雪佛龍 (CVX) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2006 Atlas America, Inc. earnings conference call.

My name is Carol, and I will be your coordinator for today.

At this time, all participants are in listen-only mode.

We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Ed Cohen, Chairman and CEO.

Please proceed, sir.

Hello, everyone.

Please remember that when used in this conference call, the words "believes," "anticipates," "expects," and similar expressions are intended to identify forward-looking statements.

These statements of course are (technical difficulty) uncertainties which could cause actual results to differ materially from those projected in the forward-looking statements. [You can] look at our quarterly report for these risks on form 10-Q and our annual report also on form 10-K, particularly Item 1.

I would also like to caution everyone not to place undue reliance on these forward-looking statements.

They reflect management's analysis only as of the date hereof.

Finally, the Company undertakes no obligations to publicly release the results of any revisions to forward-looking statements which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Okay -- I'm glad to report once again that in 2006 Atlas America, enjoyed yet another highly successful here.

Here are some key features.

Revenues were approximately three-quarters of a billion dollars -- $749.3 million, to be exact.

And that was up from only $589.3 million the preceding year.

That's an increase of approximately 27%.

EBITDA reached $146.1 million as against $102.9 million for 2005, an increase of $43.2 million, or about 42%.

Adjusted net income for the year was $42 million compared with $35.8 million for 2005, an increase of approximately 17%.

2006 adjusted net income per diluted common share was $2.08, an increase of $0.30 per share over 2005 or about 17%.

For the fourth quarter of 2006, net income was $14.4 million as against $11.7 million for the corresponding 2005 period.

It was a year of significant change and of significant accomplishment.

The Company ended the year with $185 million in cash on hand as against an already adequate $55 million at December 31, 2005.

This cash was in part generated by two successful initial public offerings for Atlas Public Holding -- Pipeline Holdings in July and for Atlas Energy Resources in December.

All net proceeds from these offerings, some $214 million, came to Atlas America.

And this augmented our already favorable cash flow.

Since our stock unfortunately has continued to be undervalued in our opinion, we used our excess cash to purchase our stock throughout the year, buying approximately $30 million in the open market during 2006 at an average price of approximately $45 per share.

Now, the Company is the midst of a Dutch auction tender offer for up to 1,950,000 shares or approximately 10% of our outstanding common stock.

This tender is at a purchase price between $52 and $54 per share.

Remember that the offer period concludes next Friday, March 9.

Although we no longer own 100% of Atlas Pipeline Holdings and Atlas Energy Resources, we continued actively to manage both of these master limited partnerships as well as Atlas Pipeline Partners, our original MLP which has been public since 2000.

And in an effort to further capitalize on our expertise and stature in the master limited partnership area, we announced this February, a couple weeks ago, the formation of Lightfoot Capital Partners LP, a company which will focus on MLP investment in sectors which have been underutilized in our opinion by the MLP form, including infrastructure and coal.

This private equity partnership has been created in conjunction with Magnetar Capital, Lehman Brothers, Goldman Sachs and others.

Our Vice Chairman will serve as the Chairman of Lightfoot.

And we will own approximately 18% of the general partner.

Lightfoot, which will have its own management team, is starting with initial equity capital of approximately $160 billion, of which we have committed $20 million.

I would like now to share with you some information on what is probably the most exciting development in many decades for the Appalachian Basin and for our Company, the pioneering development of the Marcellus Shale.

Undoubtedly, many of you have been following the exciting results relating to the few other companies that are also commencing exploitation of the Marcellus acreage in the northern Appalachian base.

Range Resources, for example, on acreage much of which is directly to the west of our Fayette play.

Range Resources suggested in their conference call three days ago they have achieved reserves of 600 million to 1 billion cubic feet per vertical well completed, and that they anticipate to 2.5 to 5 trillion cubic feet of natural gas equivalent from some 410,000 net acres in their play.

Well, we have been busy too in our 157,000 acres of Marcellus, and are quite pleased with our results, although please note we're still at a relatively early stage of development.

We continue to accumulate substantial additional Marcellus acreage.

In the past three months, we've added over 50,000 acres, bringing our total as I indicated to over 157,000 acres prospective [for] the Marcellus.

To do so, we have enormously increased the size and scope of our land department.

In fact, we currently have over 60 landmen working on our behalf.

We have now drilled and completed -- we've now drilled our first three wells in the Marcellus, and we've completed two of these wells, and we're quite pleased with the results.

Our third well will be completed shortly.

We'll be drilling several more vertical wells in the Marcellus in the coming months.

And based on our own results and that of others, we're planning a total of approximately 50 additional Marcellus wells in the next year.

Now, finally, let me share with you some of the other high accomplishment of our management team in both the E&P and pipeline areas during 2006.

First of all, E&P -- for the year ended December 31, 2006, Atlas Energy generated record average natural gas and oil production volumes of 27 million cubic feet of gas equivalent per day, representing an increase of 18% from the prior year comparable period.

Natural gas and oil production rose to 28.3 million cubic feet per day for the three months ended December 31, 2006.

In total, Atlas Energy now -- controlled mineral rights to approximately 547,000 net acres at December 31, 2006, an increase of approximately 17% from its net acreage position at December 31, 2005, and an approximate 6% increase from September 30.

Undeveloped acreage at December 31, 2006 was approximately 323,000 net acres, up approximately 25% from the net acreage position at December 31, 2005.

And remember that these amounts are exclusive of the joint venture with Knox Energy in Tennessee which has now been extended through December 2007.

In sum, Atlas Energy has currently identified over 3,100 geologically favorable sites for additional well drilling.

And this does not include any locations at all within the Marcellus Shale.

Fund-raising for investment drilling partnerships which is utilized to finance well drilling reached $218.5 million in 2006, an increase of approximately 39% from the prior year comparable period.

Atlas Energy expects to raise approximately $270 million from these partnerships in calendar year 2007.

Atlas Energy had interest in over 7,200 gross wells at December 31, 2006, an increase of approximately 11% from December 31, 2005.

And we now operate almost 6,200 wells.

As for the pipeline system, total system volume in the mid-continent region averaged 641.9 million cubic feet per day for the fourth quarter 2006 or 10% higher than the prior year comparable quarter.

Throughput volume increased -- in Appalachia increase to 61.9 million cubic feet per day for calendar year 2006 compared with only 55.2 million cubic feet per day for calendar year 2005.

Now, Atlas Pipeline has announced it will begin efforts on several organic growth projects to strengthen its asset base in the mid-continent region.

First, Atlas Pipeline will commence construction of an additional 60 million cubic feet per day expansion of its 120 million cubic feet per day Sweetwater processing facility.

Some of you may remember that the first part Sweetwater only went into early operation at the end of September and only approximately now are we actually reaching full operation.

But we are already on uncomfortably close to the maximum limit that the Sweetwater 1 plant can handle.

Now concurrent with the Sweetwater expansion, Atlas Pipeline will significantly expand its gas gathering system in western Oklahoma and the Texas Panhandle, a project which we expect to be completed by the first quarter of 2008.

Additionally, Atlas Pipeline will increase compression, and will loop certain existing pipelines on the NOARK pipeline system, the combination of which will increase throughput capacity there to approximately 450 million cubic feet per day.

And that also is targeted for completion in early 2008.

I finally wanted just to remind you that we also continued aggressively to pursue the further expansion and extension of the NOARK pipeline itself, what Bob Firth, Director and President of Atlas Pipeline Holdings has called our major pipeline expansion project.

And that is being undertaken to handle burgeoning Fayetteville production.

So I think I've handled the highlights.

And now for financial details, I'm going to turn it to Matt Jones, our CFO.

Thank you, Ed.

As a result of the Atlas Energy Resources and Atlas Pipeline Holdings IPO transactions, our financial results for the 2006 year primarily reflect the consolidation of the results of those two enterprises after accounting for the ownership interest of their minority stakeholders.

As we have done in the past, I'll present our results with appropriate attribution to each enterprise as it relates to specific accounts on our income statement and balance sheet.

Also, the twelve months ended December 31, 2006 represents our newly established fiscal year end, which was changed with the approval of our Board earlier this year from a September 30 year-end.

With that change, we and our primary subsidiaries now all share the same fiscal year period.

We provided non-GAAP measures in our press release, including EBITDA, adjusted EBITDA and adjusted net income for the three months and 12-month periods ended December 31, 2006.

To derive EBITDA, we add interest expense, depreciation, depletion and amortization, a provision for income taxes, and for the 12-month period, a tax on the gain on the sale of the minority interest in Atlas Pipeline Holdings.

Interestingly, because we consolidated Atlas Pipeline Holdings into our financial information, GAAP accounting treatment does not recognize a gain for this transaction.

For the Atlas Energy IPO transaction, our cost basis was sufficient to allow us to defer taxation on the sale proceeds.

The cash proceeds from these transactions along with cash generated from our subsidiaries' operations left us with a cash position at quarter end of $175 million that Ed has referenced.

Total EBITDA generated for the year adjusted for the cumulative effect of an accounting change in Atlas Energy was $142 million compared to $103 million for the twelve months ended December 31, 2005, a 39% increase.

For the quarter, adjusted EBITDA totaled $38 million to compared to $35 million in the fourth quarter of 2005.

It's important to note that the fourth quarter of 2005 results included 100% of the ownership of Atlas Pipeline Holdings and Atlas Energy Resources' income generating assets, whereas the 2006 results do not following the initial public equity offerings of those enterprises.

To derive adjusted net income for the quarter, we add the tax on the gain of Atlas Pipeline Holdings and subtract the cumulative effect adjustment to arrive at $42 million for the year, a 17% increase compared to last year.

Adjusted net income per share also increased 17% to $2.08 on a fully diluted basis.

Our adjusted net income per share for the quarter totaled $0.53 on a fully diluted basis versus $0.55 in the fourth quarter of 2005.

Similar to our (indiscernible) last year and with respect to the E&P operations held by Atlas energy Resources, [it] increased our land department leasing operations, which has resulted in our meaningful increases in our land positions, especially as it relates to acres that we believe to be [prospective] for the Marcellus Shale.

We expensed approximately $3 million in the quarter for these costs compared to $1.5 million in the comparable period of 2005.

If we had maintained our leasing efforts at year-ago levels, we would have reported in EPS number for the quarter approximately $0.04 greater than that reported of roughly $0.57 adjusted for the quarter.

Also impacting the quarter more dramatically, our average realized price for natural gas declined from $11 per Mcf to $8.28 per Mcf this quarter.

The decline in gas prices based on 2005 volumes caused a decline in our EPS of roughly $0.17 per share.

However, because of the diversity of income streams generated by Atlas Energy's business and the diversity of its business model, and growth in those income streams, we were able to largely mitigate this downward movement of natural gas prices during the year, mainly as a result of our increased drilling efforts and increased production.

Onto our operating review -- Atlas Energy Resources' key revenue generating sources, as I just mentioned, all contributed to the record results for the 2006 year, including well construction and completion, gas and oil production, administration and oversight, and well services.

Beginning with well construction and completion, revenues increased 37% compared to 2005 and 50% quarter over quarter.

The margin for this segment remains consistent at 13%, reflective of Atlas Energy's contractual arrangement with its drilling partners.

Demand for Atlas Energy's drilling programs continues to reach record levels, and the Company is currently in registration with a $200 million fund-raising program.

Gas and oil production segment revenues increased 21% year over year, but declined in the quarter.

The decline was due solely to lower gas prices in the fourth quarter of 2006.

A 17% increase in our production volume in the quarter mitigated the decline in average realized gas prices.

Atlas Energy seeks to reduce volatility associated with movement in commodity prices with its comprehensive hedging program.

For 2007, the Company has hedged roughly 77% of its anticipated natural gas production at prices in the high $9 range as significant volumes hedged through 2010, and has begun to add to positions into 2011.

Gas and oil production costs remained stable quarter over quarter on a unit of production basis.

Administration and oversight fees represent fees paid to Atlas Energy for supervision and administration of well drilling and development activities completed on behalf of its investors in its drilling programs.

The increase in these fees quarter over quarter and year over year is directly related to increase to well drilling activity.

Well services revenues increased quarter over quarter and year over year, resulting from the continued fast pace of additions to our managed well count.

Well service fees are paid to us on a recurring monthly basis for the life of the well included in our well drilling programs.

Margins for this business segment remained in the 45 to 50% range.

Transportation, gathering and processing revenues are generated by Atlas Pipeline Partners which we control through our 83% ownership interest of Atlas Pipeline Holdings.

During the year, we sold approximately 17% of our interest in Atlas Pipeline Holdings for pretax proceeds of $74 million.

Atlas Pipeline Holdings holds the general partner, interest incentive distribution rights, and 1.6 million common units of Atlas Pipeline Partners.

Also in the quarter, we received cash distributions totaling $4.4 million from ownership interest in Atlas Pipeline Holdings which increases distribution to $0.25 in the quarter versus $0.24 in the third quarter of 2006 on a full-quarter distribution basis for that quarter.

Moving to our general and administrative expenses.

I'll provide a breakdown between our subsidiary components -- [or subsidiary and] companies.

Of the total G&A cost of $13.3 million, $7 million including $2.2 million of non-cash compensation expense was attributable to Atlas Pipeline Partners and Atlas Pipeline Holdings, and $6.3 million to Atlas Energy Resources.

As a reminder, in the second quarter of 2006 for presentation purposes, we moved Atlas Energy's land department costs out of the gas and oil production line and into G&A expense.

You'll notice the total production cost of $2.1 million in the fourth quarter remained stable -- in fact, somewhat lower than the third quarter.

And production costs per Mcfe are largely unchanged in the fourth quarter 2006 compared to the fourth quarter of 2005.

Total G&A increased to a degree in the fourth quarter of 2006 compared to the third quarter, primarily resulting from increased land department costs at Atlas Energy and Atlas Pipeline increases in non-cash compensation expense and general expansion of their business.

Depreciation and depletion expense totaled $12.5 million in the quarter, of which $6.3 million was attributable to Atlas Pipeline and $6.2 million to Atlas Energy.

Both companies continue to expand their respective depreciable and depletable asset bases.

At Atlas Energy the recorded depletion rate per Mcf increased in the fourth quarter to $2.18 from $2.14 in the third quarter.

The depletion expense illustrates the increased in tangible and intangible drilling costs that Atlas Energy and others in industry have experienced over the last couple of years.

The rate of increase in these costs appears to have abated in more recent quarters, and we continue to intensely focus on these costs to ensure that we're maximizing efficient use of resources in these areas.

We hope the costs will continue to moderate as additional supplies of equipment and other resources are made available in the marketplace to satisfy aggregate industry demand in the nearer and longer-terms.

Interest expense in the quarter totaled $7.9 million, of which $6.4 million was attributable to Atlas Pipeline and $1.5 million to Atlas Energy.

Atlas Pipeline had roughly $325 million of debt outstanding at the end of the quarter, which included $285 million of senior unsecured notes and $39 million drawn against its $225 million revolving credit facility.

These debt obligations are obligations of our subsidiary, but are not obligations of ours.

Atlas Energy had nothing drawn against its $250 million credit facility at the end of the quarter, which currently has a $155 million borrowing base.

Interest costs at Atlas energy incurred during the quarter resulted from temporary draws on its credit facility during the quarter, amortization of deferred finance costs, and unused commitment fees on its credit facility.

Our balance sheet at the end of the quarter included $185 million of cash, of which $175 million was attributable to us and the remainder to Atlas Pipeline and Atlas Energy.

Also, as Ed had reviewed, during the year, we repurchased roughly 670,000 shares of our stock at an average price of $45 for a total of $30 million.

So with that, I think that sums up the financial highlights.

And I'll turn the call back to Ed.

Thanks very much, Matt.

There really is very informative, because people have often observed that because of the huge amount of administrative and management fees that theoretically Atlas -- would it have been a down climate for prices, Atlas would behave a lot better, and we'd be a lot less subject to price volatility.

And so I was really impressed by the fact that in that fourth quarter, with prices achieved down some 35% net income before an extraordinary item was down less than 10%.

So I think the theory of those who have felt for a long time that Atlas really is, if not entirely impervious, much less subject to price volatility than other companies really was proven true.

And of course, with the extraordinary item, we actually had a substantial increase for the fourth quarter in our net income.

So, that concludes I think our prepared statements.

And I would like to ask for questions now.

(OPERATOR INSTRUCTIONS) [Brian Corvilo], [Mentor].

I may have missed this, but did you disclose the tax due on the sale of Atlas Energy?

The Atlas energy proceeds were really largely -- entirely tax-deferred, because we were able to apply our existing cost basis to the proceeds from the interest that we sold.

I knew it was not as much as the other transaction.

But I wasn't sure.

So it's almost immaterial.

(OPERATOR INSTRUCTIONS) [Douglas Clifford], [Anega Advisors].

I may have missed your comments on the Marcellus Shale at the opening of the call.

Could you give a little insight into the three wells you have completed and I guess tested there?

I don't think you missed my comments, which were that we have drilled three wells.

We have completed two.

The third we expect to complete very shortly, and we're quite satisfied with the results of those three wells.

Can you give any further detail on what you mean by "quite satisfied?"

Well, quite satisfied relates to my usual upbeat personality (laughter) and the dour personalities of some of my colleagues. (multiple speakers) We're happy with the results.

But we are continuing to study.

And of course, it would be premature to be giving information out.

We'd like to have at least another couple of months of observation before we draw any definite conclusions.

Do you have any time frame in mind when you might release further data on them?

You know, I am sorry, Doug, that Appalachia tends to be such a boring area.

I think when we do release the information, our anticipation is that the results will not be appreciably different than those that others have achieved.

In fact, what has impressed us is that in the Marcellus Shale, there have perhaps been upwards of several score wells now completed.

And there has not been a single dry hole, and to our knowledge, not a single well that hasn't been commercially successful.

So I think the feeling in the basin is that our expectation will come true, that the regularity of the Marcellus will be similar to the boring regularity of the more shallow wells that have been drilled.

But we will get the information out as soon as we feel confident that we can rely on it.

[Phil Gibbons], Locustwood Capital.

It's actually Steve Errico.

Congratulations on all the transactions you have been able to accomplish this year.

Just briefly, can you give me a general idea of when you will be able to get the 10-K out?

Is it a long delay, or are you just asking for a couple of days?

Steve, we released it either late last night or early this morning depending upon how your clock operates.

But the 10-K has been filed. (multiple speakers)

Oh, I'm sorry -- okay, I missed it.

Thank you very much for clarifying.

(multiple speakers) file for an extension, but it was an extension of a couple of minutes rather than a couple of days.

Okay, great.

I'm sorry -- my apologies.

Thank you.

Our typewriters just don't work as quickly as they used to when I was younger.

Wayne Cooperman, Cobalt Capital.

Ed, on Marcellus, just anything on the cost of the wells, the flow rates, the decline rates?

And secondly, can you guys talk a little bit more about Lightfoot, I think it was called -- just sort of what you envision that being, and any more info you can give us?

Well, the cost of the wells -- is Jeff Simmons on the line?

Yes, I am Ed.

Jeff, do you want to address that?

Well, the well costs we have seen to date have been in the $1 million range.

But we anticipate through our learning curve that we will able to reduce that going forward.

As for the second question, Lightfoot, as I indicated is a private investment partnership.

And our partners, I think, would not be happy for me to be releasing any other information than that which has been approved.

We had a news release in the middle of February.

And that stated all the information that we can provide.

Will you guys be providing information as you make acquisitions, and -- or are we kept in the dark on this?

I think we will be just as forthcoming as our shareholders in the private equity and hedge fields.

No, seriously, we really anticipate that we will be providing full information.

I thought I had one more question, but I can't remember what it was.

So thanks.

(OPERATOR INSTRUCTIONS) There are no additional questions at this time, sir.

Thank you all for participating.

And we look forward to speaking to you again in about three months.

Thank you for joining today's conference.

You may now disconnect.

Good day.