Berko: A map of Atlas Energy
Thursday, April 10, 2014 7:00 AM
Dear Mr. Berko:
In my individual retirement account, I have $15,000 face value of the 7.75 percent Alcatel-Lucent convertible stock, which was recently called at $1,000. You recommended Alcatel at $725 in 2006, and I need to replace that good 10 percent income I was getting. So I was looking at the Atlas Energy LP stocks in the oil and gas business. What are the differences among the stocks, and do you have any problem with buying a limited partnership or a master limited partnership in an IRA?
C.C., Syracuse, N.Y.
Some folks do but can’t figure out why they do! I have no problem with purchasing an LP or an MLP in an IRA.
Greek mythology tells us that Atlas was the primordial titan who held up our celestial sphere. And Atlas was the title founder Edward Cohen and son Jonathan chose to name the companies, which paid them over $16 million in salaries last year.
Atlas Resource Partners LP (ARP-$20.88) searches for crude oil and natural gas in basins across the U.S. ARP has ownership interests in more than 600 wells located in the Barnett Shale and Marble Falls basins of North Texas plus over 11,000 wells in the Appalachian basin, northeastern Colorado, Oklahoma, southwestern Indiana, northeastern Tennessee and Michigan. ARP has more than 1.4 trillion cubic feet equivalent of reserves, enough to fuel every home in Detroit, Chicago, Cleveland and Philadelphia for 10 years with sufficient capacity remaining to do Cucamonga and Kokomo. Management’s forte is its ability 1) to purchase low-cost, long-lived oil and gas properties, 2) to manage them at maximum cash flow and 3) to hedge between 80 and 100 percent of its production for at least three years in advance. Revenues of $386 million could grow to $421 million this year, and earnings before interest, taxes, depreciation and amortization may increase to $77 million. Because of its MLP structure, ARP pays out nearly 100 percent of its cash flow to shareholders, which works out to be a nontaxable 11.1 percent yield. Reuters, Market Edge and Robert W. Baird have buy recommendations on ARP.
Atlas Pipeline Partners LP (APL-$32.71) gathers, processes, transports and treats natural gas in the Anadarko, Arkoma and Permian basins in the southwestern and midcontinent regions of the U.S. APL owns an interest in and operates 12 natural gas plants with a capacity of more than 1 billion cubic feet per day. APL also owns about 11,200 miles of a natural gas gathering system in Oklahoma, Texas and Kansas. This operation consists of 17 facilities that provide contract services to natural gas producers in Arkansas, Louisiana and Texas. Approximately 42 percent of its contracts are fixed-fee, which mitigates the company’s exposure to volatile price swings in the industry. Revenues of $1.9 billion last year are expected to increase to $2.5 billion in 2014, and EBITDA is expected to improve from $242 million to $310 million. I believe that APL’s smart acquisitions strategy will continue to attractively grow revenues. And the dividend, which currently yields 7.6 percent and has grown over 50 percent in the past three years, is nontaxable and likely to be raised again this year. Thomson Reuters, Charles Schwab and Barclays have an outperform rating on APL.
Atlas Energy LP (ATLS-$43.71) primarily sells, sponsors and manages tax-advantaged natural gas and oil investment partnerships. It also owns 2 percent of the stock of Atlas Pipeline Partners -- plus 6 percent of its production units -- and 2 percent of the stock of Atlas Resource Partners plus 37 percent of its production units. That’s smart because this twofold approach allows ATLS to receive income from the production units of APL and ARP, as well as incentive distribution rights. Last year’s $2.3 billion in revenues paid dividends of $1.84, which are very likely to rise to $2.60 this year. Though ATLS’ dividend (which is now paid monthly) yields significantly less than its brethren’s, the company provides its shareholders with impressive diversification and much faster dividend growth. Standard & Poors Capital IQ, Robert W. Baird and Citigroup are bullish on the shares.
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