The Marcellus region is now the world's biggest natural gas shale play, and there’s still $90B to be made by tapping the area’s reserves, according to a study by Wood Mackenzie.
The energy consultant predicts that the top 20 operators in the Marcellus will earn nearly $86B over the life of the play after the costs of reaching the reserves; for comparison, it estimates ~$118B to be made by extracting the resources in North Dakota’s Bakken region, but most production there is higher-priced oil.
As Rich Kinder abandons the MLP structure he helped popularize, CNBC's Jim Cramer feels confident that rivals are taking notice, thus investors should expect many more deals in the energy MLP space.
Cramer tabs three MLPs he thinks could end up in play: Enterprise Products Partners (NYSE:EPD), the entity that received gained permission to export condensate in "a huge game-changer"; Energy Transfer Equity (NYSE:ETE), whose cash flows should "explode higher" and its payout increase dramatically once temporarily relinquished incentive distribution rights are reinstated, which should happen next year; and Atlas Energy (NYSE:ATLS), a relatively cheap stock which should be able to raise its distribution dramatically for the next few years.
BofA/Merrill Lynch also thinks the deal may be a harbinger of what’s to come for other MLPs that grow too big: "While we do not see other GP-buying-LP transactions occurring yet, we also think it provides a template for a somewhat graceful exit from a structure that can prove long-term unwieldy as an MLP grows... [We] expect significant interest in potential MLP consolidation candidates."
Atlas Energy (ATLS +2.1%) is initiated with an Outperform rating and $55 price target at RBC, which believes ATLS can maintain a top-tier distribution growth over the next few years even if underlying MLP distribution growth is below expectations due to IDRs in the deep splits and significant future equity needs at both.
Also, RBC starts the Atlas Pipeline (APL -0.1%) MLP at Sector Perform with a $36 target, seeing low-to-mid single-digit distribution growth through the next several years due to expected strong volume growth on its systems but offset by equity capital needs and a future preferred equity conversion, factors which likely will keep a lid on distribution growth through the forecast period.
New York’s cities and towns can block fracking within their borders, the state’s highest court rules, upholding the dismissal of lawsuits challenging bans in two small upstate towns.
The ruling could lead the oil and gas industry to abandon fracking in New York, or it could mean that a patchwork of rules eventually may govern whether exploration can take place across the state; the case also may invigorate local challenges to the practice in states across the U.S.
Atlas Energy's (ATLS -6.6%) only material source of income is distributions from Atlas Pipeline Partners (APL -2.7%) and Atlas Resource Partners (ARP -5.4%), says Hedgeye's Kevin Kaiser, but the majority of APL's and ARP's distributable cash flow is a function of aggressive non-GAAP accounting.
"In our view, ARP and APL’s distributions are funded with capital raises – not real profits – and that can only go on for so long." The downside is considerable, concludes Kaiser, for all three MLPs, particularly ATLS.
Atlas Energy (ATLS +0.6%) is initiated with a Buy rating and $53 price target at Deutsche Bank, believing ATLS can grow its distribution at ~30%/year during the next two years driven by the leveraging effect from the high splits of the IDRs at two MLPs; APL reached the highest split in 2013 and DB anticipates it will reach the highest split in H2 2014.
Atlas Resource Partners (ARP +0.5%) is started at Hold with a $24 target, as the firm likes the solid 10%-13% distribution growth but is cautious due to the significant exposure to natural gas drilling, meaningful leverage to commodity prices, limited drop-downs, and potential sizable equity needs.
MLPs have recently underperformed the broader market, consistent with historical seasonal patterns of weakness in November on tax-related sales, and Baird says it would buy now (Briefing.com).
The seasonal performance trend provides an attractive tactical entry point on the group, Baird believes, driving upgrades of Plains All American (PAA), Crestwood Midstream (CMLP), Breitburn Energy (BBEP) and Summit Midstream (SMLP) to Outperform.
The firm also thinks Atlas Energy (ATLS), Atlas Resource (ARP), Legacy Reserves (LGCY) and Vanguard Natural (VNR) look relatively attractive and ripe for potential upgrades in the event of further weakness through Thanksgiving.
Atlas Energy LP, through its subsidiary, provides natural gas gathering services in the Anadarko, Arkoma and Permian Basins and the Golden Trend in the southwestern and mid-continent United States and the Appalachian Basin in the eastern United States.