter payout. In the two trading days since the announcement the share price has dropped almost 15%.

This has me quite confused. I would understand if the market was pricing the stock at a 7% yield and the price falls because the dividend did not increase, but at $19 APL is yielding 19%. Even more incredible, Atlas Pipeline Holdings (AHD) increased the dividend from 42¢ to 51¢ and that stock is off 20% to yield over 20%.  AHD operates the general partner interest in APL, receives the GP incentives and holds over 5 million units of APL.

APL, AHD, Atlas Energy (ATN) and Atlas America (ATLS) report earnings Monday, Tuesday and Friday of next week. I will be paying close attention to try to find out why the market does not like these companies. I believe they are among the best managed in the natural gas arena and have some unique factors going for them.

Disclosure: APL is a component of my site’s hypothetical Income Portfolio. ATN is in the Opportunities Portfolio.

Comments

[AlNieder:]

Tim - (I have ATN, other oil, gas, & pipeline interests, and colleagues in the business. There is a general concensus that the (recent) high returns and dividends are unsustainable for numerous reasons. Among the reasons: (a) IF elected, Obama vows to screw oil, gas, and utility companies, owners, and stockholders - which may take place in the form of taxes, or 'environmental' restrictions on drilling, pipelines, carbon emissions, etc.. (b) Utility commissions (esp in states like CA, MA, MD, IL) demand utilities buy at commerical prices, fix for 8-10 years the allowable rates utlities can charge, and then demand utility companies subsidize 'low income' users. This will get worse considering the tough economic times. (c) The projected earnings consider the producer's hedge contracts thru 2010, which the utilities may be forced to abrogated or reduced by (b), (a), or (d). (d) The 'credit crunch' is causing producers to scale back drilling, pipeline development, etc., which not only cuts into projected profits, but also accelerates depletion and the liklihood of losing leases.

2008 Oct 30 07:57 AM

[bradiop:]

I understood APL's financial model is they do not just charge by the amount of product pumped but their revenue is some how tied to the price of the product, thus if gas prices decline, for the same amount of product pumped, does APL's revenue declines.

If this is the case their market value would somehow be tied to gas prices, which I believe have been declining.

brad

2008 Oct 30 08:47 AM

[bradiop:]

I understood APL's financial model is they do not just charge by the amount of product pumped but their revenue is some how tied to the price of the product, thus if gas prices decline, for the same amount of product pumped, does APL's revenue declines.

If this is the case their market value would somehow be tied to gas prices, which I believe have been declining.

brad

2008 Oct 30 08:50 AM

[biomedlives:]

I suspect yesterday's decline was largely the result of the Citi downgrade, which was accompanied by ominous comments. "Citi Investment Research analyst John K. Tysseland cut his rating on the Moon Township, Pa.-based company to "Sell" from "Buy."

"Simply stated, as the price of crude continues to weaken the risks to Atlas Pipeline unitholders continue to mount," Tysseland said in a note to clients.

Atlas may have to cut its distribution if crude prices stay at current levels, and if they average below $60 a barrel for an extended period of time the company could violate its debt covenants, he said."

2008 Oct 30 08:52 AM

[doublebogey:]

if 288555 is correct then why aren't all the MLP's and utilities crashing? The citi analyst never saw a hole being drilled or a ditch being dug I bet. Long term gas and oil are higher, a lot higher. Just keep knocking APL down please, I love this price and yield (even if it's cut in half) for a long term 4 to 10 bagger. Money in the bank.

2008 Oct 30 09:34 AM

[nyka:]

11353--try SOMEHOW, one word; produce. THUS,

2008 Oct 30 11:24 AM

[Philip Obal:]

Nice cold winter is approaching... Pipelines WILL be used and OIL & Gas will be CONSUMED... Therefore I expect Atlas to PRODUCE as demand is still there...

2008 Oct 30 02:58 PM

[carloz678:]

I owned this last year and made money. I never quite got how these mlp and trusts can constantly pay out dividends (.96 next month for APL) on earnings that average .50/ quarter. Is it because they issue more stock or
a return of capital?

2008 Oct 30 03:29 PM

[Tim Plaehn:]

I believe the MLP have a lot of non cash items that go against earnings but really do not affect cash flow. The important figure is distributable cash flow. That is the real money left after paying the expense. I believe from the last quarter report APL has about a 1.2 times coverage on the dividend. We will see what they report for Q3 next week.

2008 Oct 30 09:23 PM

[Oil Man:]

Check out this blog for a great explaination:seekingalpha.com/artic...

2008 Oct 31 07:04 AM

[managematics:]

Go through comments from management and run the numbers yourself if you wnt to figure this one out. They seem to be pretty sophisticated in managing their financial risk so It's a pretty good guess that they've figured out their cash flow needs for operations and distribution.

Yes, they've only hedged 50% of their nat gas price exposute, but they've also hedged about 75% of their LIBOR exposure for their variable rate loans. Hmmmm... So this conservative company decided that they needed to hedge relatively stable LIBOR but not more volatile commodity exposure. This is a company that hedges for stability, not profits, so I'm guessing they've run scenarios to validate that they're OK.

The $0.96 distribution is the same as last Q, but already lower than upward guidance they provided on Q2 call, so it's reasonable to believe that they're cash flow isn't as high as they might have planned, but given that they discussed NG prices in thre $6-7 range on the last call they probably could have envisioned that scenario in planning.

Agree with those who have said that many of the items will be non-cash. One thing to add is that the lower gas prices will clean up the optics of the balance sheet since their hedge liability should be dramatically lower with lower gas prices.

They should have significant new capacity in Q3. Mixed blessing with oversupply. APL can sell more, lower-price NG. Those who are long will benefit from a cold winter.

2008 Oct 31 05:09 PM

[Scott Snively:]

Very timely call on APL! Thanks.

SS

2008 Nov 05 02:53 PM

[SWHM:]

On November 14, Citibank issued a new downgrade, to $9, based on the assumption that oil will be $65 in 1Q2009 and, if so, APL will violate its debt covenants. That would lead to renegotiations with banks greatly increasing interest rates and a huge cut in the distribution. This fear seems directly contradicted by Cohen's comments in the conference call, relying on the hedges already in place. Any thoughts on the likelihood that Citibank has correctly concluded that the hedges will not protect APL at these prices?

2008 Nov 15 11:08 PM

[lakerat7:]

hmmm,,, bought 1000 @ $20,,, then bought 1000 more @ 15,,, then most recently bought 1000 @11... i am wondering if i am chasing a loser or catching a winner... guess time will tell...

2008 Nov 16 07:54 PM