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Oil and gas MLPs pay enormous distributions to their investors. Atlas Resource Partners (NYSE: ARP), for example, pays a gigantic 11.6% distribution to its investors. Meanwhile, Memorial Production Partners' (NASDAQ: MEMP) units currently yield 9.8% while Legacy Reserves' (NASDAQ: LGCY) current payout is 8.6%. What has been interesting to watch this year is the overhaul these companies have undergone in an effort to maintain and grow these already enormous payouts. For example, Atlas Resource Partners recently spent $420 million to buy some very low-decline oil properties in Colorado. While that sum represents a pretty big deal for Atlas Resource Partners, however, what was an even bigger deal was a much smaller natural gas acquisition that added substantial reserves. Meanwhile, Memorial Production Partners also spent a lot of money as it made three deals, including one where it forked over $935 million to pick up some oil properties in Wyoming. Finally, Legacy Reserves went in the other direction after it announced a game-changing strategic alliance that saw it acquire natural gas reserves. Each deal represented a slight shift in direction for these high-yielding energy companies. To help investors gain a better understanding of what these shifts mean I've created the following slideshow. The presentation shows what these companies were like before the deals as well as how each has changed since the deal. By comparing the before and after snapshots we can see which companies improved and which might still have work to do.
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These Enormous Dividends Have Undergone Massive
Overhauls in 2014
Photo credit: Flickr/Roy Luck
Intro:
Back in February I took a look at five emerging oil & gas MLPs. Each paid an enormous distribution
that was likely to keep getting bigger as these companies grew.
Intro:
A lot has happened at three of those companies since that overview. Atlas Resources Partners,
Legacy Reserves and Memorial Production Partners all spent hundreds of millions of dollars to
acquire new oil and gas assets.
Intro:
In early February the three companies boasted of the following metrics:
Company Market Cap Yield Coverage RatioLegacy Reserves (NASDAQ: LGCY) $1.5 billion 9.0% 1.3 timesAtlas Resource Partners (NYSE: ARP) $1.3 billion 10.3% 1.1 timesMemorial Production Partners (NASDAQ: MEMP) $1.34 billion 10.0% 0.67 times
Intro:
Intro:
Note: In Millions of BOE
Intro:
Those metrics have all changed substantially. That has a big impact on each company’s ability to not only keep paying a distribution but growing the
payouts. Let’s take a closer look at how each company
overhauled its portfolio in 2014.
Atlas Resources Partners:
On Feb 14 Atlas Resource Partners bought 70 billion cubic feet of proved natural gas reserves in
West Virginia and Virginia for $107 million.
Deal added 22 million cubic feet per day of production, which is expected to decline by 10-
12% per year.
Atlas Resources Partners:
Then on May 7 Atlas Resources Partners bought 47 million barrels of oil equivalent reserves in
Colorado for $420 million.
Added 2,900 barrels of oil equivalent production per day, which a very low decline rate of 3-4% per
year.
Before and after:
Atlas Resources Partners:
Key takeaway – Atlas Resource Partners acquired a lot of cheap natural gas in its first deal. Meanwhile, its second deal, which was four times as large on a dollar value, didn’t move the needle when it came
to proved liquids reserves.
Legacy Reserves:
In March Legacy Reserves spent $112 million on two bolt-on acquisitions. The properties produce about 890 barrels of oil equivalent per day and
contained proved reserves of 9 million barrels of oil equivalent. About 95% of those reserves are oil.
Legacy Reserves:
Then on May 6 Legacy formed a strategic alliance to acquire 276 billion cubic feet of proved reserves
in Wyoming. Those reserves are 83% natural gas and 17% liquids.
The company is spending $355 million in cash as well as 10% of its newly created Incentive
Distribution Units (valued at roughly $350 million).
Before and after:
Legacy Reserves:
Key takeaway - Legacy Reserves really remade itself with these two deals. The company
diversified its reserve base away from the Permian Basin’s oil and into a balance between oil and
natural gas.
Memorial Production Partners:
In March Memorial Production Partners announced a small $35 million acquisition. The
company picked up 15.4 billion cubic feet equivalent of natural gas and NGL reserves.
Memorial Production Partners:
Then a few weeks later it spent $173 million to buy some oil-rich properties in the Eagle Ford Shale. It
picked up 7.4 million barrels of oil equivalent reserves, which are about 80% oil, 10% NGLs and
20% natural gas.
Memorial Production Partners:
Finally, in early May the company made its biggest deal of the year. It spent $935 million to buy two
enhanced oil recovery fields in Wyoming. The deal included 83 million barrels of oil, which are 81% oil
and 19% NGLs.
Before and after:
Memorial Production Partners:
Key takeaway – Three big deals have turned Memorial Production Partners from a natural gas
heavy producer to a liquids rich producer.
Investor takeaway:
Of the three companies, Legacy Reserves and Memorial Production Partners underwent the
most dramatic portfolio reshuffling this year. These deals added a big layer of diversification and scale,
which will be important for future distribution increases.
The dividend investment the IRS is daring you to
make.
