A brief description of the company and relationships are in order to understand the investments and ownership rights.
Atlas Resource Partners, L.P. (NYSE:ARP) is an E&P master limited partnership active in oil and gas production in the Barnett Shale (NYSE:TX), the Appalachian Basin, the Raton Basin (NYSE:NM), the Black Warrior Basin (NYSE:AL) and the Mississippi Lime (OK). ARP owns an interest in over 12,000 producing natural gas and oil wells, representing ~1.4 Tcfe of net proved reserves. Additionally, Atlas Resource Partners, L.P. is a leading sponsor for tax-advantaged direct natural gas & oil investment partnerships in the United States, a business which it has operated for over 40 years through several Atlas entities.
Atlas Energy, L.P. (NYSE:ATLS) owns all of the general partner Class A units of Atlas Resource Partners, LP, and incentive distribution rights and an approximate 28% limited partner interest in its upstream oil & gas subsidiary, Atlas Resource Partners, L.P. Additionally, Atlas Energy owns and operates the general partner of its midstream oil & gas subsidiary, Atlas Pipeline Partners, L.P. (NYSE:APL) through all of the general partner interest, all the incentive distribution rights and an approximate 6% limited partner interest.
Atlas Energy owns 100% of the general partnership of both companies (read this as controlling interest), the master limited partnership are the investments to fund the operations. I do not describe it in a negative tone, just clearly for investors to understand they have no control in the company's operations like you would if investing in a stock like Citigroup Inc.
Change to Atlas Resource Partners, L.P.'s distribution plan
Atlas Resource changed its distribution payouts from quarterly to monthly.
On May 27, 2014, Atlas Resource Partners declared its monthly distribution for the month of April 2014 of $0.1933 per common unit. The April 2014 distribution is payable Friday, June 13, 2014 to holders of record as of Thursday, June 5, 2014.
In February 2014, the company paid its last quarterly distribution of $0.58, and in March, April and May, the company has paid its distribution of $0.1933 per share. This is a near-equivalent, and demonstrates the company's willingness to provide a strong return to investors. The distribution yield is 11.6% (0.1933 x 12 months, distribution by the current unit price of $19.93). Atlas Resource has a history of a strong yield, and the 52-week range on the unit price is from $18.30 to $23.90. The unit price fluctuates, with the highs near the ex-dividend date, and drops soon after, running a 90-day cycle with the distribution payout.
One negative that stands out is the earnings per share of a negative $2.03. In the company's annual financial statement from December 2013, the company reported total revenues of $467 million, up over 2012's report of $267 million. Costs were comparable from year to year, but the company closed 2013 with a loss of $103 million.
The company has been increasing its holdings, investing in gas and oil fields in Texas, New Mexico, Alabama and Oklahoma. These investments will provide a large cash flow return in the future, but the company is building its holdings now, as shown as capital expenditures. There have been 7 major purchases valued at over $2 billion since March 2012.
On May 16, 2014, Atlas Resource Partners announced the pricing of the previously announced offering of an additional $100 million in aggregate principal amount of its 7.75% senior unsecured notes due 2021. The notes are being sold at 99.5% of their face amount. ARP expects the offering of the notes to close on June 2, 2014, subject to the satisfaction of customary closing conditions.
Atlas Resource Partners intends to use the net proceeds from this offering to fund a portion of its previously announced acquisition of oil assets in the Rangely Field in Northwest Colorado. Prior to funding the pending acquisition, ARP may use some or all of the net proceeds for general partnership purposes, which may include repayment of outstanding borrowings under its revolving credit facility.
The notes will not be registered under the Securities Act of 1933 or the securities laws of any state, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Securities Act and applicable state securities laws. The notes may be resold by the initial purchasers pursuant to Rule 144A and Regulation S under the Securities Act.
On May 7, 2014, Atlas Resource Partners announced that it has commenced an underwritten public offering of 13,500,000 common units representing limited partner interests. Wells Fargo Securities, Deutsche Bank Securities, Morgan Stanley, Bank of America Merrill Lynch, Citigroup, JPMorgan and RBC Capital Markets are acting as joint book-running managers for this offering. The underwriters have been granted a 30-day option to purchase up to an additional 2,025,000 common units. ARP intends to use the net proceeds from this offering to fund a portion of its previously announced acquisition of oil assets in the Rangely Field in NW Colorado. Prior to funding the pending acquisition, ARP may use some or all of the net proceeds for general partnership purposes, which may include repayment of outstanding borrowings under its revolving credit facility.
The company is raised $100 million through senior unsecured notes, and nearly $40 million through an additional 2 million common units. The company is hungry for cash, using the same explanation for the spending of the capital raised from both sales.
(ARP Holdings as of May 2014)Click to enlarge
The map shows the current holdings by Atlas Resource Partners. The company has a productive collection of gas and oil reserves, and is drilling in all areas. The costs of drilling are reflected in the current operational costs, but the company projects the costs will decrease long before the cash flow from the distributions slows.
On May 21, 2014, Atlas Resource Partners presented at the NAPTP MLP Annual Investor Conference in Point Vedra Beach, FL. Matthew A. Jones, president, and Sean P. McGrath, chief financial officer, were present for Atlas Resource Partners. Investors can view the presentation on the company website here. Select the "5/21/14 NAPTP 2014 MLP Investor Presentation".
Bottom Line: Atlas Resource Partners is a mixed bag with positives and negatives for investors to sort. We are positive about the large growth of reserves that ARP has amassed, but the costs were expensive as well. Atlas Resource Partners has increased its senior unsecured notes, as well as additional common units that will dilute the payout per unit shares for investors. The company is positive about the decrease in costs once much of the drilling is complete. Atlas Resource Partners expects an extended period of time for investors to enjoy the monthly distributions. The distribution is over 10%, where we like to see strong returns, however, we need the company to rein in some costs and actually demonstrate several quarters of positive earnings. We cannot recommend a strong buy, but with some positive actions by the company, this may be a good buy for investors to gain through the unit price appreciation and growth in the distribution over the next several years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am currently researching more MLPs and will likely invest in one or more over the next 6 months. This is one MLP high on my list.