Atlas Pipeline's CEO Presents at NAPTP MLP Investor Conference (Transcript)

| About: Atlas Pipeline (APL)

Atlas Pipeline Partners, L.P. (NYSE:APL)

NAPTP MLP Investor Conference

May 22, 2013 1:15 PM ET

Executives

Gene Dubay - President and CEO

Trey Karlovich - Chief Financial Officer

Analysts

Unidentified Analyst

So we’ll get started here. Good afternoon, everybody. It’s my pleasure to introduce Gene Dubay, the President and CEO of Atlas Pipeline Partners for as our next speaker. APL is engaged in the gathering and processing of gas in the liquid rich plays and has enjoyed a strong organic growth profile and with the recent -- two big acquisitions totaling about $1.6 billion is poised to grow even further. From a processing capacity of 0.6 Bcf per day just a couple of years back, they are poised to grow to 1.8 Bcf per day next year.

With that, I will like to invite Gene to tell us more about the growth story.

Gene Dubay

Thank you ladies and gentlemen. My colleagues and I are pleased to meet with you today representing the management of Atlas Pipeline Partners. Atlas Pipeline today has 14 processing plants and over 10,000 miles of gathering pipelines.

Our plants have a total processing capacity of over 1.5 Bcf per day, which is up from approximately 600 million cubic feet per day of processing capacity three years ago. This achievement is a consequence of good organic growth that we have seen in the areas that we operated at Velma, WestOK and West Texas, and acquisition opportunities that we have benefited from in the last six months. Those acquisitions in the Arkoma and South Texas have added substantially to the fixed fee component of our margin. They have added greatly to the scope of our business and will provide us with incremental organic opportunities going forward.

On page four of the presentation we have an overview of the Atlas operating areas, which will be discuss in more detail shortly. The general partner of Atlas Pipeline Partners, Atlas Energy -- is Atlas Energy. Our general partner is also the general partner of Atlas Resource Partners.

The shareholder value that has been created in the last three years by the Atlas family of companies is well illustrated on page six of the presentation. The total three year return for Atlas Pipeline is 275% and for Atlas Energy it has been 500%.

In our strategy, we will remain focused on maintaining our capital discipline, targeting good projects, derisking our business through our contract mix and hedging strategy, maintaining our balance sheet and strategically growing our asset base. We have enjoyed success over the last several years and it is our intent to maintain our focus and continue to deliver good results to our unitholders.

We have added capacity, new operating areas, significantly reduced our commodity exposure and elongated our hedge book. We intend to stay focused on our field operations, add to our producer commitments, especially in South Texas and reduce our leverage over the next several quarters.

Now I will ask Trey Karlovich, our Chief Financial Officer to discuss our operations and financial performance in more detail. Trey, thank you.

Trey Karlovich

Thank you, Gene. As Gene mentioned, we’ve had some strong results over the past two years. We project those results to continue going forward. We recently increased our guidance for 2013 and issued guidance for 2014 based on the acquisition of the TEAK Midstream assets in the Eagle Ford. Those assets -- we will get the benefit from those assets beginning April 1st. We close on that transaction about two weeks ago today.

Those assets had incremental EBITDA for 2013 of about $40 million. Our range for 2013 guidance is $360 million to $400 million of adjusted EBITDA. Our range for 2014 that we came out with is $450 million to $500 million of adjusted EBITDA.

Our distribution guidance for this year is $2.50 to $2.60 per limited partner unit. Our distribution guidance for 2014 is $2.75 to $2.85 per unit. That factors in the financing that we put in place for the TEAK acquisition, as well as the growth associated with not only that asset and our new asset in Arkoma, but full operations in Western Oklahoma, West Texas and our legacy Velma asset as well.

I’m going to cover specifically what our growth capital has been going towards over the past few years. In Velma, we added 60 million a day to 100 million a day processing facilities, so that system today can process up to 160 million a day. It’s moving about 140 million to 145 million a day today, and the volumes have increased over the past quarter. 60 million of that capacity is contracted with XTO who is the largest producer in this area. This area is located in Southern Oklahoma and I’ll cover some of the details on each of these systems shortly.

Our Western Oklahoma system we essentially doubled the capacity there last year. We took it from 258 million a day to 458 million a day of processing capacity with the new 200 million a day cryogenic facility in September of last year.

However, that facility had limited liquids takeaway until just this past April when DCP completed their Southern Hills line; that line did come online on April 2nd, we now have full capability in Western Oklahoma.

In West Texas, we just announced a new 200 million a day facility. Our driver facility that took processing capacity in West Texas from 255 million a day to 455 million a day, again almost double the processing capacity. Today we are moving almost 100 million a day through that new facility. It has adequate NGL takeaway, residue takeaway, at that facility we are essentially waiting on the volumes.

Arkoma is our new asset that we acquired in December of this past year. We are in the process of installing a new 120 million a day processing facility that scalable to 200 million a day, we’ll take the processing capacity there up to potentially 420 million a day, again doubling the processing capacity in the Arkoma.

And then in South Texas, currently a 200 million a day processing facility, however, there are plans to add potentially two new 200 million a day processing capacity taking total capacity to 600 million a day.

The South Texas asset is running about 75% of capacity today. We have ordered the second facility. We expect that facility be online in the first quarter of next year and the third facility would come online as volumes dictate.

Ultimately, taking our processing capacity from originally about a Bcf when you factor in what was in place in the acquisition to almost 1.9 Bcf, so essentially doubling our entire processing capacity over the past year and the next year.

South Texas is where everybody has interest in today. This is our recent acquisition from TEAK Midstream that puts us into the Eagle Ford, another operating area that we’re very excited about. We've been looking at the Eagle Ford for several years as one of the premier basins in the United States where we would want to operate.

We feel like the TEAK assets is a premier asset in the premier basin. The pipeline on this asset runs directly through the middle of a condensate window in the Eagle Ford liquids rich area and has access to producers along the whole processing range in the Eagle Ford as well as the Pearsall and other areas in the Southern Texas.

The 270 mile piece of high pressure pipeline as well as having some low pressure gathering associated with it and a 200 million a day processing facility. All the contracts on this asset -- most of the contracts on this asset are fee-based. 80% of the revenue is projected to be fee based. Approximately 20% that is not fee based is primarily made up of condensate [heap] [ph] in South Texas, which we will roll into our hedge portfolio as we hedge going forward.

This is a map of the Eagle Ford assets. As I mentioned, this assets sits right through the middle of the condensate in liquids rich areas of the Eagle Ford. It has expansion opportunities currently moving about 150 million to 160 million a day on this asset.

We expect it to be full by the end of this year as we roll into the second plant. We acquired a significant amount of the management team and all of the operations personnel from TEAK. So we have the footprint in place, we have the personnel in place. We’re looking to execute going forward.

We’ve owned the asset essentially for two weeks. So we’re in the process of integrating it today. Great growth opportunity, we’re very excited about it, not only given us access to another market area but the fee component of the acquisition as well as adding additional expertise to our management team.

Western Oklahoma is our asset in the Mississippi lime. This asset is again 455 million a day processing facility. We connect two of well heads in the in this area. Primary producers in Western Oklahoma for us are Sandridge, Chesapeake, Shell and Devon.

We have long-term contracts with each of the producers. Our contract with Sandridge, we just extended in January, it’s a percent of proceeds contracts that is potentially a nine-year contract based on volume. If they hit a certain volume levels, the contract goes to nine years. It also covers about the 10 county areas of dedication in the Mississippi lime.

There are currently about 27 rigs running in the Mississippi lime. SandRidge is the primary producer in this area today. But you can see the volume increase that we’ve seen across the system. We have 455 million a day of processing capacity. Today, we’re moving over 500 million a day of natural gas on the system.

As I mentioned earlier, we did recently get the connection to DCP Southern Hills line. We now have the capability to fully run all of our processing facilities in Western Oklahoma and we are in the process of doing some projects at these processing facilities to add about 50 million a day of additional processing capacity in order to meet the needs of our producers in the area.

In Velma, this is a 160 million a day processing facility. XTO is the primary producer in the area. However, Range is also in this area. This assets sits right on top of what Continental has described as the SCOOP. The South Central Oklahoma Oil Province is essentially in Stephens County. We look to take advantage of that as we continue to grow this system.

This system actually fits about 50 miles away from Arkoma System which we acquired in December. Part of the strategy of acquiring our Arkoma System is to connect the Velma System and the Arkoma system together that allows for incremental processing capacity, incremental residue takeaway options as well as NGL options and we think provides a great footprint for producers in southern Oklahoma.

That’s not a project that we’ve announced at this point in time. It’s something that we’re moving forward with but we’re evaluating and do see that as a potential opportunity in Southern Oklahoma to expand our presence in that area. The Arkoma System, 80% fee based, it also included a treating business that has lease treating facilities in various plays in the mid-continent and the 20% that is commodity based on Arkoma system is primarily NGL related based on fixed recovery contracts.

Our West Texas system is in the Permian basin. This system is a partnership with Pioneer Natural Resources. Pioneer has a dedication that extends 5 miles from the further piece of pipe on the West Texas asset. They own 27.2% of all the assets on this system.

The are the largest producer in the area but they're not the only producer. Apache, Concho, Laredo among others are significant producers in the Permian basin that have dedications to us on the system. This is the percent of proceeds system. All the gas on the system is under percent of proceeds contracts.

You could see the volumes in the Permian have continued to run up. We've been very pleased with this asset. We recently added 200 million a day processing capacity and as I mentioned, we have 100 million a day running through it today.

Our original plan was for that asset to ramp up over about 2.5 to 3-year period. We obviously think that will move much quicker based on the volumes, we’re seeing today. We’re very excited about what Pioneer has going on as well as other producers in the Permian with the Wolfcamp and Wolfberry, Spraberry and horizontal drilling coming out of West Texas.

We recently did get connection to the DCP Sand Hills line. So we will have ample liquids takeaway capacity in West Texas. That was something that we were timing the completion of the driver facility with liquids takeaway so that we would be able to operate as we plan at full capacity, once they came onstream. We feel like we have the necessary takeaway capacity on this asset as well as other assets to date.

Our last primary asset is actually asset that we have owned a 20% non-controlling interest in. It’s West Texas LPG which is an NGL pipeline. It goes from New Mexico through the Permian, picks up in the Barnett and delivers to Mont Belvieu.

Chevron owns 80% and operates this asset. We purchased the 20% interest in this asset a couple of years ago. It’s fee-based business. We like to move -- we look to move further downstream and this is the way for us to do that as well as to add a fee component to our gross margin.

This asset has been operating above capacity. We expect it to continue to operate at capacity, even with the competition from Lonestar and DCP, this is the low-cost provider as the shipper’s history pipeline. And we do not expect producers or processors to give up their space on this pipeline. Chevron is one of the primary shippers on the pipeline as well.

From our financial perspective, we had a good first quarter. It was impacted by some weather events. First quarter is typically impacted by cold weather in West Texas as well as Western Oklahoma, one of the things that we are pleased with the South Texas acquisition is that we think that will help mitigate some of our sensitivity to these type of events during the first quarter of each year.

We did however increase our distribution to $0.59 per unit, our tenth increase in the past 11 quarters. We had approximately $67.7 million of adjusted EBITDA, again continued growth from where were at the prior quarter. We do expect our adjusted EBITDA to increase significantly, not only from the acquisition of the South Texas asset but from the increased liquids takeaway on all of our assets.

During the first quarter, WestOK and West Texas were both curtailed from what they could produce from a liquid standpoint with the incremental liquids takeaway and the driver facility coming online in April. We expect a significant increase going forward. As I pointed to our guidance for 2013, distribution is $2.50 to $2.60 per unit which is significantly higher than $0.59 run rate.

We’ve been building this business on volume. This chart actually is -- the depicting is – everybody is aware where prices have been over the past year and half. With the decrease in price, we continue to grow our distribution as well as our cash flow through volume growth on our systems, and as well as adding fixed fee component and hedging our gross margin.

We continue to focus on doing that. We will continue to focus on de-sensitizing our company to NGL in commodity prices by using hedging where appropriate and adding fee based revenues to our contract mix.

Our objectives as the company from a financial perspective is to have leveraged it four times are better. We are over that today with the recent acquisition we expect by the end of 2014 to be back at four times levered or below that.

We want to have a balance sheet that has flexibility from a liquidity standpoint to allow us to look at new opportunities when they present themselves as well as they continue to fund our growth. We’re maintaining at least $100 million of liquidity. I’m happy to say today we have essentially our four revolver which is a $600 million facility at our disposal.

Our credit rating has improved overtime. It is improved slowly but we continue to focus on improving our credit rating, adding fee-based revenues, hedging diversity in geography and size, I think all point towards the higher credit rating. We continue to meet with rating agencies on a regular basis to discuss our rating and that’s has been moving in the right direction and we will continue to protect our margin as we have in the past.

This is showing where our credit rating is today. We currently B+ B+ with S&P and B1 B2 with Moody’s. Again I think the market give us a little bit better credit from this but this is where we stand with rating agencies.

From a Cash Flow Stability standpoint and a contract mix by the end of 2014, we expect our contract mix to be approximately 50% fixed fee, approximately 50% percent of proceeds. That’s what a change in our contract in Western Oklahoma as well as the addition of the Eagle Ford assets will bring to this company.

Percent of proceeds we obviously hedge which I’ll get into here shortly and then having fixed fee with a significant amount of the fixed fee portion being deliver a pay type contracts with commitments, large producers with quality credit in some of our legacy assets like Velma where we have XTO as well as the Eagle Ford assets that will have Shell, (inaudible), Statoil among others.

We strive to have long-term contracts. Our South Texas assets have an average contracts life of about 8.5 years and our legacy assets is about the same. As I mentioned, our Pioneer contract run through 20 to 22., Our new SandRidge contract is a nine-year contract.

Most of our contracts have 5+ years to maturity. We negotiate contracts in that manner to make sure that we have surety of cash flows over a period of time. If we don't give volumes commitment, we look for acreage dedications. We generally have one or the other on all of our contracts. Once contracts expires on most of our systems which are wellhead connect systems, those volumes go into Evergreen and they general stay on our systems going forward.

For 2013, we have about 82% of our margin protected either through fee-based contracts or through our hedging strategy. Our hedging strategy is to protect up to 80% of our commodity sensitive business in the first year, 50% in the second year, 25% in the third year.

This chart has been updated for the volumes associated with the South Texas assets, like I said, we have -- we have those assets for two weeks. We are starting to roll those volumes into our hedging program and we’ll start adding protection to those volumes as well. A couple of weeks ago when you saw this slide we were about 76% to 77% protected in the first year, 53% to 54% in the second year and about the same for 2015.

So, again, we’ll continue to add to our protection going forward under the same strategy. The nice thing with the TEAK assets and the conversion from having keep-whole contracts than more percent of proceed is we believe it will allow us to elongate our book using natural gas and crude oil as hedges for the natural gas and condensate versus NGL which has a very illiquid market, especially when you get out past two to three years.

So some of our key investment highlights, as we’ve mentioned, diversified asset base, Permian Basin, Mississippi Lime, Eagle Ford, Arkoma, we have long-term stable contracts with great producers and great relationships. We hope to continue those -- the current relationships, as well as expanding on those relationships with the Eagle Ford assets.

We’ll continue to maintain a strong balance sheet, continue to bring leverage back down to where our comfort zone is which is at four times and we have a proven management team. I believe over the past three to four years, you seen our volumes growth in for the expectations that we’ve laid out to the market. We've been able to meet or exceed those expectations.

With that, happy to open it up for questions and remind everybody we will have a breakout session immediately following in growth too. Sir?

Question and Answer session

Unidentified Analyst

Have you been affected by the weather in Oklahoma?

Gene Dubay

We have not. The weather incident in Oklahoma is definitely tragic. We are fortunate on where our employees live, as well as where our assets are. One of the storms did come within a few miles of our new Arkoma assets to the north of those Arkoma assets.

This is something in Oklahoma all of our assets while they do - the processing plants do sit on the ground we do have shelters that are underground for our employees to make sure we protect the employees. We do cover our asset with insurance, with business interruption insurance as well.

We are very fortunate. This is something it’s not -- obviously it’s not new for Oklahoma. It’s something we live through every spring and every fall, it seems like definitely an unfortunate event and we are doing what we can to help support the people that have been impacted by the storm. Yeah, sir.

Unidentified Analyst

Tremendous growth rate affected the IDRs to your parent ATLS, does that say if you make your budget this year and achieve your projection next year?

Gene Dubay

Right. So, at $0.60 is when we hit the 50-50 split with our general partner. However, once we hit a certain distribution level, there is give back to limited partners that was negotiated in 2007 in conjunction with a large acquisition. Our projection for 2014 obviously has us hitting that level and going through it. But obviously with a $2.50 to $2.60 distribution we will be in the high splits with our general partner.

Unidentified Analyst

This year?

Gene Dubay

This year.

Unidentified Analyst

Yeah. Okay. Thank you.

Unidentified Analyst

This week rate is, so you are pricing your stock, what is that level (inaudible)?

Trey Karlovich

I’m sorry, would you repeat that question?

Unidentified Analyst

The distribution rate, the yield…

Trey Karlovich

The yield.

Unidentified Analyst

…to the price of the stock.

Trey Karlovich

So our current yield is about 6.1%. We’ve had a, since we announced the acquisition in April, we’ve had a pretty decent run-up in our unit price. We did our common equity offering at $34 a unit. We are currently trading at $39.50 range and like I said, our current distribution is $0.59. So our yield today is about 6.1 or 6.2. And our hope and our expectation is that our yield will continue to compress as we’ve added scale and fixed fee revenues we think that should help in our yield.

Unidentified Analyst

What are -- what rate of increase in yield do you anticipate getting over the next five years, next two years?

Trey Karlovich

I think a lot of that, I think we’ll trade more in line with some of our new peers based on our current size, which are target DCP type company, I don’t think we are going to trade to an enterprise or some other type of large scale interstate pipeline companies.

But a lot of that’s going to depend on the market in where interest rates go in all those different factors that. But we believe that yield between 5.5% and 6% is where we should be trading in today’s market.

Unidentified Analyst

Okay.

Trey Karlovich

Thank you all. Like I said we’re happy to answer any other questions in the breakout session.

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