Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Atlas Resource Partners, L.P. (NYSE:ARP)

Q1 2013 Earnings Conference Call

May 9, 2013 9:00 a.m. ET

Executives

Brian Begley – Head of Investor Relations

Ed Cohen – CEO

Matt Jones – President & COO

Sean McGrath – CFO

Analysts

Michael Peterson – MLV & Co.

Michael Gaiden – Robert W. Baird

Ben Wyatt – Stephens, Inc.

Noel Parks – Ladenburg

Craig Shere – Tuohy Brothers

Wayne Cooperman – Cobalt Capital

Operator

Hi, ladies and gentleman. And welcome to the Q1 2013 Atlas Energy and Atlas Resource Partners Earnings Conference Call. My name is Gary, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct Q&A session at the end of the presentation. (Operator Instructions) As a reminder, this call has been recorded for only replay purposes. I would like to hand over to Investor Relation today Brian Begley, Please proceed, sir.

Brian Begley

Thank you and good morning, everyone. And thank you for joining us for today’s call to discuss our first quarter results. As we get started, I’d like to remind everyone that during this call we’ll make certain forward-looking statements and in this context forward-looking statements often address our expected future business and financial performance, and financial condition and often contains words such as expects, anticipates and similar words or phrases.

Forward-looking statements by their nature address matters that are uncertain and are subject to certain risks and uncertainties, which can cause actual results to differ materially from those projected in the forward-looking statements. We discussed these risks in our quarterly report on Form 10-Q and our annual report also on Form 10-K particularly in Item 1.

I’d also like to caution not to place undue reliance on these forward-looking statements which reflect management analysis only as of the date hereof. The company undertakes no obligation to publicly update our forward-looking statements or to publicly release the result, any revisions to forward-looking statements and maybe made to reflect events or circumstances after the date hereof or reflect the occurrence of an anticipated events.

In both our Atlas Energy and Atlas Resource earnings releases we provide a reconciliation from net income to adjusted EBITDA and distributable cash flow as we believe these non-GAAP measures offer the best means for evaluating the results of our business.

And lastly, we will be participating in several upcoming investor conferences notably NAPPP Annual Conference scheduled Connecticut on May 23.

With that, I’d like to turn the call over to our Chief Executive Officer, Ed Cohen for his remarks. Ed?

Ed Cohen

Hello, everyone and I am glad to report that Atlas Energy and Atlas resources both enjoyed fine quarters. ATLS has accordingly declared a cash distribution of $0.31 per limited partner unit for the three months of 2013, that’s the 24% increase over the corresponding prior year quarter and ATLS now reaffirms its earlier guidance on $1.70 to $2 for the full year 2013 reflecting the continued success of Atlas pipeline APL and of Atlas Resource. Atlas Resources ARP also reaffirms its previously announced distribution guidance of at least $2.35 per unit for the full year 2013.

Now, those of who follow around with pipeline know its growing successes. During the first quarter of 2013 for example APL processed more than billion cubic feet of gas per day and was found to increase of 63% about the corresponding 2012 period. Because APL was operating near or at maximum capacity on all of its gathering in processing systems in mid-continent.

APL was forced to bypass or offload millions of feet per day. However, during the highest 30 days because of teak acquisition and the opening of the new driver plants in West Texas capacity has now increased to about 1.5 billion cubic feet per day. Almost the 50% increase over the first quarters name ply maximum..

Based on the forecast of the earnings and cash flow of Atlas pipelines form the new teak assets ATLS Atlas Energy expects to receive an additional $25 million to $40 million of annual distributable cash flow beginning in 2014. This represents approximately $0.45 to $0.75 per ATLS common unit of additional distributable cash flow on an annualized basis.

APL’s achievements happily have been paralleled by Atlas Resources accomplishments. ARP increased its quarterly distribution at $0.51 per limited partner unit for the first quarter 2013 and 8% increase from the quarter 2012 distribution. Adjusted EDITDA reached $31.4 million or 64 cents per common unit for the first quarter 2013 which represents an $8.8 million increase from the fourth quarter of 2012.

I want to note that this increase was achieved despite the brisance and other unprecedented weather disasters have struck Oklahoma and with Texas during the first quarter, negatively impacting production margins and our budget expectations for those period by approximately $2.5 million to $3 million.

Total production revenues reached over $46 million for the quarter up from only some $17 million for the corresponding 2012 period. Beneficially and significantly Oil and Liquids revenues represent a much greater percentage in the 2013 total, 37% versus only 26% of year over year production revenue.

In the field, ARP is going a great I should say almost incredible resource. Atlas Resources average net revenue production for the first quarter 2013 was 133 million cubic feet equivalent per day an increase of 22.9 million cubic feet equivalent per day or approximately 21% compared with fourth quarter 2012 and an increase of approximately 240% over the corresponding prior year quarter.

The explosive nature of our success in the field is best confirmed perhaps by our recent results in the Marcellus formation and Lycoming County Pennsylvania. Overall restricted cover in Chevron will smoothly improve us with few more months from activity in South Western Pennsylvania, the FB center of our predecessor company’s success we all are free to operate in most of Pennsylvania and accordingly ARP has been busily developing its acreage in Lycoming county.

Eight wells have been completed already in Lycoming and we now have flow back information from seven. All seven are blockbusters. Likely in a year we did to be as good as the best ever completed in the Marcellus. The seven wells have averaged peak flow back rates per well of about 20 million cubic feet per day. One well astonishingly has actually exceeded 30 million per day.

For 140 million cubic feet from seven wells would obviously exceed ARP’s entire production of 133 million cubic feet equivalent per day for the first quarter about which I have just been boasting. Now of course, we have an eight completed well in Lycoming which were in the process of testing and we have up to 20 additional drilling locations substantial more segment wells that we have completed.

We are currently permitting the next six Lycoming wells and of course recent increased in natural gas prices make these new wells even more lucrative that we had anticipated. ARP owns an overall average of about 37% in each of these Marcellus wells which should be connected in cash flowing by early in the third quarter. The remainder of these wells is owned by investors in ARP’s direct investment program.

We of course are pleased at their good fortune and dollars and anticipate that these spectacular results will not discourage substantial increases in investments in future programs in 2013 and thereafter and an ARP’s fees there from. Atlas Resources has also enjoyed spectacular results in its other principal areas of activity. We held over 80,000 acres in the Marble Falls roughly 70 miles North West Texas Western region headquarters.

The first 10 wells completed here had produced IROs of about 50% annually and we are hopeful that the remaining 40 wells to be drilled this year will produce even better results. Our Mississippi Lime wells at Oklahoma have been exceeding expectations and (inaudible) we are in the process of drilling wells with hopefully will challenge even Marcellus results.

Matt Jones President of ARP will shortly share with us the exciting results in broad aspects from these areas and will elaborate on Marcellus activity. I should however noted closing of despite our continuing success from drilling new wells for our own account and not of our investors we continue to see an enormous growth of attractive acquisition possibilities.

As numerous companies are seeking to dispose of seasoned long lived non-core productions that is non-core to them with relatively low declines in order to generate funds to pursue their core developments or to deal with financial challenges. (Inaudible) as the French say more names to follow and now Matt take it away.

Matt Jones

Thanks Ed and good morning to everyone and thanks for taking the time to join our call. We are happy to report the solid start to 2013 with first quarter production increasing 21% compared to the fourth quarter of 2012 a roughly 240% compared to the first quarter of 2012. More importantly higher production cash margin contributed to a meaningful increase of cash distribution in per unit for the quarter. Please stay tuned to get their view in the future because we have invested hours to get very excited.

During the quarter, we continued the development (inaudible) of our growth provisions in the Marcellus Shale and our liquids rich areas in the Utica Shale. The oil and gas productivity model fall section about the Barnett Shale in Jack County Texas and Mississippi Lime development area in the core of the play of Alfalfa, Grant and Garfield counties in Oklahoma. We expect this action is to reach the significant growth to the production and net cash generated from production primarily in the third and forth quarters of this year.

Also our growth and development efforts served to build the diversity in breadths of our inventory and runaway accessible advantages during the Alfalfa inclusion in our direct investment program. Increase the opportunity to generate greater cash fees from this segment of our business and higher internal rates of return of our company’s capital demonstrate one of the sources of our excitement about the upcoming quarters.

We had announced on our Earnings Conference Call in late February we had nearly completed drilling of our initial eight wells on 2/3rd rate on our Marcellus Shale acres located in Lycoming County North-Eastern Pennsylvania. We have said on that quarter we were quite encouraged by frequent and strong gas shows seen while drilling the lateral section of these wells and that we would soon begin the sequence completion process on all eight wells. Since then we commenced the successfully completed tracking up rates having affected 131 stages or more than 30,000 feet of refracted border of length in total 38 wells.

As of yesterday, we have concluded flow back operation on seven of the eight wells. The flow back was also highly encouraging in digging of our wells that maybe as good as any in the Marcellus play. The averaged flow back rates are roughly 20 million in cubic feet of natural gas per day for each of the seven wells with one well exceeding 30 million per day thus collectively indicates peak and controlled rate of roughly a 140 million cubic feet of natural gas per day. The eight well is currently in flow back process.

Our Marcellus well development activity today has been funded through our direct investment partnership business so ARP’s working interest in these wells is roughly 37%. We anticipate that our 37% interest will add meaningfully to ARP’s production and production cash flows in the third and fourth quarters.

I was pleased that investors in our direct investment programs are likely to see significant cash flow from their interest in these wells. We anticipate connecting all the wells early in the third quarter to gather infrastructure that we are presently developing. Virtually, we have as many as 15 to 20 additional drill locations on our acreage position in Lycoming County and we submitted permanent applications with our six wells and two pads sites on the acreage. The new pads sites on acreage is nearly adjacent to the wells that we are recently closed back.

So we are quite optimistic that these wells will also provide the substantial incremental capitals to our production later this year and early next year. These sites will also benefit from the infrastructure that were developing in the area bringing scale of economic benefits to our operations in Lycoming that will allow us to connect wells quickly following completion.

Also on the Alfalfa region but moving to our unique (inaudible) we currently control roughly 5500 acres of Utica perspective (inaudible) in Harrison, Columbiana, Tuscarawas and Stark counties. Activity in the Utica Play continues to escalate particularly in the white gas area boosted by very exciting initial well results. We tend to begin our Utica development activity in our Harrison County site because this site lies in the heart of the white gas window of the Utica point/pleasant play.

Perhaps later that the play is more promising with the white gas window on Harrison County for midstream infrastructure development continued at an advance pace and with Gulport, Chesapeake and others continue to report substantial initial well results ranging from 1300 Boe per day to more than 4700 Boe per day.

Generally, in Harrison county the liquids component of production wells is substantially seen at 50% of total measured production. Our liquids in Harrison we also believed that we will benefit from other important reservoir characteristics including over 120 feet of thickness and greater than 5% porosity in the point/pleasant section of the Utica. The well revised thickness and porosity compared favorably to the areas in the region where the best wells have been drilled.

We reported in our last earning’s call late February that we had recently completed drilling in the first of the five Utica wells in our Harrison County Pads. Since our late February call, we successfully drilled all five wells on this site and will recently begin completion operations. I am very happy to report it but we encountered a nearly continuous strong oil and gas shows throughout the lateral lengths of these wells.

We are now in the process of completing more than 100 frac stages or more than 27,000 feet of the effective lateral length for the combined wells. As of last May, we have completed 9 frac stages on the project and operations are continuing. Following the resting phase we intend to begin producing from these wells oil in the third quarter. We expect these wells to add meaningfully to our liquids and gas production in the second half of this year and production cash margin will be enhanced by the addition of these wells to assist them with a significant expected liquids components.

These wells are funded though series 33 direct investment program and we anticipate highly satisfying wells for our company and for our partners. ARP’s working interest in the Utica wells is roughly 30%. Moving over to our last drilled region were to date we have focused the proponents of our acquisition activity. We continue to be very pleased with the integration and the advancement of the development of our Western region assets.

Beginning of the Marble Falls position located roughly 70 miles North-West of our Western region headquarters in Fort Worth Texas. We overcame the few of weather storms and drilled and completed our first 10 wells of our 15 vertical well program designated for a Marble Falls’ assets in 2013.

All of these wells to be funded directly from ARP’s balance sheet. Please recall that the liquid rich Marble Falls formation sits directly above the Barnett Shale on our 80,000 plus acres primarily located Jack County in North Texas. We believe that we have many hundreds of potential drilling locations on our acreage and we initiated the drilling program here in late January in this year following the acquisitions of the assets in late December of 2012.

Today we have completed 10 wells that have meaningful production history on six of the wells. I am again happy to report that 36 wells with the first well having got into production in early February and other in subsequent weeks, we produced more than 18,500 wells and crude oils and roughly 100 million cubic feet of liquids rich gas.

Please let us turn the total drilling and completion costs for these wells even after giving consideration of certain scientific and technical cost that re-incurred in the development that we will believe more likely benefit future of performance was roughly $5.5 million Q relatively. On individual well basis, we have at least 45 days of co-production production history on these first six wells. On average each of these wells have produced 51 barrels of crude oil per day exceeding our original expectation for the 45 day period by roughly 15%.

Importantly in addition to producing significant and highly valuable qualities of oil, gas and NGLs we have gathered a substantial relation about our acreage position and we are quite pleased with our discoveries. We drill on the Northern and Southern most extend of our acreage and we have tested and graded approach to drilling and completing wells in the play.

Overall half of the wells we drilled today on average of very satisfying likely producing greater than 50% internal rates of return on average. We believe that we will continue to improve results to the applications of what we want and potentially generates significantly higher returns. We anticipate that the remaining 40 Marble Falls wells that were drilled in 2013 will add meaningful quantities of high margin oil production to our production mix in coming quarters.

Lastly with respect to the Marble Falls acquisition that we closed in late December last year just several months ago our ability to quickly effectively and efficiently integrate the acquisition reflects positively on integration skills and positions as well for future acquisition. This of course is consistent with the track record that we have previously put forth our acquisition under taken at Atlas. In the Oklahoma and Mississippi Lime play were successfully progressing with the current well development plan under 20000 net acres.

Our acreage is nearly entirely helped by our Hunton formation production and we will believe that we have at least a 125 drilling locations perspective for the Mississippi Lime. The Hunton Formation Limes beneath the Mississippi Lime formation on our acreage. Miss Lime acreage position is allocated in the core of the play in Alfalfa, Grand and Garfield counties which were offset by SandRigdge Energy, Chesapeake Energy and Midstates Energy.

Today, since our last earning call we have made significant progress on the drilling and completions front and we have very recently connected four well to our system. These four wells have clearly continuing to see inclining production from the wells. For example, the great Handwell the well that was very recently turned a Lime is currently producing about 330 Boe per day and the rate is increasing. This level exceeds our expected initial production rate of roughly 310 Boe per day.

Our two Mississippi Lime wells decreased amount of production history include one well that has been producing for 205 days and another that has been producing for 195 days. These wells are averaging 212 Boe per day on average and this result exceeds our expectation for the measure period by roughly 10%. In the next several days, we will begin cleaning up and flowing back three more Miss lime wells at the remainder of the second quarter and early end at the third quarter which is scheduled to connect in another several well on the Mississippi Lime acreage.

The vast majority of our Miss Lime well activity is being funded through our 36 and 32 direct investment program. Lastly, many of you know we have substantial number of drilling locations and our Texas Barnett Shale acreage that are largely helped by production (inaudible) associated with the future place of development. Many of these drilling sites benefit from their location and existing pad sites with developed infrastructure and substantial take away capacity.

We required a Barnett assets last year when natural gas prices traded substantially below today prevailing prices. As a result, we believe that there is little doubt there are discretionary developmental option on these sites with far more than when we acquire the assets.

Our Barnett Shale drilling sites represented tremendous future growth opportunity for our company. But this of course only represent the piece of our story. A highly encouraging Marcellus result a forth coming unit of wells a huge opportunity in the liquid rich Marble Falls play and our management decision in the Mississippi Lime also provide us the opportunity to grow organically in some of the highest returning areas in the united states for many years to come.

And finally, I believe that we have proven our ability to affectively acquire an integrated acquisitions. It’s part of our core components and a key element to our growth trajectory in quarters in years to come. It’s an exciting time here that Atlas Resource Partners that we look forward to keep you all informed of our progress in future periods.

Thanks for listening and I will turn the call over to our CFO Sean McGrath. Sean?

Sean McGrath

Thank you Matt and thank all of you for joining us on the call this morning. First regarding ARP we generated adjusted EBITDA of approximately $31.5 million or $0.64 per unit and distributable cash flow approximately $25 million or $0.52 per unit in the first quarter 2013.

We distributed $0.51 per limited partner unit for the period based upon these results, representing one times coverage ratio for the quarter and 1.1 times coverage ratio on a raw and full quarter basis. Production margin for the first quarter, approximately 31 million represented an almost 130% increase compared with 30 million for the prior first quarter. Production margin during the period was negatively impacted by approximately $2.5 million to $3 million to the lingering effect of our production from storms that roll through Texas and Oklahoma. Including the financial impact from the storms, our first quarter production margin would have represented a 10% increase from the fourth quarter 2012.

Overall production lime grew to almost 133 million Q3 equivalents per the quarter and increase in excess of 20% from the fourth quarter and almost 230% higher than the prior first quarter. The increase between the first and fourth quarters production lime was principally due to a four quarter’s results from the DTE acquisition.

This operating expenses for the period $0.97 per Mcfe were almost 10% lower compared with the prior year first quarter. As our low cost production Barnett production drew cost per Mcfes significantly downward compared with the prior year.

OLE per Mcfe for the first quarter increased compared with the fourth quarter of 2012 due primarily to a full quarters impact of the DTE acquisition and a high composition of liquid and its production profile.

Overall, oil and NGL production accounted for approximately 20% of our production volume in a current period compared with approximately 13% for the fourth quarter and approximately 10% for the prior year first quarter. We expect liquid to account for approximately 25% of ARP 2013 production volume guidance, 51, 56 Bcfe.

Partnership management margin for the quarter was approximate 11 million which is relatively consistent with the fourth quarter of 2012 and reflex to the continued deployment for capital for 2012 program including wells in Utica and Marcellus Shales and (inaudible). As a reminder the guidance we provided for 2013 assumes $150 million of partnership investor funds raised based upon recent activity. However, our expectations are much higher for the year as an increase in marginal tax rates and early indications of sheer performance for our recent programs should create a payable environment for our programs.

Moving on to general administration -- administrative expense, net cash G&A was 9.6 million for the period which was probably higher than a fourth quarter of 2012 to the timing of seasonal cost such as (inaudible) preparation. Growth capital expenditures are 54.5 million for the first quarter, represent an increase of four million with the fourth quarter 2012. The first quarter included 36.5 million of CAPEX for direct well drilling the Barnett Shales (inaudible) regions. A $16 million increase on the fourth quarter and 12 million of investments in our partnership programs which is 12 million lower than the fourth quarter given the timing when the constitutions are made.

We expect to see significant increase in production margin from both of these activities in the near term. For 2013, we expect total capital expenditures of 175 million including approximately 26 million of maintenance capital consisting of approximately 145 million well drilling activities including our investments in the partnership programs and approximately 30 million for land leasing and another activities.

With regard to risk management activities we continue to execute our strategy methodically yet opportunistically, mitigating down -- potential downside commodity volatility both our legacy and acquired production. Overall, we have had positions almost 118 billion cubic feet natural gas production, at an average floor price of over $4.20 per MCS, for period for 2017 consisting of a combination of cliffs, swats and colors provides with downside protection but outside potential for natural gas prices.

In addition, we have hedge an average of approximately a 100% for current run rate crude oil production for the next three years. And an effective average core price of approximately $90 per barrel with additional hedges through 2017. We are committed to adding protection to our business, providing better clarity with respect to anticipated cash flows and we’ll continue to do so as we have done straight in the past. Please see the tables within our press release for more information about our hedges.

Moving on to our debt and liquidity position, as a reminder we issued 275 million (inaudible) at a price of seven and three quarters in January and net proceeds of which were used to repay the term loan and credit facility borrowings incurred on the DTE acquisition. At the end of the quarter, we are approximately 225 million availability under our $270 revolving credit facility with a leverage ratio of approximately three and half times, which we expect to moderate during the back half of 2013 as we connect the significant number of wells in the third quarter.

With regard to Atlas Energy, L.P. we generate the civil cash flow of 16 million and distributed $0.31 per unit for the period representing a onetime coverage ratio. Going forward we expect APL has to meet -- continue to maintain minimum coverage on cash distributions. The ARP and APL both expect to maintain APL coverage ratios in future periods. Atlas Energy DCF included 7.4 million of total cash distribution from APL representing almost 15% increase in the fourth quarter 2012 and a 35% increase in the prior first quarter. The distributions included 3 million of incentive distribution rights and increase of over 90% from the prior first quarter. As APL continues to share significantly in APL’s growth.

Atlas Energy DCF for the period also included 11.6 million cash distributions from ARP and 9% increase in the fourth quarter 2012. ARP distributions for the quarter included approximately half a million dollars on incentive distribution rights which we expect -- we expect this amount to increase significantly as ARP achieve steady growth objectives in 2013.

Cash G&A expense for Atlas family and standalone basis was $3 million for the period. As a reminder I’ve got it on our pervious call that we expect APL standalone G&A expense to be approximately 7.5 million to 9.5 million for 2013 with cost being higher in early 2013 due to seasonality expense, includes annual shareholder meeting expense. We expect quarterly G&A cost for APL as to continue to moderate first quarter levels to the remainder of the year.

Finally I would like to quickly mention APL to stop showing standalone balance sheet which is $10 million of debt outstanding on a 100 million credit facility which we significantly expand it during the quarter from the previous $50 million capacity.

With that I thank you for your time and I’ll return the call to our CEO, Ed Cohen.

Ed Cohen

Thanks very much Sean and Gary I think we’re now ready for questions.

Question-and-Answer Session

Operator

Okay. So ladies and gentlemen you’re Q&A session will now begin. (Operator Instructions) We now have our first question coming from the line of Michael Peterson of MLV & Co. Michael?

Michael Peterson - MLV & Co.

Good morning everyone.

Ed Cohen

All right.

Michael Peterson - MLV & Co.

First I’d like to congratulate you on the impressive drillings results. My question regards the conservative expectation that you’ve provided with regard to capital raises for your investment partnerships. Now, Sean just detailed that there is some upside to those numbers but my question is, is there a possibility that given the drilling opportunities you might have avail this year that the opportunities eclipsed the drilling capital you have available?

Ed Cohen

All right. We don’t anticipate that and I should make clear that we do our budgeting based essentially on historical guidance. So in 2012 we raised a certain money we use that as the basis for our budgeting aspects. It’s not an indication that is our budget figures, not an indication of what each of us privately anticipates will occur. I share the implications of your statement that with these results it’s hard to believe that the fund raising will not be considerably in advance of what we achieved last year and I can assure you that we will have the properties available to take advantage of whatever enormous demand there maybe.

Michael Peterson - MLV & Co.

Okay. Thank you for the caller, sir. Can you share a little perspective? We’re always interested in what your perspective on the asset markets is and how you would characterize things for the past quarter?

Ed Cohen

Asset markets in terms of pricing?

Michael Peterson - MLV & Co.

Yeah, in terms of MNA, yes, sir.

Ed Cohen

Oh, okay, MNA. All right. We think that we’re ARP because of course the market is a vast market and there are many sub markets but for ARP conditions really haven changed, we see if anything in acceleration of available transactions and the same basic dynamics of people strenuously wanting to prone there 9 core areas in order to have the capital to exploit what they considered to be their core areas or to meet financial contingencies caused by over leverages, essentially it’s exactly the same to the extent that prices are better, there maybe less financial constraint but to the extent that prices are better there is even more desire to get into those core area. So there are lots of deals that we’re saying and once again there are not a lot of people in the same situations we are namely not following necessarily latest vagary in their fashion but who are pursuing a purposeful plan so as I indicated and it’s not indicated as stay tune.

Michael Peterson - MLV & Co.

If I could just do a brief follow up, in terms of the bid offer spread can you characterize that as narrowing or widening relative to prior quarters?

Ed Cohen

I don’t think it’s a scientific matter, all right.

Michael Peterson - MLV & Co.

Okay.

Ed Cohen

Generally when things are put up for so called auction there is a great deal of disinformation applied properly by the seller’s agents and possibly some disinformation from the buyer so that it’s not really a matter of spread. We have found that very often we prevailed even where we’re not the highest bidder as one person said in a transaction that we were victorious on recently. US was not the highest bid it was the best bid, meaning that you have to take into considering the likelihood that the party you’re dealing with, who would be buyer will in fact close on the terms that they set forth in their bid that they will in fact be amendable to reasonable conditions in terms of the purchase and sale agreement that they will be able to provide the financing and we think we have a tremendous advantage because we’ve gone to great links over the past ten years to make clear to people that when Atlas makes a bid you can rely on that as a serious bid and that Atlas is not interested in either changing the terms of negotiation or in obtaining anything more than what a sensible buyer has to have and we think that that rather than margins on a properties really is what comes into the situation.

It’s much more of an art in my opinion than a science and if you think that people have problems with today’s electronic means of transmission in knowing exactly what even a single share or main shares or stock share for each day on the markets to try to get a feel for what the bid and ask prices are in these transactions really is impossible. I hope that ‘s responsive because it actually is how I see the situation.

Michael Peterson - MLV & Co.

Very insightful, I appreciate your prospective, thank you.

Ed Cohen

Thank you, Michael.

Operator

Okay. Next question comes from the line of Michael Gaiden of Robert W. Baird. Michael?

Michael Gaiden – Robert W. Baird

Good morning, gentlemen let me too add congratulations for the success in the Marcellus. I wanted a follow up on that success and ask how these results and form your view of potential grown and play particularly, you know, given the -- near the intermediate term expression of the Chevron agreement?

Ed Cohen

Well, first of all obviously we want to continue to develop what we’ve started developing in Lycoming and that I have to give some credit to our geological team led by Jerry Dominey here in our geology group identified ad particular area of Lycoming as being a really in area that we thought would be quite successful that’s coming to (inaudible) and we’re quite please with that. We have some more expansion to undertake in Lycoming. We’re excited about that, we’ll continue their.

There are a lot of -- there are vast areas in southwestern Pennsylvania that we know well and we have a huge reservoir of information, a huge knowledge base about Southwestern Pennsylvania. We think we’ll have quite a few opportunities to expand in that area of Pennsylvania, we’re excited about the opportunity to do so and we’re sort of figuring out strategically at this point, how we’ll go about bringing forward opportunities in that area of the world. But in the meantime we’re quite pleased obviously with what has occurred what we’ve identified in Lycoming in the immediate expansion opportunity we have ahead of us are Lycoming (inaudible).

Michael Gaiden – Robert W. Baird

Great, thank you. And can I also follow up with the question about the MNA market, something that was a strong financial position and reputation for successful (inaudible) closing. Can you talk about how your human capital position today, you know, given the talent you’ve required over the years through MNA allows you to think about the MNA market now versus maybe 12 or 18 months ago, your cover there would be appreciated?

Ed Cohen

No, that’s a very good question because 12 or 18 months ago -- well, actually going back a little further I’d say 28 months ago when our entire highly skilled team of people who -- who would be available to work on major projects virtually had been assigned to Chevron where I don’t think day over as they have Chevron we were certainly under staffed. But I think we have now come up with so much talent and properly have -- have so filled our squad that we have a lot of debt, the company really should be I think if an efficiency expert came in who like to cut things close, I think somebody would conclude that we actually have a company that’s worthy of a much larger operation. And I hope we have the discipline that we become much larger we’ll continue to make sure that our back staff is adequate that were never in a position where the company is challenged personnel wise. But right now I think we’re really in a good take off position.

Michael Gaiden – Robert W. Baird

Great, thank you for that perspective.

Ed Cohen

Thank you Michael.

Operator

Okay. Next question is from the line of Ben Wyatt of Stephens. Over to you, Ben.

Ben Wyatt – Stephens, Inc.

Good morning, guys.

Ed Cohen

Hi Ben.

Ben Wyatt – Stephens, Inc.

Just maybe back on the Marcellus, I wonder if you guys could give us a little color on, I guess or some availability on how big and how small some of the -- some of the wells are. Are you guys completing those a little differently maybe just give us a little color around, maybe what you’re doing differently from well to well?

Ed Cohen

Well, I’m sure as you know, Ben completion processes and approaches have really advanced even since we were tracking wells in our own company a number of years ago but on our Lycoming properties we use reduced cluster spacing and approached that allowed us to (inaudible) more rock more effectively on most of the well. Some of the wells we use 200 foot spacing, some of the wells we use 300 foot spacing. In some cases we had four clusters per -- per section, some cases three. And we learned a lot through that process and we’re still evaluating the information we’re seeing in the follow back that we’re getting from each stage. This will give us great information as we continue to do drill on Lycoming and add to our Marcellus position going forward.

But I think that what we’re seeing here in our Lycoming properties is that first of all we have a great team in our Pittsburgh office both from a drilling and completions point of view, we have geological characteristics, the pressure, the downward pressure on these wells and we were flowing back these wells was about 4000 pounds that’s about twice as high as pressures that we saw on Southwestern Pennsylvania when we were drilling those wells. So completion techniques have improved -- (inaudible) reduced cluster spacing approached with these wells, we’ve learn from that, we’re benefiting from significant pressure regimes in the area where we drilled in Lycoming.

We think we can use all of this information to further our references we -- as we continue to drill wells in Lycoming. And again, I want to thank and I know you haven’t got must rest lately but I want to thank on completion engineer who I think one of the best in the business in our Pittsburgh office Roger Myers has just done a great job with these wells.

Ben Wyatt – Stephens, Inc.

Very good and maybe one more if move over to the Marble Falls. Vertical program now and sounds like you guys are really happy with well performance there but any plans to go lateral in that play during 2013?

Ed Cohen

Probably not in 2013. We’ve tested some of the areas that we’re on the outer realm of our acreage and we’ve used various approaches scientifically and -- from a completions point of view, from an engineering point of view. For example in one case the northern regions of our acreage we drill -- we first completed into the Barnett sale section, we’re coming back in and completing to the Marble Fall section in the vertical domain. So we’re learning an awful lot from that process. We continue to drill vertically. I would say that -- and by the way we continue to be pleased with the vertical results. I would say for the remainder of this, I’d say it’s unlikely that this year we’ll drill horizontally but we continue to evaluate that opportunity obviously, the metric has to be that we get, you know, greater units of production from every dollar invested in the horizontal domain and we’re not sure that we can accomplish that yet when we have a better sense of the probability of being able to cause that to happen, that economic phenomena that happen. Then we very well may take a shot at horizontal well.

Ben Wyatt – Stephens, Inc.

Got you, very good. Well, that’s it for me, thanks guys.

Ed Cohen

Thank you, Ben.

Operator

Next question is from the line of Noel Parks of Ladenburg. Over to you, Noel.

Noel Parks – Ladenburg

Good morning.

Ed Cohen

Hi, Noel.

Noel Parks – Ladenburg

Just a couple things. You talked about reduced cluster spacing in the Marcellus. I’m just wondering what -- give a sense of what that might do for a (inaudible) from the formation in that -- in that region?

Ed Cohen

Well, ultimately spending the additional money on fracking more of the rock has to result in higher EORs and we have to expect that the economic benefit of spending the capital upfront that we spent results in an economic return (inaudible). We believe that’ll be the case here. Noel, we think that this wells first we’re going to get higher IP rates than we had anticipated, it’s our believe that we’ll get higher EORs than we had anticipated and part of that certainly is related to the reduced cluster spacing, additional capital we spent to frack these wells. You know, as we’ve pass through all the variables that we know are impacting these wells quite positively will evaluate, you know, which is a various approaches that we thought provided the greatest economics. But -- yeah, that’s an ongoing process for us right now and as you know, we just completed the flow back really on a number of these wells as recently as yesterday or the day before.

Noel Parks – Ladenburg

Do you have an idea of the EOR for this most recent set of wells or that’s too early?

Ed Cohen

We had assumed for these wells that we would get two Bcfe what we would generate about two Bcfe for 1000 cubic feet of lateral lengths. Our expectation at this point is that we’re going to have EORs that we’re going to have ultimate production from these wells that substantially exceed that number.

Noel Parks – Ladenburg

Great. And one question I had about -- about this -- the regional acquisition environment. In -- I guess in the last six months or so, in the Barnett of course there was quick forward transaction that was a pretty nice price on sort of a back of the envelop basis. Just wondering if that caused any joy or any sort of more unreasonable expectations for any salaries that you might be talking to in the area?

Ed Cohen

I think quick sober situation was -- is broadly seen as a very special situation where the particular needs of the seller and interest of the seller dictated the form of the transaction and so forth. In general I’d say it’s been helpful to us in that our prior purchases are now being characterized as even better than people thought but I think in terms of sellers as I said previously it’s still a question trying to fasten a deal that meets the special of the sellers rather than focus on price.

Noel Parks – Ladenburg

Great. And then just one more question back on -- on the Marcellus. I’m wondering was this -- this big well’s coming on and you’re sort of going plans -- going forward into the year. Is the new production enough to move the needle on sort of the unit (inaudible) would you think?

Ed Cohen

It’s really for you analyst to determine but as a -- as a company participant it’s hard to see how we’ll not move the needle a great deal.

Noel Parks – Ladenburg

Okay. That’s it for me, thanks.

Operator

Thank you. Next question comes from the line of Craig Shere of Tuohy Brothers. Over to you, Craig.

Craig Shere - Tuohy Brothers

Morning, guys.

Ed Cohen

Okay.

Craig Shere - Tuohy Brothers

First, Ed with regards to that uplift from APL teak transaction I think you mentioned in 2014 and I think that was first time I had heard for the increase DCF to APLF. Did you mean a fourth quarter 14 run rate of second processing plan just filled out or what specifically did you mean?

Ed Cohen

No, I was talking about the fiscal year 2014 because we expect the second processing plan of course, to fill up quickly and we do have third processing plan coming along. So, that’s for 2014 which unfortunately confines by and I notice it’s not too far away.

Craig Shere - Tuohy Brothers

And then Sean you had mentioned eventual ample coverage ratios at ARP can you remind us what you’re kind of targeting there?

Sean McGrath

Sure, yeah. We look to target at 1.1 times and 1.2 times on a rolling fourth quarter basis. Yeah obviously, there is some seasonality; our cash flow is coming from the partnership programs depending upon timing of funds raised. So, you could see some quarters with the lower coverage of the quarters with higher coverage knowing that we’re trying to target in that range on a rolling fourth quarter basis.

Craig Shere - Tuohy Brothers

And maybe, Sean, you might want to us quit this one, I did notice that in the first quarter some of the fee base partnership management margin was somewhat flat, in particular, administration fees were kind of lowest in sometime and well service fees flat versus the fourth quarter. Can you kind of give some color on what’s driving this and what we should expect with all these new wells heading into the second half?

Sean McGrath

Sure, yeah absolutely. The admin and oversight reflects that the fact of the wells spreads, because we recognized, I mean, oversight fees when they’re spread. So, I think, what you’re saying there is that the amounts that we had during the periods just reflected lot of the activity occurred in terms of well spreads in the fourth quarter. So, there was lots of map recognized in the first quarter, but that’s going to be a timing thing. I think, as we start raising funds probably towards the backend of the second quarter and then really, and earnest towards the back half of the year those amounts will significantly increase this week, begins work on the wells in the 2013 programs.

The other fees, well services were relatively flat with the fourth quarter which once again is good, those should grow incrementally as we add more wells to the wells that match talking about the connect and third quarter you should see a small incremental uptick in those amounts as we recognize fees for those wells once they get connected.

So overall, I think, is worth moving along, the fees will reflect the activity that we’re doing which like we talked about were expecting to have a hopefully a good year fund raising in 2013.

Craig Shere - Tuohy Brothers

Great, and that might be a good segway for Matt on, of the 50 Marble Falls wells, can you discuss how many you expect to be brought online specifically in the second half and can you remind us what your working interest is in the Mississippian wells?

Matt Jones

Yes, always the later question for us Craig, the interest in the Mississippi line wells we’re drilling through the partnership is roughly 30%. With respect to the Marble Falls position, first the remainder of this quarter, we will connect another eight to ten wells in the Marble Falls, so before the end of the second quarter we have a fairly considerable amount of activity that’s going to take place. Then moving into the third quarter, we’re likely to again connect another 10 to 12 wells. Fourth quarter about the same amount, so the progression of connection obviously is following drilling, following the drilling we complete and we have I think a very good development plan in place for the remainder of this year, we will consume about 50 sites on our acreage, this year we have no less than 100 of sites on the acreage. So, we think that not only do we have a nice inventory wells for this year, but we have nice opportunity for years in the future as well.

Craig Shere - Tuohy Brothers

Great and last question, Ed, I just want to return to this question previously asked about basically capital funding and the point was made in prepared comments that rightfully. So, your well results are so impressive and tax rates are higher, so you would think that you won’t trouble or raising more funds this year from your traditional capital private partnership program. But, historically the predominance of that comes in the fourth quarter, maybe even late fourth quarter and while you have some very ample drilling opportunities during the year are right now. There is kind of a healthy balance sheet capacity and you certainly have that the summer program you will be coming up with, but I wonder if you could provide some color about how you see things being funded and also if there is anything more that could be mentioned about the new less tax dependent funding concept?

Ed Cohen

We always difficulty in discussing these private situations, so I’m not going to be say anything more about new concepts then we’ve already made clear in due course as the law permits, I think the opportunities and strategies they will become clear. I do want to deal with the fourth quarter aspect because one of the exciting things about the direct investment program business is, it really is unpredictable and last year we experienced something that we never saw before namely Congress waiting until January, as I recall January 3rd to determine what the tax condition should be for the year 2012.

It doesn’t seem that that’s going to be a factor and it may well be that this year we’ll mirror some years we’ve had in the past where investors have been eager not to shutout and we’ve been able to get programs out during the summer which have been very well received. It would be very helpful if that were to occur this year. But, regardless of how things develop we think in an extremely strong financial position so that our drilling activity will be dictated by opportunities and by company interest and not by any exterior financial factors. It would be excellent however if we do get funds early as we have in some years in the past because then we would have not only the company’s resources but also the direct investment program. This should just be a very, very exciting year, Craig.

Craig Shere - Tuohy Brothers

Great, did you suspect the law will allow you to be collaborating a little more by your second quarter call?

Ed Cohen

The law won’t change, but perhaps the information that is available will be amplified.

Craig Shere - Tuohy Brothers

Great, thank you very much.

Operator

(Operator Instructions) And we have our next audio question from the line of Wayne Cooperman of Cobalt Capital. Over to you, Wayne.

Wayne Cooperman - Cobalt Capital

Hey Ed, how are you?

Ed Cohen

Hi, Wayne.

Wayne Cooperman - Cobalt Capital

You guys have praise there, and a lot of guys asked questions already, so I don’t have that much left. Given the tremendous results in the Marcellus, you guys have any interest in, are you going to increase your own CapEx and spend more of your own money there, I know in the last iteration we sort of had a problem, not a good problem that the returns on the drilling were so great, but we had to payout our cash flows as dividends that it was sort of misalignment of objectives and just wondered if you could talk about that?

Ed Cohen

I think that we’re going to try to be disciplined and to pursue the most outstanding opportunities that we have, but obviously the programs make allowance for continued capital investment and we think we can have it both ways mainly increased distributions and hopefully increased capital contributions.

Wayne Cooperman - Cobalt Capital

Because the returns are phenomenal it’s almost a shame to give up 65% of it?

Ed Cohen

This has always been a discussion that we have been having, there always have been some people who say don’t pursue the investment programs because the returns are so fantastic that the company should keep it all for itself, but I think Wayne, you once told me that it’s best not to be too excessive in any one direction.

Wayne Cooperman - Cobalt Capital

I guess, I was only referring to the Marcellus wells and not the whole company.

Ed Cohen

Well, you probably heard from Matt the returns in the Marble Falls are outside, so we’re very happy to have this problem and we invite comment and advice from others and you can sure that we’re giving it a lot of thought, but it’s not a problem that I have.

Wayne Cooperman - Cobalt Capital

Alright, great, thanks.

Operator

Thank you. I would now like to turn the call back over to Ed Cohen.

Ed Cohen

I’m glad that everyone is looking forward to our next call; I am too, so I look forward to seeing you in about three months that is talking with you all. Thank you for attending.

Operator

Thank you very much ladies and gentlemen, that now concludes your conference call for today, you may now disconnect. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Atlas Resource's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts