Atlas Pipeline & Atlas Energy's Positive Synergy

I have had Atlas Pipeline Partners (APL) as a component of my Income Portfolio since the first of the year (2008) and the dividends have been outstanding, paying 93¢ (Q4,2007), 94¢ and 96¢ so far this year. On the recent earnings release the company is projecting $2.00 to $2.20 for the next 2 quarters and $4.25 to $4.50 for 2009. The share price is down significantly from around $43 to start the year, but I believe the market has this one wrong and the income growth should continue.

While listening to the earnings conference call last week for APL the comment was made that the sister company, Atlas Energy Resources LLC (ATN) would announce this week, so I decided to listen in. To put it bluntly, I am impressed! ATN is a natural gas producer that seems to be firmly set on a growth path. It is now the largest producer in the growing Marcellus Shale and is working to at least double production there in the near future. It also has new production coming on line in Tennessee and a stable production base in Michigan.

For the second quarter Atlas Energy had the following financial increases over Q2 2007: Revenues up 70%, EBITA up 179% and distributable cash flow up 180%. The declared distribution of 61¢ is 43% higher that the 1st quarter. It has 80% of its production hedged against falling natural gas prices through 2009, so falling NG prices will not hurt cash flow. Share price of ATN has not fallen as much as APL but are well below recent highs.

APL and ATN have positive synergistic effects on each other. APL has pipelines to gather and process gas from ATN as well as other companies. ATN uses APL in its partnered projects and collects fees for APL from its partners. I see Atlas Pipeline as primarily an income play with some growth and Atlas Energy as strong growth throwing off nice income. I am adding ATN to my site’s Special Opportunities Portfolio at this time.

Note: I currently do not have positions in APL or ATN.

Comments

[paa:]

MLP's like APL must grow to keep those payouts coming. APL's debt equals their market cap. How can the fund organic growth? How can they borrow to buy more assets? It's not clear to me.

2008 Aug 10 10:47 AM