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Atlas Resource Partners LP (ARP) continues to deal, this time inside the family, saying May 18 it will acquire natural gas producing properties in the Arkoma Basin from its parent company Atlas Energy Group LLC(ATLS) , for $35.5 million.
ATLS expects to use the net proceeds from the sale of the Arkoma assets to pay down a portion of its existing term loan, which had an outstanding balance of $104.4 million as of March 31. The company also launched a 6.5 million unit offering.
Retaining the assets within the Atlas complex should benefit ATLS and ARP, said Daniel C. Herz, CEO of ARP and president of ATLS.
“The steady cash flow, coupled with upside from higher natural gas prices, makes the Arkoma assets ideal for ARP,” he said. “Additionally, the transaction is immediately accretive to ARP's distributable cash flow per unit, while the financing also enhances ARP's balance sheet and liquidity position."
There are about 41 billion cubic feet (Bcf) of mature, low-decline natural gas reserves, which currently produce 11 MMcf/d.
The assets offer low decline rate reserves from 550 active wells, said Kevin Smith, analyst, Raymond James. To aid in funding the deal, Atlas plans to issue 6.5 million common units and an underwriter option for 975,000 units. Though the offering has not been priced, current trading suggests proceeds of about $58 million, Smith said.
“By our math, it appears that Atlas paid a fair EBITDA multiple of about 7x for the assets,” he said. “After factoring in the high cost of equity of 16% to 17% … this small dropdown is roughly breakeven to Atlas, from an incremental cash flow perspective.”
The reserve estimates are based on internal evaluation and interpretation and have not been verified or estimated by independent reserve engineers.
Since March 2012, ARP has acquired $2.2 billion in acquisitions. In the second half of 2014, ARP added oil-rich production through acquisitions in northwestern Colorado and in Atascosa County, Texas, in the Eagle Ford Shale.
Despite its acquisitions, ARP posted a miss in the first quarter of 2015 on weak production and pricing. Atlas reported adjusted EBITDA of $68.9 million, below consensus of $73.1 million and production of 271 MMcfe/d vs. consensus of 279 MMcfe/d.
The dropdown deal is subject to customary closing conditions and adjustments. The transaction is expected to close in the second quarter of 2015.
ARP is an E&P MLP that owns an interest in more than 14,000 producing natural gas and oil wells, located primarily in Appalachia, the Barnett Shale, the Mississippi Lime, the Eagle Ford Shale, the Raton Basin, Black Warrior Basin and Rangely Field.
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