Atlas Energy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Atlas Energy (ATLS)

Atlas Energy (NYSE:ATLS)

Q1 2012 Earnings Call

May 8, 2012 09:00 am ET


Edward Cohen – Chief Executive Officer and President

Matthew Jones – Senior Vice President, President and Chief Operating Officer – E&P

Sean McGrath – Chief Financial Officer

Brian Begley – Director, Investor Relations


Craig Shere – Tuohy Brothers

Wayne Cooperman – Cobalt Capital


Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Atlas Energy LP and Atlas Resource Partners LP Earnings Conference Call. My name is Larry and I will be your operator for today. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today, Mr. Brian Begley, Head of Investor Relations. Please proceed.

Brian Begley

Good morning, everyone, and thank you for joining us for today’s call. 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 could cause actual results to differ materially from those projected in the forward-looking statements. We discuss 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 you not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as the date hereof. The Company undertakes no obligations to publicly update our forward-looking statements or to publicly release the results of any revisions to forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

In both our Atlas Energy and Atlas Resource earnings releases, we provide a reconciliation for net income to adjusted EBITDA and distributable cash flow as we believe that these non-GAAP measures offer the best means of evaluating the results of our business. Also, in our Atlas Energy release we continue to show consolidating balance sheets and income statements that present the rollup of the operations of both Atlas Energy and Atlas Pipeline.

Lastly, we’ll be participating in several upcoming investor conferences, including the NAPTP Conference in Greenwich, Connecticut on May 23rd and the RBC Energy and Power Conference in New York on June 5th.

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

Ed Cohen

Thanks, Brian, and hello, everyone. You know, today marks eight weeks since the birth of Atlas Resources Partners as a public company. What an eight weeks it has been. From launch through the end of last week, ARP stock has risen some 31% and our parent company, ATLS, has risen even more – over 40%.

In fact, since December 31, 2011, Atlas (ATLS) stock is up an astounding 57%. It has more than doubled since the new, initially small ATLS emerged after the February 2011 sale to Chevron of the overwhelming majority of our E&P assets.

Our shareholders and I really owe a great debt to our employees, who have executed almost flawlessly on our game plan, but the game plan itself and its increasing acceptance by the market is clearly a vitally important aspect of that achievement.

The immediate success of Atlas Resource Partners has confirmed our initial thesis that the heated cash-consuming competition to develop oil and gas plays in new basins would provide opportunities to purchase production and acreage in noncore plays, that is noncore to the sellers, on terms extremely attractive to buyers.

More recently, the anemic price of natural gas hauling earlier excess of expansion has produced a financial challenge for some companies and the further plethora of buying opportunities for ARP. Almost every day brings new opportunities. We are busily, and, I hope, judiciously at work and we expect in the near future to announce new developments no less positive than the first quarter’s Carrizo purchase and the recent Equal Energy joint venture involving liquids-rich acreage in the core of the Mississippi Lime play at Oklahoma.

Now, in the Carrizo transaction on April 30th, ARP acquired about $277 billion cubic feet equivalent of proved reserves in the Barnett Shale in Texas for approximately $0.69 per Mcfe. You heard that correctly – $0.69 per a thousand cubic feet. This single acquisition was accordingly transformative, immediately increasing ARP’s net proved reserves by over 160% to approximately 440 billion cubic feet equivalent. This transaction will, of course, be immediately accretive to ARP’s adjusted EBITDA and immediately accretive to distributable cash flow.

ARP has conservatively hedged approximately 100% of its acquired production through June 2013, about 80% for the period thereafter through June 2015, and a substantial additional amount for the subsequent two years, bringing it well hedged into 2017 on this acquisition.

Compatible with our commitment to maintaining low leverage in our operating companies, the Carrizo transaction was funded by a private placement of equity of approximately $120 million. Only about $70 million was borrowed against ARP’s revolving credit facility.

Concurrent with the closing of this transaction, ARP expanded the capacity on its revolving credit line from $138 million to a borrowing base of approximately $250 million and we continue to play conservatively. Only $17 million had been drawn on this line as of the end of the first quarter.

On April 26, 2012, ARP entered into another agreement, this time with Equal Energy, to acquire a 50% interest in approximately 14,500 net undeveloped acres in the core of the oil- and liquids-rich Mississippi Lime play in northwestern Oklahoma, and for that, we paid approximately $18 million. But this acreage position puts us in close proximity to Atlas Pipeline’s Winoka processing plants and provides Atlas with more of the liquids-rich acreage much in demand for our syndication programs and for our own development projects.

This acreage is almost entirely held by Equal’s existing production from the Hunton formation. The joint venture will be drilling continuously for at least the first 18 months following the transaction’s closing. ARP will operate the drilling and completion activities; Equal will be responsible for production operations including water disposal. ARP also has the option to drill an additional four net wells to its own account in the twelve months following closing.

Matt Jones, President of Atlas Resources, will shortly discuss in greater detail these and other exciting areas of company activity, such as our renewed Marcellus drilling in the extremely prolific Lycoming County area of northeastern Pennsylvania and our forthcoming activity in the liquids-rich Utica formation in Ohio.

ATLS’s other principal subsidiary, Atlas Pipeline Partners, LP (NYSE:APL) is also enjoying an unprecedented prosperity. Distributable cash flow at APL for the first quarter 2012 increased 32% year over year, and the actual distribution of $0.56 per unit for the quarter is 40% higher than in the previous year.

All processing plants are operating at or beyond certified capacity – I’ll explain that shortly – and the current $600 million system-wide growth expansion project is on schedule and should shortly begin to contribute substantially through Atlas Pipeline revenues.

Now, the west Texas systems average natural gas processed volume was 230.5 million cubic feet per day for the first quarter of 2012, compared with only 172.8 million cubic feet per day for the prior year comparable period. West Texas is scheduled nearly to double its capacity, however, when the new 200 million cubic feet a day driver plant enters service, and that’s APL’s response to the incredible boom affecting our dedicated acreage in the Sprayberry and Wolfberry plays of the Permian Basin.

The first phase, 100 million cubic feet per day, will enter service in the first quarter of 2013, and the second phase, another 100 million additional cubic feet, is now scheduled to be operational in the first quarter of 2014, and those who follow our comments closely will know that that’s a full year ahead of the originally announced in-service date. When things are booming, we try to meet the need.

APL’s west Oklahoma system, likewise, is operating beyond capacity with substantial volumes bypassing the processing facilities or being offloaded to third parties for processing. The problem – I should say our blessing – is the continuing rapid expansion of production in the liquids-rich Mississippian limestone formation in Oklahoma and Kansas, but relief is on its way together with increased revenues.

By mid-2012, a new 200 million cubic feet per day cryogenic plant will be operational, together with a substantial expansion of our west Oklahoma and Kansas gathering systems, which in turn will provide further opportunity for even greater future growth.

Finally, we’re on the verge of expanding our Velma, Oklahoma plant with a new 60 million cubic feet per day facility intended to provide relief to a plant that for some time has already been operating as much as 10 million cubic feet per day beyond its nameplate capacity of 100 million cubic feet per day and has still been forced to offload some 22 million additional cubic feet per day.

The new expansion will be operational momentarily; it’s in the final phase of testing. And, it’ll open just in time. In December 2011, as some of you may remember, the partnership APL entered into a long-term agreement with XTO, a subsidiary of Exxon Mobile, to provide gathering and processing services for up to an incremental 60 billion cubic feet per day and we will now be able to take on this additional gas.

But let’s return to the riches of the E&P business, and for that, Matt Jones.

Matt Jones

Thank you, Ed, and thank you all for taking the time to join our call.

In our first several weeks of operations as Atlas Resource partners, we’ve substantially increased our proved reserves in production; established a new core operating area in the Barnett Shale; entered the core of the Mississippi Lime play in Alfalfa, Grant and Garfield Counties in Oklahoma; expanded our leasehold positions in northeast Pennsylvania in Lycoming County; successfully initiated our targeted leasing effort in the Utica Shale; grew production and cash flow in our historical operating areas; and formed a very attractive organic drilling program for our upcoming partnership drilling programs that will include oil- and liquids-rich drilling opportunities.

And, we’re gaining momentum. We see significant opportunities to expand our business and build from here. All of our efforts are fully focused on increasing the stability and growth of our cash flow per unit. The acquisition of the proved producing properties in the Barnett Shale and the expansion of our drilling inventory in the Mississippi Lime, Utica and Marcellus Shale served to address our multipronged growth strategy.

The strategy includes acquiring cash flow streams generated by proved producing properties and stabilizing those streams through our hedge program, and maximizing the efficient use of our partnership well drilling programs by exploiting the development of drilling locations that we believe have the potential of creating substantial returns for our company and for those who invest in the programs.

We’re very excited about our entry into the Barnett Shale play in Texas and believe that these assets will provide substantial cash flows to our unit holders for years to come, and importantly, a platform for future expansion. The producing wells improved undeveloped drilling locations that we acquired in the Barnett are primarily centered within a five-mile radius of our field office in Mansfield, Texas, just south of the Dallas-Fort Worth area.

The concentrated nature of the asset base allows for efficient operations and future development. The vast majority of the proved undeveloped drilling locations are located on existing pad sites with currently producing wells. Nearly all of these positions are held by production, which allows for a flexible and appropriate approach to development.

We’re equally excited about our entry into the Mississippi Lime play where we had targeted certain regions within the play as optimal entry points. The acreage position that we entered into in Alfalfa, Grant and Garfield Counties is one of those areas, perhaps the best.

For example, SandRidge, which has drilled nearly 300 of the more than 600 horizontal wells drilled to date in the Mississippi Lime formation, announced that they had recently completed the Mississippi Lime horizontal in Alfalfa County, and that an average 30-day IP rate of 2,200 barrels of oil equivalent per day is 92% oil. SandRidge believes that this is the third-highest 30-day rate oil well drilled in the United States in the last three years.

Very exciting for those of us with acreage concentrations in the area, but the potential quality of the geology is only one of the several reasons that we were attracted to the area. The acreage that we acquired benefits from developed infrastructure, including salt water disposal, electrical grid and developed natural gas liquids takeaway and processing capacity. Because of this, we’ll commence our drilling operations on this acreage in the current quarter.

Another benefit, much like our Barnett acquisition, the vast majority of our Mississippi Lime acreage benefits from its held-by-production status. We anticipate expanding our acreage position in this very attractive oily area of the Mississippi Lime.

In Lycoming County in northeastern Pennsylvania, we now control, through our organic leasing activity, roughly 5,000 acres of leased property. This area of northeastern Pennsylvania has within it some of the most prolific natural gas wells in the United States and we’re very happy to have established a presence in the area.

We’ve commenced drilling of four wells on our acreage in Lycoming County and these wells are being funded through our winter of 2011 Series 31 partnership drilling program. Our excitement about this area seems to advance each day, and some of our peers who have been active in this region for some time have recently announced remarkable initial results on wells recently completed.

The example of this includes four Lycoming wells, each of which averaged about 22 million a day initial 24-hour production rates. At Atlas, in recognizing how productive our southwestern Pennsylvania Marcellus wells have been, we’re very excited about the prospects for our Lycoming position. We intend to add strategically to our acreage position in this area as we move forward.

The Utica Shale presents a highly attractive and organic leasing opportunity for our company. We and our predecessor company have a long and successful history of operations in the state of Ohio where we’ve drilled thousands of wells. We have field offices located in Guernsey, Tuscarawas and Portage Counties, which gives us immediate access to the core area of the Point Pleasant Utica play.

Because of our excellent reputation in the state and the combined efforts of our land and geology professionals, we’ve uncovered a number of efficiently sized and highly desirable leasing opportunities in the core of the play. We closed on one of these transactions, which includes roughly 600 acres, in Harrison County in close proximity to Chesapeake’s Buell Well.

The Buell Well is the most productive well to date that has been drilled in Utica formation. We’ll commence drilling on this acreage this summer and drill five Utica horizontal wells on the site. All of these wells will likely be included in our upcoming partnership drilling program.

We hope to close on similar Utica opportunities in the near future where the acreage position allows for efficient development, where we can lever our assets on the ground in Ohio, where the infrastructure allows for effective takeaway, and the geology is desirable.

Lastly, we continue to focus on maximizing cash flow from our existing asset base, which includes thousands of low-decline, long-live wells throughout Appalachia, Colorado and Michigan. We increased production quarter over quarter by roughly 12% from these assets, which resulted primarily from our intense focus on improving the performance of existing wells and the addition of eight Marcellus wells in southwestern Pennsylvania. We’ll add an additional eight horizontal Marcellus wells to our system in southwestern Pennsylvania in the coming weeks.

As Ed had emphasized earlier, I’d also like to thank all of the very capable and hardworking people throughout our company. It’s what makes me most excited and optimistic about our future – outstanding people executing the right strategy addressing a great market opportunity. We look forward to the quarters ahead with our determined focus on maximizing return for those who invest in our business.

Thanks for listening. I’ll now turn the call to our CFO, Sean McGrath.

Sean McGrath

Thank you, Matt, and I thank all of you for joining us on the call this morning. We appreciate your interest in Atlas Resource Partners update. Overall, ARP generated adjusted EBITDA of $13.5 million, or $0.50 per unit, and distributable cash flow of $11.7 million, or $0.44 per unit, for the full first quarter of 2012.

We generated $0.14 Bcf per unit for the pro rata period since our spinoff and distributed $0.12 per unit, representing a 1.2 times coverage ratio. Production margin for the period of $12.7 million, or $3.53 per Mcfe, represented a 20% increase compared with $10.7 million for the fourth quarter of 2011.

The first quarter saw higher production volume and the connection of eight southwestern Pennsylvania Marcellus horizontal wells during early March of the current quarter. In addition, while spot gas prices hovered around $2 per Mcfe for the majority of the first quarter, we were protected on 75% of our natural gas production for $4.85 per Mcfe due to our significant hedge positions.

Lease operating expenses for Mcfe for the period were almost 15% lower compared with the fourth quarter 2011. These higher production volumes and lower labor and water hauling costs drove [inaudible]. The majority of our LOE costs are relatively stable from period to period and we expect to see the sixteen Marcellus horizontal wells, including eight wells which we expect to connect shortly, to continue to lower LOE for Mcfe in future periods.

Partnership management margins for the period were approximately $11.4 million, a 60% increase from the first quarter of 2011, but the prior year period was distorted due to the cancellation of our winter 2010 program due to the Chevron transaction. As a reminder, we recognize well drilling and completion revenue as we invest our drilling partners’ capital and administrative and oversight revenues when drilling program wells are spud.

During the current quarter, we deployed $44 million of our joint partners’ capital with an additional $28 million of funds raised that remain to be deployed at period end, which we expect to deploy during the next six months.

Moving on to general and administrative expense, net cash G&A was $9.3 million for the period, which represented a slight decrease from $9.4 million for the fourth quarter of 2011.

G&A expense for the prior year first quarter of $4.2 million was also distorted due to the Chevron transaction as net G&A included $2.7 million of reimbursements from the prior year transaction service agreement, as well as that Chevron absorbed the majority of our G&A expenses in the prior year period as the transaction was consummated mid-quarter.

Gross capital expenditures for the period were $17.2 million compared with $8.8 million for the fourth quarter 2011. The increase between periods was principally due to an $11 million increase in our capital contributions to the partnership programs due to the timing of when the contributions were made, partially offset by $2 million lower leased acquisition costs.

Maintenance capital expenditures for the period of $1.8 million, which reflect management estimated cost to maintain current levels of production, represents a decrease of $0.5 million from the fourth quarter of 2011.

With regard to risk management activities, our strategy of significantly mitigating the potential downside commodity volatility was clearly embodied in the Barnett Shale acquisition, in which we hedged 100% of available production through June 2013, 80% of our production for the following 24 months, and 40% of our production for the remaining 24 months with additional protection expected to be put on in the outer years in the near term.

Our effective average floor price for the first five years of this acquisition, which covers over $30 billion cubic feet of production, is approximately $3.46 per Mcf, which offers ARP attractive economics for this transaction.

Overall, inclusive of hedges for the Barnett acquisition, we have protection covering almost 65 billion cubic feet of production for periods through 2016 consisting of a combination of puts, swaps and collars to provide us with downside protection but upside potential in this lower natural gas price environment.

Inclusive of the hedges we added from the Barnett Shale acquisition, over 80% of our forecasted natural gas production for 2012 was protected at an average floor price of at least $3.60 per Mcf. Furthermore, our effective average floor price over the next five years is approximately $4.26 per Mcf.

In addition, we have hedged an average of over 70% of our current run rate of crude oil production for the next five years, an effective average floor price in excess of $90 per barrel. We are committed to adding protection to our business and provide better clarity with respect to anticipated cash flows and will continue to do so as we have demonstrated in the past. Please see the tables within our press release for more information about our hedges.

Moving on to our debt position and liquidity, in connection with the Barnett Shale acquisition, we have expanded our borrowing base over 80% to $250 million, which was heavily oversubscribed in syndication and includes a number of new lenders, all of whom are as excited about the ARP story as we are.

Pro forma for recent acquisitions, we have approximately $140 million of available capacity under the revolver and $35 million of cash on hand, which will provide us ample liquidity. With regard to Atlas Energy LP, we generate distributable cash flow of $13.6 million, or $0.26 per unit, for the first quarter of 2012 and distributed $0.25 per unit for the period, representing a 1.1 times coverage ratio. Going forward, we expect ATLS to maintain minimum coverage on its cash distributions, and ARP and APL both expect making healthy coverage ratios in future periods.

ATLS Bcf included $5.4 million of cash distributions from APL, including $1.6 million from its incentive distribution rights, representing 100% increase from prior year first quarter. APL significantly grew its cash flow over the last twelve months. ATLS Bcf for the period also included $2.6 million of cash distributions from ARP from its pro rata first quarter distribution for the period subsequent to the spinoff and almost $8 million of cash flow from its exploration and production business, net of $1.2 million of maintenance capital expenditures prior to the spinoff.

Cash G&A for ATLS on a standalone basis was $2.5 million for the period, compared with $0.5 million for the prior year first quarter. G&A expense for the prior first quarter was distorted due to the Chevron transaction, as previously mentioned, with regard to ARP. Going forward, we expect ATLS G&A expense to be approximately $1.5 million to $1.7 million per quarter for the remainder of 2012.

Finally, I would like to quickly mention ATLS’s strong balance sheet, which has no debt outstanding.

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

Ed Cohen

And I think I’m going to call on the operator to move us to the question and answer session.

Question-and-Answer Session


Thank you. (Operator instructions) Our first question comes from the line of Craig Shere of Tuohy Brothers. Please proceed.

Craig Shere – Tuohy Brothers

Good morning, guys. Congratulations on the tremendous beginning to ARP.

Ed Cohen

Thank you.

Craig Shere – Tuohy Brothers

It looks like the partnership fee income may have fallen sequentially from the fourth quarter as deployment to partnership capital fell from $71 million to $44 million, if I understand it.

Can you give some color that might help with future modeling around the timing of capital raises, seasonality, random lumpiness or any other issues as we think about this moving forward?

Sean McGrath

Sure, Greg. Hi, it’s Sean McGrath. For the fourth quarter, we deployed the remainder of our capital for Series 28, which included the 16 Marcellus horizontal wells, so there was a lot of capital deployed in that period as we finished up those wells.

The first quarter was really characterized by Series 30, which was our summer program, if you want to call it, so there was a lot of finish-up capital for that, as well as some capital from the recent Series 31.

So going forward, probably the second quarter is a little bit less capital deployed, and then we’ll have the capital from our, hopefully, the spring program this year that’ll go up, so it’ll be somewhat a little bit seasonal during the period, but we expect that to ramp up as funds are raised.

Craig Shere – Tuohy Brothers

Okay, but to get your partners the tax deduction for their contribution, the drilling doesn’t have to be in a calendar year, right? It has to be in a tax year, like by the end of the first quarter? Am I saying that right?

Sean McGrath

Right. All the wells need to spud before March 31st of this year related to the prior year programs, so we’ll spud all those wells, but then as the wells -- as we complete those wells, that capital will be deployed, so we’ve taken care of what we need to take care of for the programs for tax deductibility, but the capital will remain that will be deployed for the remainder of the next six months, let’s say.

Craig Shere – Tuohy Brothers

Understood. So going forward, there’s no special reason to assume that the fourth quarter would be like the biggest quarter or that the first quarter would fall?

Sean McGrath

It really depends on when the funds were raised. Yes, obviously, for the fourth quarter of 2011, the funds were raised a little bit later. We expect to kind of go back to a more normalized schedule in 2012, so the fourth quarter won’t obviously include capital deployed, but I don’t think it’ll be as much as it was in 2011 due to, obviously, the Series 28 and the connection of wells during -- later in the period.

Craig Shere – Tuohy Brothers

Sure, and Sean, I’m sorry, I missed the detail on the Chevron shared services agreement fees. I think you had $3.3 million in the fourth quarter benefit. Was there no benefit this period?

Sean McGrath

There was. I think they had like $200,000, Craig. It was basically the majority of that transaction service agreement ended in the middle of November, so we will see negligible, but I don’t think there’ll be anything in the second quarter going forward.

Craig Shere – Tuohy Brothers

Okay, that’s very helpful. And then for Ed and Matt, Ed, you said in your prepared comments that accretive ARP M&A was still likely pending, even though you were very quick out of the box. Can you comment on the ability to use greater levels of debt financing in future transactions, and -- because it seemed like for that first big Barnett transaction, we used a lot of equity.

And could either of you comment about the ability to not just really track the accretive deals, but really game-changing deals? I mean not $200 million out-of-favor gas deals or $20 million JVs, but given the desperation of some of your peers in the industry, maybe something $500 million and above.

Ed Cohen

I’ll answer them in reverse order. The smaller deals, the $200, $400, up to $500 million deals, often combine desperation without considerable concern, especially in the case of large companies. They just want to get rid of it and the deals you can make are sometimes, as we’ve demonstrated, amazingly good.

To do the same with larger deals is more challenging, but we think we’ve got the capacity to do that. As I indicated, we’re working very hard and I invite everyone to stay tuned as to future developments.

The amount of debt we use, of course, we’ll analyze in each case, but as I indicated, we do want to stay low leveraged. We think that having enormous firepower on the debt side available is not only safe, but it means when that big deal that you were alluding to comes along, we’re really in a good situation.

Now, of course, because we’re buying production, every time we buy a deal, we put ourselves in a position to increase even further the amount of borrowing capacity we have. The ideal situation, not that anybody’s ever been able to accomplish it, but there was a period when nobody had broken the four-minute mile and now it’s routine.

The ideal situation is one where we actually can get a larger amount of increased credit than we paid for the transaction and I always challenge our M&A guys who work with John and me and the rest of the team to try and accomplish that. I’m not promising we can accomplish it, but it’s something we watch closely.

The other side, of course, of keeping your debt power free and your leverage low is that you do tend to -- the alternative is to wind up with a heavy equity contribution, so I think we’re in a good position in future deals to choose how we want to do it and we will try to be cognizant of all the aspects.

I know there are many of you holding equity who don’t want too much additional equity. There are many of you holding debt who don’t want too much additional debt. We, as company management, want both to make sure our shareholders are very happy with the stock market results and that we continue to sleep well.

I hope that answers your question, Craig.

Craig Shere – Tuohy Brothers

That’s very helpful. Thank you.


(Operator instructions) Our next question comes from the line of Wayne Cooperman of Cobalt Capital. Please proceed.

Wayne Cooperman – Cobalt Capital

Hi, guys. Could you give us a little more of a layout on the market, buyers and sellers and where you see the most opportunity? Is it the fast dollars of gas assets or you can still buy oil assets at better prices or is it really random?

Ed Cohen

The situation is really almost overwhelming. I would say that every single day we see a couple of possibilities, and part of our skill, of course, is being able to choose the ones that we want to pursue.

It’s from all over the place because the markets have been so unstable and really so unpredictable that decisions that companies made not too long ago, which probably seemed quite intelligent at that time, have been undone by developments. You’re as familiar, Wayne, obviously, as we are with all of these strange developments

But the total impact and the important thing is the amount of action available is very, very substantial and we still find that the number of buyers, although they are few in number, were not without some competition, but I think there’s more than enough good deals for everyone.

And since we know precisely what we’re looking for and we don’t know of anybody else who’s looking for precisely what we’re looking for, the opportunity should be very, very great.

Wayne Cooperman – Cobalt Capital

Great. So I guess we should still see something soon, do you think?

Ed Cohen

Excuse me?

Wayne Cooperman – Cobalt Capital

Are we expecting to see more deals soon? I mean, there’s a pretty long list of sellers?

Ed Cohen

I’m not going to comment on that beyond my prepared remarks.

Wayne Cooperman – Cobalt Capital



Our next question comes from the line of Craig Shere of Tuohy Brothers. Please proceed.

Craig Shere – Tuohy Brothers

Hi, guys, just a follow up. To the degree we’re still hitting singles and doubles, what are the prospects of doing it with zero cash out of pocket? And by that, what I mean is aren’t there a lot of folks out there who need the HBP acreage, in many cases, liquids-rich acreage, but really don’t have the CapEx funding for it given strains on operating cash flow?

And are there opportunities for you to directly fund the farm, and from your partnership business, to drill, to hold acreage for a farm and partner without your ARP affiliate having to raise its own debt or equity?

Ed Cohen

Well, you can see that in the Equal transaction, the amount of money that was put out by the global standards of these multi-hundred million and billion dollar deals that we sometimes see, that $18 million was rather small.

And when that acreage is utilized in the programs, we will get credits for the acreage so that when the deal is completed and goes through a full cycle, we may have achieved that ideal situation that you’re alluding to. So the answer is not only is it possible, but I think we actually are in the process of doing it.

Craig Shere – Tuohy Brothers

Understood, and since you bring up the Equal transaction and the Mississippian, you all have a great whatever, 30-, 40-year track record of providing consistent after-tax returns to the private partnership people, high net worth people. I know you target high single digit after-tax returns for them.

The returns on some of these liquids plays are obviously higher than that, even after your fees. Can we assume that having more of these types of things would allow you to mix in some Barnett and other wells to take more full advantage of your inventory?

Ed Cohen

Well, our principle always has been to sell gold at gold prices and sell silver at silver prices, so if we are able to achieve gold, I think our investors would want us to be compensated in gold ourselves, but we’re doing our best.

We keep in mind that this has gone on so successfully for 30 to 40 years only because it’s been a win-win situation. Our investors have been looked out for by us and they’ve tended to look out for us by continuing to buy.

Craig Shere – Tuohy Brothers

And do you still think that $250 million is a reasonable raise this year, or can we punch through that potentially?

Ed Cohen

I think the $250 million is a reasonable raise, but we always try to do more.

Craig Shere – Tuohy Brothers

Okay, thank you.


There are no other questions at this time.

Ed Cohen

Then thank you all and I’ll look forward to speaking to you before long.


Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may disconnect at this time. Have a great day.

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