ATLAS RESOURCE PARTNERS LP ARP
June 12, 2013 - 7:12pm EST by
yellowhouse
2013 2014
Price: 22.50 EPS $0.00 $0.00
Shares Out. (in M): 64 P/E 0.0x 0.0x
Market Cap (in M): 1,440 P/FCF 0.0x 0.0x
Net Debt (in M): 745 EBIT 0 0
TEV: 2,185 TEV/EBIT 0.0x 0.0x

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  • Oil and Gas
  • MLP
  • Dividend yield
 

Description

The Pitch

Atlas Resource Partners (ARP) is an E&P MLP which is attractive from both an absolute and relative perspective.  Currently yielding 11.6% on management’s 2014 distribution guidance, I believe that ARP will trade to a 9% yield on 2014 distributions sometime over the next four quarters. While the timing of the revaluation is uncertain, I believe that ARP offers a return potential of ~40% over the next year (~30% from appreciation and +10% from distributions). More importantly, I believe that the chance of loss is low. Looking a year out, the break even share price would have ARP yielding +13%. I think it is highly unlikely that the yield would reach those (or higher) levels.

Below is a very sophisticated sensitivity table demonstrating total return based on holding period and exit yield.  

   

Holding Period (in Quarters)

   

1

2

3

4

Yield at Exit

12%

-1.0%

1.7%

4.6%

7.5%

11%

7.8%

10.5%

13.4%

16.3%

10%

18.3%

21.0%

23.9%

26.8%

9%

31.1%

33.8%

36.7%

39.6%

8%

47.2%

49.9%

52.8%

55.6%

Why the Opportunity Exists

On June 10th, ARP announced that it was acquiring existing gas producing assets from EP Energy for $733MM. Though the acquisition adds 10% accretion to ARP’s distribution, the stock sold off 5%. The sell off wasn’t surprising. ARP issued 14MM units to finance the equity component of the purchase, increasing the unit count by 32%. Over the past fifteen months, ARP has increased its unit count +125%. I believe the recent weakness in E&P MLPs, compounded by the market absorbing such a large issuance, has created a buying opportunity for ARP. Of note, ARP is currently 6% above its 52 week low and 21% below its high; in spite of the fact that it will have posted +40% yoy distribution growth.

Background

We spend a lot of our time in the MLP space. Generally, we prefer fast growing GP’s with dominant asset footprints. Occasionally, we invest in LP’s that fall into a “special situation” bucket; where the LP has growing distributions and is priced at an unreasonably high yield. ARP is, of course, in this second group. We view these situations as low-risk singles/doubles.

ARP is the E&P LP of Atlas Energy (ATLS). ATLS retains a GP interest in ARP (with IDRs), as well as 34% of the LP units currently outstanding. ARP was spun out from ATLS in March 2012 with the intention of ARP growing rapidly by acquiring existing oil and gas production at accretive prices. That’s just what has happened. Over the past fifteen months, ARP has deployed +$1.4B, growing the unit count from 26MM to 59MM, and increasing the annualized distribution from $1.60 at the time of the spin, to $2.35 in 2013 and +$2.60 in 2014. I will assume that most readers understand the IDR structure, so I won’t take time describing why ATLS was motivated to grow both the unit count and distributions per unit, but I am happy to discuss in the Q&A. Suffice to say, ATLS blew through their IDR waterfall and now have reached the 50/50 splits. While acquisitions will continue to be accretive and the ARP distribution will grow in the future, it is likely that the growth rate will moderate to something in the single digits, versus the +25% rate exhibited to date. Nonetheless, an 11.6% yield growing at mid-single digits is nothing to balk at.

The Business

Following the recently announced acquisition, ARP’s producing assets are comprised of ~230,000 Mcf/d, 98% gas weighted, 11% decline production. ARP also has a very interesting drilling partnership business which raises money through retail channels and deploys it into drilling programs in well-understood plays. It’s a great business and I am happy to discuss, but in the interest of brevity, I’ll just focus now on the fact that they should raise $150-200MM of retail funds, which will result in ~$20MM of one-time fee income, plus around $22MM in gross margin associated with recurring fees charged on previously drilled partnership wells.

Following is a simplified breakdown of pro forma distributable cash flow. Since ARP will continue to make acquisitions and drill its liquids-focused inventory, this will change. I include it just to demonstrate that the announced 2014 $2.60 distribution is covered by the cash flows of existing assets at near-market commodity prices (unlike most E&P MLPs).

Production (Mcf/d)

               230,552

$/MCF

$4.20

Production Rev

$353,436,216

Production Costs $/MCF

$1.50

Production Costs

$126,227,220

Production Gross Margin

$227,208,996

Drilling Partnership Gross Margin

$41,500,000

Total Gross Margin

$268,708,996

G&A

$50,000,000

EBITDA

$218,708,996

Maintenance Cap Ex

$25,000,000

Distributable Cash

$193,708,996

ARP Units

         59,284,784

DCF/Unit Before IDR Take

$3.27

IDR

$0.51

DCF/Unit

$2.75

 

Hedge Book and Realized Prices

Prior to the acquisition, 87% of ARP’s 2013 production was hedged at an average price of $3.98. Unlike some of ARP’s peers (namely, Linn Energy), they do not use equity proceeds to finance deep in the money puts and call it a hedge. Gas production in 2014 is hedged at an average price of $4.35. Around 85% of ARP’s hedges are swaps, 10% are costless collars and 5% are at the money puts. ARP has said they will hedge 80-100% of the EP Energy production for the next three years and 40-60% thereafter. The hedges will likely be constructed in a very similar manner to the existing hedge book. Using today’s curve, that would put the gas production at $3.94 for year one and $4.15 for year two. The blending the current hedges and factoring in a few pennies of uplift for NGL and oil production, $4.20

Production Expenses

Production costs in 2012 were $1.19/Mcf. The acquired assets should have production costs around $1.60. If you add in a few extra pennies for higher ad valorem taxes on last year’s production, $1.50 seems reasonable for average production costs. 

G&A Expenses

Cash G&A in Q1 was $9.6MM. For the full year 2012 it was $36MM. I doubt that this acquisition will add that much in G&A. I think $50MM is pretty conservative.

Production Decline and Maintenance Cap Ex

You can look at offsetting production declines a number of ways. One is to consider the cost to replace cash flows. Another is to look at the cost to replace reserves.

For a full pro forma year after acquisition, ARP’s existing production will generate around $231MM in production gross margin. An 11% decline would imply something in the range of $25-27MM in gross margin needing to be replaced. I think that a levered equity return of something in the ballpark of 18% is achievable considering their inventory of +50% IRR to-be-drilled wells and ability to do accretive acquisitions. By that reasoning, ~$23MM should be sufficient maintenance capex.

From a reserve replacement perspective, ARP will need to replace 9.2Bcf of reserves each year. The EP Energy transaction was done at $1.69/producing Mcf. At this price, replacing depleted reserves would cost $16MM.

Since ultimately this is about cash flow, I’ll take the first approach and round up to $25MM.

IDRs

The $0.51/unit is based on running through ATLS’ IDR waterfall. It is worth noting that ATLS hits the 50/50 splits at a $2.40 ARP distribution level.

Relative Valuation

ARP’s valuation should be considered in comparison to other E&P MLPs, as well as gas-oriented E&P C-Corps. The most comparable MLPs are LINE, VNR, BBEP and EVEP. Generally these are trading anywhere from an 8.5-10.5% yield, having expanded +100bps over the past few months in response to (much deserved) negative press around LINE and the rising interest rate headline. I’m happy to discuss the positive and negative attributes for each comparable, but considering the positives of ARP (hedge book, lower production declines, high IRR drilling inventory which reduces reliance on acquisitions and partnership business) and negatives (50% IDR burden) it should trade at the lower end of this range.

Comparing ARP to non-MLP E&P companies isn’t necessarily constructive to discern what it should be worth, but rather is helpful to just rule out the idea that its MLP structure has caused it to be fundamentally overvalued. ARP is priced at roughly $1.51/proved Mcf of reserves and $9k/flowing Mcf/d of production. This is right in line with gas-focused E&P names like UPL, SWN and XCO. By comparison, LINE is priced at $2.43/proved Mcf reserve and $16,500/flowing Mcf/d of production.

Risks

ARP is now in the 50/50 splits with its GP, ATLS. Completing accretive acquisitions will be more challenging going forward. Also, as an LP, there will be continued unit issuances. However, at this price I think it is very unlikely that ATLS would elect to issue more units.

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Catalysts

ARP’s Q1 distribution was $0.51. For the rest of 2013 distributions will average $0.61/Q, a 40% increase. I believe this will cause a unit price re-rate to reflect the forward, rather than the trailing, annual distribution.

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    Description

    The Pitch

    Atlas Resource Partners (ARP) is an E&P MLP which is attractive from both an absolute and relative perspective.  Currently yielding 11.6% on management’s 2014 distribution guidance, I believe that ARP will trade to a 9% yield on 2014 distributions sometime over the next four quarters. While the timing of the revaluation is uncertain, I believe that ARP offers a return potential of ~40% over the next year (~30% from appreciation and +10% from distributions). More importantly, I believe that the chance of loss is low. Looking a year out, the break even share price would have ARP yielding +13%. I think it is highly unlikely that the yield would reach those (or higher) levels.

    Below is a very sophisticated sensitivity table demonstrating total return based on holding period and exit yield.  

       

    Holding Period (in Quarters)

       

    1

    2

    3

    4

    Yield at Exit

    12%

    -1.0%

    1.7%

    4.6%

    7.5%

    11%

    7.8%

    10.5%

    13.4%

    16.3%

    10%

    18.3%

    21.0%

    23.9%

    26.8%

    9%

    31.1%

    33.8%

    36.7%

    39.6%

    8%

    47.2%

    49.9%

    52.8%

    55.6%

    Why the Opportunity Exists

    On June 10th, ARP announced that it was acquiring existing gas producing assets from EP Energy for $733MM. Though the acquisition adds 10% accretion to ARP’s distribution, the stock sold off 5%. The sell off wasn’t surprising. ARP issued 14MM units to finance the equity component of the purchase, increasing the unit count by 32%. Over the past fifteen months, ARP has increased its unit count +125%. I believe the recent weakness in E&P MLPs, compounded by the market absorbing such a large issuance, has created a buying opportunity for ARP. Of note, ARP is currently 6% above its 52 week low and 21% below its high; in spite of the fact that it will have posted +40% yoy distribution growth.

    Background

    We spend a lot of our time in the MLP space. Generally, we prefer fast growing GP’s with dominant asset footprints. Occasionally, we invest in LP’s that fall into a “special situation” bucket; where the LP has growing distributions and is priced at an unreasonably high yield. ARP is, of course, in this second group. We view these situations as low-risk singles/doubles.

    ARP is the E&P LP of Atlas Energy (ATLS). ATLS retains a GP interest in ARP (with IDRs), as well as 34% of the LP units currently outstanding. ARP was spun out from ATLS in March 2012 with the intention of ARP growing rapidly by acquiring existing oil and gas production at accretive prices. That’s just what has happened. Over the past fifteen months, ARP has deployed +$1.4B, growing the unit count from 26MM to 59MM, and increasing the annualized distribution from $1.60 at the time of the spin, to $2.35 in 2013 and +$2.60 in 2014. I will assume that most readers understand the IDR structure, so I won’t take time describing why ATLS was motivated to grow both the unit count and distributions per unit, but I am happy to discuss in the Q&A. Suffice to say, ATLS blew through their IDR waterfall and now have reached the 50/50 splits. While acquisitions will continue to be accretive and the ARP distribution will grow in the future, it is likely that the growth rate will moderate to something in the single digits, versus the +25% rate exhibited to date. Nonetheless, an 11.6% yield growing at mid-single digits is nothing to balk at.

    The Business

    Following the recently announced acquisition, ARP’s producing assets are comprised of ~230,000 Mcf/d, 98% gas weighted, 11% decline production. ARP also has a very interesting drilling partnership business which raises money through retail channels and deploys it into drilling programs in well-understood plays. It’s a great business and I am happy to discuss, but in the interest of brevity, I’ll just focus now on the fact that they should raise $150-200MM of retail funds, which will result in ~$20MM of one-time fee income, plus around $22MM in gross margin associated with recurring fees charged on previously drilled partnership wells.

    Following is a simplified breakdown of pro forma distributable cash flow. Since ARP will continue to make acquisitions and drill its liquids-focused inventory, this will change. I include it just to demonstrate that the announced 2014 $2.60 distribution is covered by the cash flows of existing assets at near-market commodity prices (unlike most E&P MLPs).

    Production (Mcf/d)

                   230,552

    $/MCF

    $4.20

    Production Rev

    $353,436,216

    Production Costs $/MCF

    $1.50

    Production Costs

    $126,227,220

    Production Gross Margin

    $227,208,996

    Drilling Partnership Gross Margin

    $41,500,000

    Total Gross Margin

    $268,708,996

    G&A

    $50,000,000

    EBITDA

    $218,708,996

    Maintenance Cap Ex

    $25,000,000

    Distributable Cash

    $193,708,996

    ARP Units

             59,284,784

    DCF/Unit Before IDR Take

    $3.27

    IDR

    $0.51

    DCF/Unit

    $2.75

     

    Hedge Book and Realized Prices

    Prior to the acquisition, 87% of ARP’s 2013 production was hedged at an average price of $3.98. Unlike some of ARP’s peers (namely, Linn Energy), they do not use equity proceeds to finance deep in the money puts and call it a hedge. Gas production in 2014 is hedged at an average price of $4.35. Around 85% of ARP’s hedges are swaps, 10% are costless collars and 5% are at the money puts. ARP has said they will hedge 80-100% of the EP Energy production for the next three years and 40-60% thereafter. The hedges will likely be constructed in a very similar manner to the existing hedge book. Using today’s curve, that would put the gas production at $3.94 for year one and $4.15 for year two. The blending the current hedges and factoring in a few pennies of uplift for NGL and oil production, $4.20

    Production Expenses

    Production costs in 2012 were $1.19/Mcf. The acquired assets should have production costs around $1.60. If you add in a few extra pennies for higher ad valorem taxes on last year’s production, $1.50 seems reasonable for average production costs. 

    G&A Expenses

    Cash G&A in Q1 was $9.6MM. For the full year 2012 it was $36MM. I doubt that this acquisition will add that much in G&A. I think $50MM is pretty conservative.

    Production Decline and Maintenance Cap Ex

    You can look at offsetting production declines a number of ways. One is to consider the cost to replace cash flows. Another is to look at the cost to replace reserves.

    For a full pro forma year after acquisition, ARP’s existing production will generate around $231MM in production gross margin. An 11% decline would imply something in the range of $25-27MM in gross margin needing to be replaced. I think that a levered equity return of something in the ballpark of 18% is achievable considering their inventory of +50% IRR to-be-drilled wells and ability to do accretive acquisitions. By that reasoning, ~$23MM should be sufficient maintenance capex.

    From a reserve replacement perspective, ARP will need to replace 9.2Bcf of reserves each year. The EP Energy transaction was done at $1.69/producing Mcf. At this price, replacing depleted reserves would cost $16MM.

    Since ultimately this is about cash flow, I’ll take the first approach and round up to $25MM.

    IDRs

    The $0.51/unit is based on running through ATLS’ IDR waterfall. It is worth noting that ATLS hits the 50/50 splits at a $2.40 ARP distribution level.

    Relative Valuation

    ARP’s valuation should be considered in comparison to other E&P MLPs, as well as gas-oriented E&P C-Corps. The most comparable MLPs are LINE, VNR, BBEP and EVEP. Generally these are trading anywhere from an 8.5-10.5% yield, having expanded +100bps over the past few months in response to (much deserved) negative press around LINE and the rising interest rate headline. I’m happy to discuss the positive and negative attributes for each comparable, but considering the positives of ARP (hedge book, lower production declines, high IRR drilling inventory which reduces reliance on acquisitions and partnership business) and negatives (50% IDR burden) it should trade at the lower end of this range.

    Comparing ARP to non-MLP E&P companies isn’t necessarily constructive to discern what it should be worth, but rather is helpful to just rule out the idea that its MLP structure has caused it to be fundamentally overvalued. ARP is priced at roughly $1.51/proved Mcf of reserves and $9k/flowing Mcf/d of production. This is right in line with gas-focused E&P names like UPL, SWN and XCO. By comparison, LINE is priced at $2.43/proved Mcf reserve and $16,500/flowing Mcf/d of production.

    Risks

    ARP is now in the 50/50 splits with its GP, ATLS. Completing accretive acquisitions will be more challenging going forward. Also, as an LP, there will be continued unit issuances. However, at this price I think it is very unlikely that ATLS would elect to issue more units.

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Catalysts

    ARP’s Q1 distribution was $0.51. For the rest of 2013 distributions will average $0.61/Q, a 40% increase. I believe this will cause a unit price re-rate to reflect the forward, rather than the trailing, annual distribution.

    Messages


    SubjectInsider Buying
    Entry06/14/2013 12:00 PM
    Membermaggie1002
    Note two decent-size insider purchases just posted:
    1                                 Edward E. Cohen (CEO)                                 -      BUY   2.9 35.0K                 $21.75                $761.3K 534.7K +7.0% 4 Jun-14-13
                   2                                 Jonathan Z. Cohen (Vice Chairman)                                 -      BUY   1.1 15.0K                 $21.75                $326.3K 521.9K +3.0% 4 Jun-14-13

    Subjectresponse
    Entry06/21/2013 05:34 PM
    Memberyellowhouse

    gandalf, thanks for the question. i apologize for the delay. also, i apologize for the fact that my maint capex estimate and DCF walk were garbage. the 5.1 quality rating for this idea is higher than it should be. the crux of this thesis is that i have confidence that the distribution guidance will be met and i strongly believe the yield is too high. be that as it may, parts of this write up sucked.

     

    so, maintenance capex. i understand how you are thinking about replacing reserves and i don't disagree with the thought process. the twist is that ARP is not drilling to replace a 98% gas weighted production profile in currently sub-economic plays. they are drilling liquids rich wells in marble falls, mississippi lime and the utica. by the end of 2013, ARP's liquids production will likely increase to 12-15%, including the recent EP Energy transaction. so how would i propose looking at maint capex? i think taking a multi-year view of how much you have to put into a drilling program at a given IRR to sustain current distributions is a reasonable approach. ARP has several +50% IRR drilling locations. i think that something in the 35-45% range is a fair assumption. if you put together a hypothetical decline curve in a multi-year model, you'll find that low to mid $40s will come close to sustaining distributions. you can allow for a little bit of decline since the partnership business is growing. also, management has been talking about a new way to monetize their retail distribution channel. i don't know what they have in mind, but any contribution would be fairly high margin.


    going back to my crappy DCF walk. it basically needs to be redone. current production is higher than i expected, and will grow through the balance of the year. realized prices will get more of an uplift from NGL production being brought online. my G&A estimate was too high (took into account a lot of non-recurring expenses). i upped my maintenance cap ex estimate. oh....and i realized that i was omitting interest expense on $745MM in debt. egregious, i know. so here is a re-worked DCF walk:


    Production (Mcf/d)                235,000
    $/MCF $4.40
    Production Rev $377,410,000
    Production Costs $/MCF $1.52
    Production Costs $130,378,000
    Production Gross Margin $247,032,000
    Drilling Partnership Gross Margin $50,000,000
    Total Gross Margin $297,032,000
    G&A $35,000,000
    EBITDA $262,032,000
    Interest Expense $45,000,000
    Maintenance Cap Ex $42,000,000
    Distributable Cash $175,032,000
    ARP Units          59,284,784
    DCF/Unit Before IDR Take $2.95
    IDR $0.36
    DCF/Unit $2.60


    these oversights aside, the nut of the idea is that ARP will be paying +$2.60/unit in 2014 distributions and i believe it is very unlikely the units trade at a +12% yield. this is a management team we know well. to date, they have exceeded our expectations. the purchases noted by maggie1002 further support our confidence that they will achieve their stated distribution targets.


    Subjectso, um, what the hell is going on?
    Entry07/03/2013 10:07 AM
    Membertyler939
    an update would be appreciated.

    SubjectRE: so, um, what the hell is going on?
    Entry07/03/2013 10:12 AM
    Membertyler939
    I thought it was down on the bloomberg headlines on the ftc early termination notice.  If it is just part of a general sell off, that is a different matter.

    SubjectRE: RE: RE: so, um, what the hell is going on?
    Entry07/03/2013 10:41 AM
    Membertyler939
    Let me ask the obvious question then, not being an expert in MLP's.  How does ARP stack up?

    SubjectRE: RE: RE: RE: so, um, what the hell is going on?
    Entry07/03/2013 10:46 AM
    Membertyler939
    Yellowhouse, anyone else, I know there was a lengthy discussion of maintenance capex earlier in this thread, but it didn't sound like they were doing anything egregious like I have read about with regard to LINE.  I don't know what Hedgeeye is alleging, but would love to hear a response, specifically to ARP and comparing their practices to the rest of the industry.

    Subjectthis is probably a gift
    Entry07/03/2013 12:27 PM
    Memberyellowhouse
    tyler,
     
    sorry for the heartburn. i think this is a very good buying opportunity. the market is hamfistedly penalizing ARP for E&P MLP concerns which are either not relevant or not that big of a deal to ARP. this is probably a gift.
     
     
    the two primary concerns are that E&P MLPs are incorrectly accounting for the costs/benefits of their hedges and that they are understating maintenance cap ex (ie, the cash required to sustain distributable cash flow).
     
     
    the hedges are real concerns for LINE and BBEP, but not the least bit concerning for ARP. LINE used investor proceeds to buy way in the money puts that augmented near term distributable cash flows (a quasi-Ponzi move). BBEP just has legacy hedges from a $6/Mcf world. since ARP's hedge book is less than two years old and they hedge almost exclusively through swaps and collars, they have neither the stain of a company that uses investor proceeds to finance distributions, nor the burden of a hedge book built in a much higher commodity price environment.
     
     
    the maintenance cap ex issue is relevant to ARP, but i believe it is much less of a potential problem than its peers. unlike LINE, ARP has sufficient high return drilling inventory to invest in its own wells at a rate that will keep distributions flat for years to come. as i mentioned in my comment on 6/21, i think it is reasonable to assume that ARP can generate a ~40% IRR drilling its well inventory. assuming 40% IRRs, i think you need to spend something in the mid $40MM range each year to sustain DCF levels. considering that the partnership business should grow, you can permit a little bit of decline when modeling your assumptions. anectdotally, this maintenance cap ex range is about 2x the estimate given prior to the EP Energy acquisition. since the deal roughly doubled production, i think this at least somewhat validates ARP's approach to how they report maintenance cap ex and DCF.
     
     
     

    SubjectRE: this is probably a gift
    Entry07/03/2013 12:42 PM
    Membertyler939
    Any opinon on BBEP?  Not involved in the name, just curious what to think of the quality of hedgeye's work.

    Subjectmaint capex
    Entry07/05/2013 12:22 AM
    Membergandalf
    I really havent spent a ton of time on hedgeye's work, but I think there is merit to a critical view on maintenance capex in the E&P MLP space.  Linn's DCF reporting is ludicrous, ie buying way in the money puts to lock in higher than spot pricing for oil/gas.  Dont see that at either ARP or BBEP.  BBEP as pointed out below locked in many hedges at favorable prices - which means if memory serves that prices will be $7, 6 and 5 per mcfe over the next 3 years.  That is a big headwind to DCF over the next 3 yrs, and my view is that they are overpayign their distribution, or will be very soon without a big pop in natgas prices.  
     
    When these companies are meaningfully overpaying their distn calculated on spot oil/gas prices, I get nervous.  ARP very well could generate 40%+ IRRS on their wells, but certainly that kind of return is quite remarkable on an all-in cost basis, and I am a little skeptical.  Admittedly havent done a ton of work there, but their supplemental O&G disclosures suggests they find oil at a cost of over $2/mcf.  If indeed their forward F&D costs fall to below $1 as you suggest, then its a great buy here.  Recently they have been buying gas assets at $1.50/mcf.  Even at $1, maint capx would be 90mm pf.
     
    Scrutiny of Linn is forcing mgmt there to come to jesus so to speak on real maint capex.  They now estimate $1.87/mcfe for 2013 F&D costs (maint capx / production).  in 2011, mgmt at Linn reported maint capex of $0.79/mcfe, which was a little ridiculous considering F&D is running well over $2.  I suspect the entire O&G MLP space will have to re-think their maint capex estimates, which could ripple industry wide regardign DCF.  Not sure the worst is over yet here.

    SubjectRE: Update ?
    Entry10/16/2013 06:51 PM
    Memberyellowhouse
    thanks for the question bruno.
     
     
    i really don't have anything to add. production levels look strong, though some operational hiccups appear to have been a headwind. when thinking about the business going forward, i care much more about production levels.
     
     
    i don't have a valuable thought on whether the cohens will be buyers. if youre wanting to know whether any smart, good looking guys with straight teeth have been buying then i'd note that we have recently added to our position :)
     
     
    i agree that this is quite cheap and the effects of the LINE debacle this summer remain a weight on the stock. 
     
     
    i still think this trades to the mid/upper twenties sometime in the next (insert ambiguous timeframe) and will gladly receive distributions until then.

    SubjectRE: RE: Update ?
    Entry04/21/2014 11:58 AM
    Memberbruno677
    Looks like there is a story of hedgeeye doing a short selling recommendation and phone call.  
     
    Amazing thing - can make up power points slides, do conference calls, write 1000 plus twitter feeds all to sell retail subcriptions while taking a loan from state of connecticut to funds ones business operations as a start up small business.  
     
    Atleast creates a buying opportunity for long term investors.  

    SubjectRE: RE: RE: Update ?
    Entry04/21/2014 12:35 PM
    Memberyellowhouse
    yes, it appears to be centered on APL and ATLS. we follow hedgeye's research. while they can make some interesting points, we generally think they are promotional and that their conclusions are poor.
     
     
    we think the whole atlas complex is very compelling at these levels. following the hedgeye report we might do a write up on APL or ATLS.

    SubjectRE: RE: RE: RE: Update ?
    Entry04/21/2014 01:01 PM
    Memberbruno677
    Look forward to the write up - i have started buying both apl and atls today and adding to arp.  
     
    I have to disagree on hedeye i think they are borderline fraudulent in making allegations and these reports activities are definately tied to certain parties initiation short positions  ahead of reports.  
     
    I would look forward to atleast one company suing these guys for their reports.  Do what fairfax or overstock did.  
     
     

    SubjectRE: Hedgeye
    Entry04/21/2014 03:43 PM
    Memberbruno677
    No it was not  and neither was the allegations made on VIC.  
     
    The SEC reviewed the Berry deal went thru  LINE filings - made them revise terminology but did find any fraud and did not make them close their put positions.  
     
    All these allegations look good in marketing pitches to potential investors and short selling memos as they draw on a lot of accounting terminology and complexity.  But in reality are often nothing more than untrue allegations.
     
    There is enough bullish sell side stuff out there - read any valuation on TSLA.
     
    But the short thesis often involved an allegation - accounting fraud that goes beyond mere negativity or valuations. 
     
    Its like saying the ceo allegedly beats this wife or me making an outrageous statement like barrons journalist take bribes and envelopes of money to write negative storys.  It tough to disprove a sensationalist allegation.  
     
    You always have the enrons and worldcoms of the world as you have wife beating ceos and corrupt journalist.  But you dont get to make the allegation for free and its time some of these companies sue the guys making the statements.  
     
    Example ANFI and posting on VIC.  Fairfax, overstock.  
     
    i am waiting for KMI and Rich Kinder to sue hedgeye.  
     
     
     
     
     
     
     
     

    SubjectRE: RE: Hedgeye
    Entry04/21/2014 05:08 PM
    Membersnarfy
    What are you pointing to with respect to ANFI?

    SubjectRE: RE: RE: Hedgeye
    Entry04/21/2014 05:54 PM
    Memberbruno677

    Nothing on ANFI other than the short thesis posted on VIC is no longer on VIC.  The reason to why it is not on VIC has been speculated on the ANFI long idea post.

     

    I have no issues when someone has xyz is overvalued or undervalued.  

    The issue I have is when allegations of fraud or aggressive accounting are made either anonymously or made to manipulate a stock.

     

    Some of these allegations that hedgeye makes are in highly regulated business. Do they have some great insight into pipeline maintenance at KMI or another MLP and if they do the first place they should make their allegation is the regulated body.    The under maintenance of these pipelines is a serious allegation and involves public safety.  If the allegation is credible or even remotely believed by Hedgeye and its analyst why not alerts the authorities to which pipelines they think are under maintained. 

     

    I think the companies need to go after someone like a Hedgeye. It not about writing a bullish or bearish story.  It’s about someone making up stuff about your business.   

    SubjectRE: RE: RE: RE: RE: Hedgeye
    Entry04/21/2014 08:56 PM
    Memberbruno677
    I am always amazed by the market - so a 26 year old kid whose claim to fame in going to Yale and not being able to get a real job, ends up at a bucket shop that does not even execute but sells retail investors ideas via internet subscription whose founders are all washed out hedge fund and sell side analysts (none of whom could get a real job), has more credibility that Rich Kinder.  This shows why there can be outliers like Buffett.
     
    Their LINE report was lifted largely from VIC positing and put into powerpoint format.  The VIC positing was a short memo that was floating around since Fall 2012 and used as a marketing writeup to show in depth research by a start up hedge fund.  The barrons story was a combo of all three.  Anyone who really thinks barrons journalist are not feed all their stories and do this great financial journalism on stock picking and valuations will also believe in the tooth fairy.    
     
    It is amazing that retail investor fear, lack of long ownership by long value hedge funds (MLP tax issues), short stories and retail percived macro risk of higher rates (sell carry equity instruments) can create this type of dislocation.  
     
    I just find it wrong that pure rumor mongering can create this type of volatitly where the main losers are retail investors.  Its fraudulent and akin to screaming fire in a theater.  To say a pipeline has dangerously under invested in infrastructure is similar to saying diet coke or more correctly HLF supplements cause cancer.  I drink diet coke and I drive right by a kider gasoline products pipeline everyday.  If there is real knowledge of pipeline danger due to inadequate infrastructure investment - the first thing to do is inform the regulatory authorities not to create power point slides with detailed knowledge of pipeline under investment.
     
    The SEC should really look into these short selling firms like hedgeye - not cause short selling is bad or illegal.  But intentionally spreading misinformation and rumors and trying to manipulate the market is and especially where the investor base is largely retail.  Its also time companies stand up for their businesses and sue these firms spreading rumors.  Hedgeye is operating on a loan from State of Conneticut, its not like suing Goldman Sachs.
     
    For the rest of US - we have the opportunity to buy cheap securities from scared retail invesotrs and an irrational market.      
     
     

    SubjectRE: RE: RE: RE: RE: RE: Hedgeye
    Entry04/23/2014 03:00 AM
    Memberbruno677
    This company's shill research moves stock with billion dolalr markets caps.  
     
    http://www.zerohedge.com/contributed/2014-04-13/diary-phony-hedgeye-manager
     
     
    Why is last 20 years all the technology and information access has not made markets any more efficient.  

    SubjectRE: RE: RE: RE: RE: RE: RE: RE: Hedgeye
    Entry04/23/2014 12:07 PM
    Memberbruno677
    I don't think much of Barrons or the financial reporting community - its on par or below CNBC. 
     
    What I am amazed by is these guys can move stocks with multi billion market caps.  Line, Arp, Atls, Apl, Kmi are all short term moved by what hedgeye puts out.  They impact the stocks far more than Goldman or DB coverage does.  
     
    This is not like some micro cap being moved on a VIC writeup.  
     
    why the state of ct subsidizes a business like this is beyond me.  
     
    Their whole business model is built on just making up stuff - literally making up stuff.  From their research,to their twitter rants on trading stocks, currencies, ect.   
     
    For the upstream mlp i think it is to a large degee retail ownership - the hedge funds are far more active on the short side as these instruments are very difficult to own on the long side given their tax attributes.
     
    It is beyond me why these stocks move so much some 26 year old kid making up stuff and then tweeting it.  Lee Cooperman can own 10 percent of all these atlas entities and his bullish pitch on cnbc eill not affect the stock at all.  
     
    But trying to explain market irrationality is better left to academics.  Buy the hedgeye fear, clip a 10-12 dividend and bet along with Cooperman.  

    SubjectKMI value creation influence
    Entry08/15/2014 07:03 AM
    Membermaggie1002
    Yellowhouse, in light of the recent KMI transaction, wonder if you have any thoughts pertaining to the Atlas complex engaging in a similar transaction to create value.  Also, any updated thoughts on the pure fundamentals is appreciated as well.  Thanks in advance.

    SubjectRE: KMI value creation influence
    Entry08/29/2014 02:00 PM
    Memberyellowhouse
    It's an interesting question. The Atlas complex has certainly received some attention as a possible candidate for pursuing the same route. However, I think the odds are quite low that ATLS follows suit. Our take on the Kinder roll up is that it is akin to a gravitational collapse. The Kinder complex had grown so large, and the IDRs so burdensome to the cost of capital, that pressing the figurative reset button made sense. Value can be created because the Kinder asset footprint is large and diverse, and lowering their cost of capital should add significantly to their organic capex potential. Also, KMI was a significant tax payer. APL has a great footprint but they aren't constrained by their cost of capital. As for ARP, they have a terrible cost of capital, and IDRs don't help, but I think there is little chance that ATLS would trade IDRs for a better ARP WACC. As for the fundamentals, I like APL pretty well. The Permian is just getting bigger and better (see DMLP as another way to invest here). ARP could be dead money if they can't do better deals. And ATLS is going to struggle to grow its distribution thanks to APL IDR givebacks and a weak ARP unit price.

    Subject22%+ yield
    Entry12/08/2014 03:09 PM
    Memberjcoviedo

    With ARP as well as the other upstream mlp trading at yields north of 20% and in ARP's case north of 22%, how long do you think ARP can maintain its current distribution if oil prices remain in the $60s/barrel?

    Looks to me like they have roughly 70% of 2015 crude volumes hedged at prices north of $84/barrel.

     

    Thanks


    SubjectRe: 22%+ yield
    Entry12/08/2014 03:41 PM
    Memberjgalt

    Isn't ~85% of ARP's production nat gas? That's down "only" 20% vs 40% for crude since late June.


    SubjectUpdate?
    Entry05/22/2015 09:41 AM
    MemberAkritai

    Hey Yellowhouse,

    Now that the ATLS/Targa transaction has closed, and commodity prices have tanked, I was wondering if you had any thoughts on ARP? The mkt didn't like the issuance earlier this week to pay down debt / buy assets from ATLS. Do you think there's an opporunity here? Does ARP do anything with private Atlas Growth Partners, LP? Any thoughts on what 'Act II' is? 'Act I' being the prev ATLS/Targa transaction.

    Thanks!!!! 

     


    SubjectRe: Update?
    Entry05/22/2015 10:05 AM
    Memberyellowhouse

    Hey Akritai - 

    I'm sorry but I haven't really been following the past few months and I've sworn off MLPs that are solely mechanisms of financial engineering.

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