Atlas Pipeline Partners, L.P. Reports Fourth Quarter and Full Year 2008 Results
Date : 03/02/2009 @ 9:00AM
Source : Business Wire
Stock : Atlas Pipeline Partners, L.P. (AHD)
Quote : 3.09 0.89 (40.45%) @ 12:15PM
Free Atlas Pipeline Partners, L.P. Annual Company Report
Atlas Pipeline Partners, L.P. Reports Fourth Quarter and Full Year 2008 Results
Atlas Pipeline Partners, L.P. (NYSE: APL) (“APL” or the “Partnership”) today reported financial results for the fourth quarter and full year 2008.
The results of the fourth quarter 2008 include:
Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”), a non-GAAP measure, of $98.3 million, compared to $73.6 million for the prior year fourth quarter. A reconciliation of non-GAAP measures, including adjusted EBITDA, distributable cash flow, and adjusted net income, is provided within the financial tables of this release;
Distributable cash flow, a non-GAAP measure, of $75.8 million, compared to $45.5 million for the prior year fourth quarter. The Partnership declared a quarterly cash distribution for the fourth quarter 2008 of $0.38 per common limited partner unit. The Partnership’s distribution coverage ratio for the fourth quarter 2008 was 1.5x based upon cash flow from ongoing operations;
Adjusted net income, a non-GAAP measure, of $31.7 million for the fourth quarter 2008, compared to $27.1 in the prior year fourth quarter. After including the non-cash goodwill impairment charge and non-recurring derivative gains recognized in the current quarter as described below, on a GAAP basis the Partnership recognized a net loss of $456.0 million for the fourth quarter 2008 compared with a net loss of $101.5 million for the prior year fourth quarter; and,
System-wide volumes of 1,346.2 million cubic feet per day (“Mmcfd”) for the fourth quarter 2008 compared to volumes of approximately 1,211.7 Mmcfd for the prior year fourth quarter, an increase of approximately 11%.
During the fourth quarter 2008, Partnership generated $48.8 million of benefit from the following actions:
The Partnership repurchased approximately $60.0 million in face amount of its Senior Notes in December 2008 for an aggregate purchase price of approximately $40.1 million, generating a gain of approximately $19.9 million;
The Partnership entered into early settlement arrangements on approximately 13% of its commodity hedge contracts covering 2009 natural gas liquids (NGL) and condensate production volumes. The Partnership received approximately $18.9 million in net proceeds from these early settlements concluded in December 2008. The net proceeds from these settlements were used to reduce outstanding indebtedness; and,
The Partnership recognized a $10.0 million benefit resulting from the early termination of certain derivative positions.
Subsequent to the end of the fourth quarter 2008 and during February 2009, the Partnership received an additional $19.5 million from further early settlements of NGL and condensate hedges related to 2009. A summary of the Partnership’s commodity hedge position is included at the end of this release.
Mid-Continent Segment Results
Full Year
Mid-Continent segment total revenue for the full year 2008 increased to $1,447.3 million, or approximately 80% compared with the prior year, excluding the effect of non-cash derivative expenses and the non-recurring cash derivative early termination expense. This increase principally reflects a full year’s contribution from the Chaney Dell and Midkiff/Benedum systems and higher average commodity prices compared to the full year 2007.
The NOARK Ozark Gas Transmission (“OGT”) system’s throughput volume for full year 2008 increased to 442.5 MMcfd, or 36%, compared with the prior year. OGT’s throughput capacity increased during the fourth quarter 2008 to 500 MMcfd from 400 MMcfd through additional compression added to the system.
The Elk City/Sweetwater system’s average natural gas processed volume increased to 232.7 MMcfd for the full year, an increase of 3% when compared with the prior year. Average NGL production increased by 1,078 barrels per day (“bpd”) for the full year 2008, or approximately 12%, when compared with the prior year. The Partnership connected 73 new wells to the Elk City/Sweetwater system during full year 2008.
The Velma system’s average natural gas processed volume was 60.1MMcfd for the full year 2008 compared with the prior year average of 62.5 MMcfd. Average NGL production increased by 238 bpd for the full year 2008, or approximately 4%, when compared with the prior year. The Partnership connected 27 new wells to its Velma system during the full year 2008.
The Chaney Dell system’s average natural gas processed volume for the full year 2008 was 245.6 MMcfd, a decrease of 3% when compared with the prior year. Average NGL production volumes increased to 13,263 bpd, or 3% when compared to the prior year. The Partnership connected 343 new wells to its Chaney Dell system during the full year 2008.
The Midkiff/Benedum system’s average natural gas processed volume was 135.5 MMcfd for the full year 2008, compared to 140.4 MMcfd for the prior year. The Partnership connected 169 new wells to its Midkiff/Benedum system during the full year 2008.
Fourth Quarter
Mid-Continent segment total revenue decreased $107.7 million, or approximately 32%, compared with the prior year fourth quarter to $225.9 million for the fourth quarter 2008, excluding the effect of non-cash derivative expenses and the non-recurring cash derivative early termination expense. This decrease principally relates to a system-wide decrease in volumes and lower average commodity prices.
The NOARK Ozark Gas Transmission (“OGT”) system’s throughput volume for the fourth quarter 2008 increased to 531.3 MMcfd, or 43%, compared with the prior year fourth quarter.
The Elk City/Sweetwater system’s average natural gas processed volume for the fourth quarter 2008 was 221.2 MMcfd, a 4% decrease when compared with the prior year fourth quarter. The Partnership connected 18 new wells to the Elk City/Sweetwater system during the fourth quarter 2008.
The Velma system’s average natural gas processed volume for the fourth quarter 2008 was 57.7 MMcfd, a 5% decrease when compared with the prior year fourth quarter.
The Chaney Dell system’s average natural gas processed volume for the fourth quarter 2008 was 243.3 MMcfd, a decrease of 5% when compared with the prior year fourth quarter. The Partnership connected 70 new wells to its Chaney Dell system during the fourth quarter 2008.
The Midkiff/Benedum system’s average natural gas processed volume was 127.5 MMcfd, a decrease of 9% when compared with the prior year fourth quarter. The Partnership connected 50 new wells to its Midkiff/Benedum system during the fourth quarter 2008.
Appalachia Segment Results
Full Year
Total revenue for the Appalachia segment increased $13.1 million, or approximately 37%, to $48.7 million for the full year 2008, compared with $35.6 million the prior year due principally to higher throughput volume generated through new wells connected to the Partnership’s gathering system, the acquisition of the McKean processing plant and gathering system in central Pennsylvania in August 2007, and the acquisition of the Volunteer gathering system in northeastern Tennessee in February 2008. The increase in total revenue for the Appalachia segment was also due to an increase in the average transportation rate in comparison with the prior year.
Throughput volume increased to 87.3 MMcfd for the full year 2008, an increase of 27% when compared with the prior year, resulting from the connection of new wells to the Appalachia gathering system, primarily through its relationship with Atlas Energy Resources, LLC (NYSE: ATN) (“Atlas Energy”), and throughput associated with the McKean and Volunteer gathering systems. The Volunteer gathering system serves several counties northwest of Knoxville, Tennessee, an area of active drilling and production including that of Atlas Energy.
For the full year 2008, 741 new wells were connected to the Appalachia gathering system compared with 607 new wells for the prior year, representing a 22% increase.
Fourth Quarter
Total revenue for the Appalachia segment for the fourth quarter 2008 increased to $11.8 million, or approximately 17%, when compared with the prior year fourth quarter, due principally to higher throughput volume generated primarily through new wells connected to the Partnership’s gathering system and the acquisition of the Volunteer gathering system in northeastern Tennessee in February 2008.
Throughput volume increased to a record 97.1 MMcfd for the fourth quarter 2008, an increase of 22.9 MMcfd or 31%, when compared with the prior year fourth quarter resulting from the connection of new wells to the Appalachia gathering system, primarily through its relationship with Atlas Energy, and throughput associated with the McKean and Volunteer gathering systems.
During the fourth quarter 2008, 120 new wells were connected to the Appalachia gathering system compared with 166 new wells for the prior year fourth quarter.
Corporate and Other
General and administrative expense, including amounts reimbursed to affiliates, decreased $60.6 million to $0.4 million for full year 2008 when compared with $61.0 million for the prior year. This decrease was primarily related to a $70.3 million decrease in non-cash compensation expense, partially offset by higher costs of managing the Partnership’s operations, including the Chaney Dell and Midkiff/Benedum systems acquired in late July 2007 and capital raising and strategic activities. The decrease in non-cash compensation expense was principally attributable to a $36.3 million gain recognized during the full year 2008 in comparison to an expense of $33.4 million for the prior year for certain common unit awards for which the ultimate amount to be issued was determined after the completion of the Partnership’s 2008 fiscal year and was based upon the financial performance of certain acquired assets. The gain was the result of a significant change in the Partnership’s common unit market price at December 31, 2008 when compared with the December 31, 2007 price, which was utilized in the calculation of the non-cash compensation expense for these awards, and lower financial performance of the certain assets acquired in comparison to estimated performance. General and administrative expense also decreased from $9.4 million for the fourth quarter 2007 to income of $13.3 million for the current comparable quarter. This decrease was primarily related to a $19.9 million decrease in non-cash compensation expense and lower costs of managing the Partnership’s operations, including lower incentive compensation expense.
Depreciation and amortization increased $39.1 million to $90.1 million for the full year 2008 when compared with the prior year due primarily to the depreciation associated with the Chaney Dell and Midkiff/Benedum assets, which were acquired by the Partnership in July 2007, and the Partnership’s expansion capital expenditures incurred subsequent to December 31, 2007. Depreciation and amortization also increased $1.9 million to $23.5 million for the fourth quarter 2008 when compared with the prior year comparable quarter due primarily to the Partnership’s expansion capital expenditures incurred subsequent to December 31, 2007.
Interest expense increased to $84.8 million for the full year 2008 compared with $61.5 million for the prior year. This $23.3 million increase was primarily due to a $14.7 million increase in interest expense associated with the term loan issued in connection with the Partnership’s acquisition of the Chaney Dell and Midkiff/Benedum systems, $11.1 million of interest expense related to the Partnership’s June 2008 issuance of $250.0 million of 10-year 8.75% senior unsecured notes in a private placement transaction and higher interest expense associated with increased borrowings under its revolving credit facility, partially offset by lower interest rates on its revolving credit facility borrowings. The Partnership’s net proceeds from the issuance of its 8.75% senior unsecured notes were utilized to repay a portion of the indebtedness under its senior secured term loan and its revolving credit facility. Interest expense for the fourth quarter 2008 decreased slightly to $23.2 million from $23.4 million for the prior year comparable quarter. The slight decline was primarily due to a $6.9 million decrease in interest expense associated with the Partnership’s term loan due to lower floating interest rates and the repayment of certain amounts outstanding, partially offset by $5.3 million of interest expense associated with the Partnership’s 8.75% senior unsecured notes and $1.6 million of increased amortization of deferred finance costs.
Goodwill and other asset impairment loss of $698.5 million for the full year 2008 consisted of a $676.9 million impairment charge to the Partnership’s goodwill as a result of its annual goodwill impairment test and a $21.6 million write-off of costs related to a pipeline expansion project. The goodwill impairment resulted from the reduction of management’s estimated fair value of its reporting units in comparison to their carrying amounts at December 31, 2008. Management used all available information to determine its estimated fair value of its reporting units, including the present values of expected future cash flows using discount rates and market capitalization rates. The Partnership’s estimated fair value of its reporting units was impacted by many factors, including the significant deterioration of commodity prices and global economic conditions during the fourth quarter of 2008. These estimates were subjective and based upon numerous assumptions about future operations and market conditions, which are subject to change.
Gain on early extinguishment of debt of $19.9 million for the year ended December 31, 2008 resulted from the Partnership’s repurchase of approximately $60.0 million in face amount of its senior unsecured notes for an aggregate purchase price of approximately $40.1 million plus accrued interest of approximately $2.0 million. The notes repurchased were comprised of $33.0 million in face amount of its 8.125% senior unsecured notes and approximately $27.0 million in face amount of its 8.75% senior unsecured notes. All of the senior unsecured notes repurchased have been retired and are not available for re-issue.
Minority interest expense decreased from $3.9 million for the full year 2007 to income of $22.8 million for the full year 2008. This decrease was primarily due to lower net income for the Chaney Dell and Midkiff/Benedum joint ventures, which were formed to effect the Partnership’s acquisition of control of the respective systems. The decrease in net income of the Chaney Dell and Midkiff/Benedum joint ventures was principally due to a goodwill impairment charge of $613.4 million for the goodwill originally recognized upon acquisition of these systems. The minority interest represents Anadarko’s 5% ownership interest in the net income of the Chaney Dell and Midkiff/Benedum joint ventures.
At December 31, 2008, the Partnership had $1,493.4 million of total debt, including $707.2 million outstanding on its term loan that matures in 2014, $484.2 million of senior unsecured notes that mature in 2015 and 2018, and $302.0 million of outstanding borrowings under its revolving credit facility that matures in 2013. The Partnership also has interest rate swap contracts for a notional principal amount totaling $450.0 million which expire during the first half of 2010. These contracts convert a portion of the Partnership’s LIBOR-based floating rate exposure under its term loan and revolving credit facility to a fixed LIBOR rate averaging 3.02%, plus the applicable margin as defined under the terms credit facility.
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