Atlas Pipeline records a 27% increase in EBITDA for Q3 2014

Atlas Pipeline Partners, L.P. (the Partnership) reported adjusted EBITDA of US$ 106.6 million for Q3 2014. Processed natural gas volumes averaged 1.566 billion ft³/d, a 14% increase compared to Q3 2013. Distributable cash flow was US$ 74.6 million for the period, or US$ 0.90 per average common limited partner unit, compared to US$ 50.6 million for Q3 2013, a 47% y/y increase. The Partnership recognised net income of US$ 49.4 million for Q3 2014, compared to net loss of US$ 25.6 million for the prior year's third quarter. Net income was higher for Q3 2014 compared to the prior year's third quarter, mainly due to a US$ 23.0 million increase in the gross margin driven by 14% processed volume growth across all of the Partnership's operating areas and a US$ 48.7 million increase in the valuation of the Partnership's risk management portfolio.

On 13 October 2014, the Partnership announced that it has entered into a definitive agreement to be acquired by Targa Resources Partners L.P. in a transaction valuing the Partnership at US$ 7.7 billion, including debt and an approximate US$ 1.9 billion acquisition of its general partner interests by Targa Resources Corp. The Partnership's common limited unitholders will receive 0.5846 units of Targa Resources Partners L.P. and US$ 1.26 in cash for each outstanding Partnership common unit. The transaction is expected to close during Q1 2015 and is subject to customary closing conditions, as well as approval by the unitholders of the Partnership.

On 28 October 2014, the Partnership declared a cash distribution for Q3 2014 of US$ 0.64 per common limited partner unit to holders of record on 10 November 2014, which will be paid on 14 November 2014. This distribution represents distributable cash flow coverage per limited partner unit of approximately 1.2x for Q3 2014.

"As you can see from the quarterly results, we remain on track with our goals and ambitions,” said Eugene Dubay, Chief Executive Officer of the Partnership. “Distributions have increased, distribution coverage has increased, leverage has decreased, and we have successfully brought into service three new plants this year that increases the processing capacity at APL by approximately 35% to 2.0 billion ft³/d. As we have executed this year, our growing organic footprint and enviable customer base have been noticed throughout the mid-continent and on 13 October it was announced that Atlas Pipeline and its general partner are expected to be acquired by Targa at a transaction valued at US$ 7.7 billion dollars. Until the transaction is finalised, which is expected sometime in Q1 2015 if approved, we will continue to execute for our stakeholders and our producer customers can expect the same exceptional service going forward."

Capitalisation and liquidity

The Partnership had total liquidity (cash plus available capacity on its revolving credit facility) of US$ 603.3 million as of 30 September 2014. Total debt outstanding was US$ 1.7544 billion at 30 September 2014, compared to US$ 1.7073 billion at 31 December 2013, an increase of US$ 47.1 million. On 28 August 2014, the Partnership entered into an amended and restated credit agreement with its lending group, which, among other things, increased the commitment from US$ 600.0 million to US$ 800.0 million, extended the term to August 2019 and lowered borrowing costs. Based upon total debt outstanding at 30 September 2014, total leverage was approximately 4.1x for purposes of calculations under our revolving credit facility, and debt to total capital was 42%.

Risk management

The Partnership continues to add further protection to its risk management portfolio for forecasted production in 2014 through 2017. As of 3 November 2014, the Partnership had natural gas, natural gas liquids and condensate protection in place for the remainder of 2014, 2015 and 2016 for approximately 68%, 53%, and 20%, respectively, of associated margin value (exclusive of ethane). The Partnership had protection in place for approximately 68% of its equity natural gas production over the next two quarters with an average price of US$ 4.22 per million Btu. Natural gas liquids were approximately 63% protected (exclusive of ethane), with propane and natural gasoline each approximately 75% protected for the next two quarters. The Partnership's condensate production is 79% protected for the next two quarters. Counterparties to the Partnership's risk management activities consist of investment grade commercial banks that are lenders under the Partnership's credit facility, or affiliates of those banks.

Operating results

Gathered volumes for the three months ended 30 September 2014 were approximately 1.68 billion ft³/d and processed volumes were approximately 1.57 billion ft³/d, an increase of approximately 13% and 14%, respectively, compared to the Partnership's Q3 2013 results. Growth capital spending, including contributions to joint ventures, was US$ 191.4 million during Q3 2014, as organic expansion projects continue across all gathering and processing systems, including the completion of two, 200 million ft³/d cryogenic processing facilities, the Edward and Silver Oak II plants, during the quarter, and the continued construction of the 200 million ft³/d Buffalo plant in WestTX, as well as multiple gathering pipeline projects, including the pipeline connecting the Velma and Arkoma portions of the SouthOK system.

Gross margin from operations was US$ 137.8 million for Q3 2014, compared to US$ 114.8 million for the prior year period. The 20% higher gross margin for the quarter was primarily due to increased producer activity in APL's areas of operation and gathering and/or processing expansions that have been completed on each of the Partnership's systems. Gross margin, a non-GAAP financial measure, includes natural gas and liquids sales, and transportation, processing and other fees, less purchased product costs and non-cash gains (or losses) included in these items. The gross margin for the quarter does not include approximately US$ 2.5 million of realised derivative settlement losses, which are excluded in the calculation of gross margin, compared to US$ 0.9 million realised derivative settlement losses excluded from gross margin in Q3 2013.

WestTX system

The WestTX system's average natural gas processed volume was 473.6 million ft³/d for Q3 2014, compared to 355.2 million ft³/d for Q3 2013, an increase of 33% over the past year. Average natural gas liquids (NGL) production was 62 086 bpd for Q3 2014, a 30% increase over Q3 2013. Increased processed volumes are primarily due to continued drilling activity in the Permian Basin, supported by the completion of the Edward plant on 15 September 2014. This system continues to operate in partial ethane rejection due to the value of ethane compared to the value of residue natural gas.

The completion of the Edward plant increased the name-plate processing capacity on the WestTX system to 655 million ft³/d. The Edward plant is currently utilising 87% of its available capacity as the Partnership optimises its system for efficiencies. The previously announced Buffalo plant, another 200 million ft³/d cryogenic processing plant under construction in WestTX, will be located in the northern part of the system and is expected to be completed in Q3 2015. This facility will increase the processing capacity in the Permian Basin to 855 million ft³/d in 2015. Management currently expects to install a new 200 million ft³/d cryogenic processing facility in each of the next five years, along with all necessary infrastructure, in support of the current production plans of the Partnership's producer customers in this area.

WestOK system

The WestOK system had average natural gas processed volume of 545.3 million ft³/d for Q3 2014, a 14% increase from Q3 2013. Average NGL production was 26 223 bpd for Q3 2014, a 22% increase from Q3 2013, due to the continued increased production on the gathering system. The Partnership continues to add capital projects in the Mississippi Lime to accommodate growing development from its producer customers, including (i) adding compression, (ii) looping gathering lines, and (iii) adding off-load capabilities to third party processors. The Partnership continues to evaluate the need for further processing capacity in this area.

SouthOK system

The SouthOK system's average natural gas processed volume was 409.5 million ft³/d for Q3 2014, a 3% increase from Q3 2013. The increase in processed volumes is primarily due to the start-up of the previously announced Stonewall plant in Q2 2014, which increased processing capacity by 120 million ft³/d. Average NGL production was 28 298 bpd for Q3 2014, a decrease of approximately 14% compared to Q3 2013, as ethane rejection capabilities have been enhanced. The Partnership has made operational improvements in 2014 that have increased the overall margin received per thousand ft³ of rich gas that is gathered and processed on this system. These improvements result in additional ethane rejection, which reduces the NGLs produced, however enhancing profits.

The Stonewall plant, a new cryogenic processing facility, was brought into operation on 1 May 2014 and was constructed under the Centrahoma joint venture, which is a joint venture with MarkWest Energy Partners, of which APL owns a 60% interest. The Partnership plans to accelerate the timeframe of the scheduled 80 million ft³/d expansion at this plant, due to the increased activity in Southern Oklahoma, including production from the Woodford Shale, SCOOP, Arkoma and Ardmore Basins. This expansion will allow the facility to operate at its name-plate 200 million ft³/d capacity and bring total gross processing capacity on the SouthOK system to 580 million ft³/d in early 2015. Additionally, construction is continuing on the project to connect the Velma and Arkoma portions of the SouthOK system, which is expected be complete in November 2014.

SouthTX system

The SouthTX system recognised revenues on average natural gas processed volumes of 137.6 million ft³/d for Q3 2014 an 11% increase over Q2 2014, including volumes processed under midstream sharing agreements. Under certain existing contractual agreements, APL receives a share of the economic interest from certain volumes currently processed by a third party midstream provider, and APL shares certain economic interests on volumes processed internally with a third party midstream provider. The volumes reported do not include any deficiencies under minimum volume commitments with producers during the period.

Adapted from press release by Rosalie Starling

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