Atlas Energy, L.P. (NYSE:ATLS) is forming a new master limited partnership (MLP) focused on the exploration and production business, and plans to use this entity to grow its upstream business.
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The new MLP will be called Atlas Resource Partners, L.P., and Atlas Energy will take the company public through a stock distribution to current unit holders of Atlas Energy. The distribution will represent approximately 19.6% of the limited partner interest in the MLP.
Atlas Energy will also transfer its existing exploration and production assets to Atlas Resource as part of the transaction. These oil and gas assets are located in the Appalachia Basin, Colorado, Indiana, Michigan and Tennessee. After the deal closes in early 2012, Atlas Energy will continue to own approximately 78.4% of the MLP. The company will also be the general partner of the entity.
Atlas Energy believes that separating its exploration and production businesses will enable faster growth, as the new company will have its own currency to make strategic acquisitions and raise capital when needed. (Find out which companies collapsed after merging. For more, see Biggest Merger And Acquisition Disasters.)
Atlas Energy reported average production of 36.6 million cubic feet (Mmcf) of natural gas equivalents per day in the second quarter of 2011. The company's production is overwhelmingly composed of natural gas.
The Appalachian Basin is the core area for Atlas Energy, and the company has 148 billion cubic feet equivalent of proved reserves, and approximately 8,500 producing wells spread across New York, Ohio and Pennsylvania. Ninety percent of the company's total production came out of the Appalachian Basin during the most recent quarter. Atlas Energy is also developing the Marcellus Shale in Appalachia, and plans to drill 11 wells here in 2011.
Range Resources (NYSE:RRC) is one of the biggest players in the Marcellus Shale, with current production of 350 Mmcf of natural gas per day. The company drilled 56 Marcellus Shale wells during the third quarter of 2011.
In Colorado, Atlas Energy is involved with the Niobrara through a farm in agreement with Black Raven Energy, a private oil and gas company. This agreement requires Atlas Energy to pay a well fee and royalties to Black Raven Energy.
Black Raven Energy drilled 40 wells under this agreement earlier in 2011, and the partners estimate that they have 200 total locations on the properties.
Atlas Energy also has oil and gas assets in Indiana, where the company is working on the New Albany Shale. Other properties in the company's portfolio have exposure to the Antrim Shale of northern Michigan and the Chattanooga Shale in Tennessee.
Atlas Energy also has a close relationship with Atlas Pipeline Partners, L.P. (NYSE:APL), which owns midstream and pipeline assets in the United States. Atlas Energy owns the general partner of Atlas Pipeline, approximately 10.8% of the common units and 100% of the incentive distribution rights.
Atlas Energy wasn't the only company to recently form an MLP. Quicksilver Resources (NYSE:KWK) is creating an exploration and production MLP, and plans to sell a portion of its Barnett Shale assets to this new entity. The MLP will raise funds for this purchase through an initial public offering. (For related reading, see How An IPO Is Valued.)
The Bottom Line
Atlas Energy L.P is the latest energy company to sponsor a MLP, a trend that has gained traction recently in the industry. The company believes that this organizational structure is the best way to grow its exploration and production businesses.
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