雪佛龍 (CVX) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the quarter 2, 2008 Atlas earnings conference call.

By name is Nora, and I'll be the coordinator for today.

(OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's conference, Mr.

Brian Begley, Vice President of Investor Relations.

Please proceed, sir.

Good morning, everyone, and thank you for joining today's call.

Before we begin our discussion on Atlas America's Second Quarter results, I would like to remind everyone that when used in today's call the words "believes anticipate, expects" and similar expressions are intended to identify forward-looking statements.

These statements are subject to certain risks and uncertainties which can cause actual results to differ materially from those projected in the forward-looking statements.

We discuss these risks in our quarterly report in form 10-Q and our annual report also in Form 10-K, particularly in item one.

I would also like caution you to not place undo you know reliance on these forward looking statements which reflect management's analysis only as the date hereof.

The Company under takes 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 hereafter or to reflect the occurrence of unanticipated events.

With that I would like to turn it over to our Chairman and Chief Executive Officer, Ed Cohen.

Thanks, Brian.

Once again I'm pleased to report excellent results for Atlas America.

Only this time I'm speaking to you in the context of an economic and financial crisis, which has now adversely effected even the market prices of energy stocks, even those achieving single performances as I think our Company has.

But first I'm going to discuss the numbers and achievements of Atlas during the Second Quarter of 2008 and then I want to tell you about the actions that we plan to take to try to bring ATLS's disappointing stock market price into a reasonable relationship with the Company's incredibly successful operations.

First our operations.

For the Second Quarter of 2008, we achieved record pretax flow of $0.70.

That's an increase of $0.34 per common share or 94% from the prior year Second Quarter.

The Second Quarter 2008 pretax cash flow per share also represents an increase of $0.14 per common share or $0.25 -- 25% from the immediately first proceeding First Quarter 2008, which itself was an astoundingly successful period.

And in our case, pretax numbers, in fact, will likely be the same as post tax numbers.

We expect not to be a tax payer on a cash basis in 2008 and we anticipate a reduced cash tax liability or possibly no cash tax liability in 2009.

Revenues increased even more sharply, excluding the effect of non-cash, hedge expense and other nonrecurring charges, total revenues in the second quarter of 2007 were $660.9 million, an increase of $443.8 million compared to the Second Quarter 2007.

And finally adjusted net income of $14.8 million for the Second Quarter 2008, compared with $11.3 million for the prior year Second Quarter.

An increase of $3.5 million or 31%.

As a result of all of this success, ATLS will once again pay a cash dividend of $0.05 per common share for the quarter.

Because many more shares are outstanding than last year at this time, the $2 million aggregate dividend represents a 50% increase from the prior year Second Quarter aggregate dividend.

And, of course, this dividend will not materially reduce our ability to make the investment, which we deem the greatest opportunity for our Company's funds, the repurchase of our stock at its present in my opinion incredibly depressed levels.

Let me now recount some of the highlights of our consolidated success during the quarter.

Regarding our pipeline and processing facilities first, results for the Second Quarter were great as detailed in our APL conference call last week.

All of APL's divisions continue to prosper and expand.

Atlas Pipelines northern and central Oklahoma processing plants have been operating at full capacity through the Second Quarter and have been forced to bypass a continual access of gathered natural gas.

Appalachia is showing remarkable growth.

An increase of 28% in gas throughput in the Second Quarter of 2008.

Gas transmitted on the Ozark system averaged 402 million per cubic foot per day, an increase of 25% from 322 million cubic foot per day in the Second Quarter of 2007.

Process volumes in west Texas increased by 5% over the prior quarter.

Even our smallest processing operation, Velma, historically less spectacularly successful than other our plants, Velma showed an increase of 1 million cubic feet her day in process volumes, as compared to the year earlier period.

And we expect Velma to show increases similar to our other divisions once we complete construction of the 70 miles of 16-inch high pressure supply pipelines between the Velma gas plant and Oklahoma.

This project currently underway will enable Velma to access the shell play and should vastly improve revenues and margins at Velma.

Although results at APL for the Second Quarter were quite successful and distributions her unit continued to grow, I believe that the true level of Atlas Pipeline's operating success in the Second Quarter 2008 has been substantially understated as a result of financial arrangements bearing no inherent relationship to our actual operations.

In the Second Quarter 2008, surge and proxy hedges put into effect in connection with the partnerships transformative acquisition of the [Chaney Dell] benefit systems in July 2007.

These proxy hedges became less effective as a result of significant increases in the price of crude oil and less significant increases in the price of ethane and propane which we produce.

These hedges cost ADH approximately $33 million of cash flow during the Second Quarter.

But APL has now paid off about 85% of these negative contracts.

As a result, Atlas Pipeline's future cash flow should more accurately reflect the revenues generated from its ethane and propane volumes produced in its natural gas processing operations.

This change should result in substantial increases in distributable cash flow and in distributions, and most significantly in increased funds distributed through ATLS.

The simple fact is that Bob [Firth] has been leading a tremendous effort, a tremendously successful effort, and we're really deeply grateful to Bob and his excellent staff for these incredible accomplishments.

But ATL's greatest achievement came to the end of the period and brought smiles to the faces of those, who like me, believe that especially today cash is king.

At a time when credit and equity markets have been frozen for virtually all companies and quite cold for even energy businesses, APL was able to raise in late June over $0.5 billion dollars in additional long-term debt and equity financing.

ATL was also able to obtain a further $80 million of increased bank commitments for senior secured revolving credit facility, and that increased the amount committed under that facility to $380 million.

At June 30th, only $20 million of this revolver was in use, leaving $360 million open for the Company's future use.

Success at our other principle subsidiary, Atlas Resources ATN was, if anything, even more spectacular during the Second Quarter 2008.

For example, distributable cash flow at ATN for the Second Quarter of 2008 reached $53.3 million, an increase of $34.5 million or 183%.

But, of course, all attention in the ENP area today focuses on the exciting Marcellus shale which some deem to be the most significant natural gas in the whole United States.

There Atlas continues to expand its position as the leading factor in this development.

Furthermore, Marcellus of all of the companies rushing into Pennsylvania, only Atlas Energy starts with the complete infrastructure, which allows development without costly delay, and, accordingly, we continue to move forward with Marcellus with dispatch.

We have now drilled 78 Marcellus shale wells and one horizontal with 69 already producing into a pipeline and we plan to drill at least 80 additional vertical Marcellus shale wells in the next 12 months and at least to further 24 horizontal Marcellus wells by the end of 2009.

These future wells, especially the horizontal wells which will be drilled for the Company's own account, is part of joint ventures involving industry partners should contribute substantially to continued increases in Atlas Energy's production reserves.

In fact, our daily production from the Marcellus shale already exceeds that of any other company operating in this pledge.

It's approaching nearly 20 million cubic feet per day of gross production as of of the end of the quarter, including gas produced for our managed programs.

With ATN2, all divisions are booming.

We've integrated without difficulty our large 2007 Michigan acquisition and continue to expand there.

Our Tennessee operations have come to maturity, promising significant present and future profitability.

We're in the process of obtaining sizeable acreage positions in areas outside of our present producing basins, altering, we believe, substantial future future reserves and production.

And ATNs direct placement, our syndication program, is breaking all records for scale and profitability.

Our spring 2008 direct placement program raised $236 million, more than the full annual total in any year in our history before 2007.

And we're anticipating substantial expansion of our full syndication program, which should leave 2007's record $363 million in investor monies far behind.

After Atlas Energy should be noted that the recent decline in natural gas prices has had and will have relatively little effect on our actual near-term revenues from the sale of natural gas.

80% of our present production is hedged at above $9 for the remainder of 2008 and through the whole of 2009, and 65% is hedged through the full year 2010.

However, in stark contrast with all of this operating success is the disturbing recent phenomena of our stock price falling in tandem with that of other energy companies.

In fact, our ENP operations are far less dependent on natural gas prices than those of other companies because of our huge level of fee income.

More than $20 million annualized resulting from our management of thousands of wells for tens of thousands of individual investors.

Many millions of dollars seems to be generated for many years into the future from this source.

As I've spoken of previously, we have this enormous annuity, which has no relationship to natural gas prices.

In addition, Atlas Energy receives hundreds of millions of dollars in fees annually from our new syndication projects.

In fact, turning to Atlas Pipeline, Atlas Pipeline itself has sure mounted the hedging losses, which continue to devastate many energy companies caught on the wrong side of the incredible volatility afflicting petroleum and prices.

But none of this has resulted in the kind of stock market performance we would like.

So we as management are going to intensify, strongly intensify, our educational and outreach activities.

We want to make sure that the hedge funds which have supported us in the past and the hedge funds which don't even know of our existence, other investments sources, individual investors all know that the Atlas story is quite a different story from that of other energy companies.

We share in their success.

But during the recent boom period, as I tried to make clear and will try to make clear even more intensively, our down side is much more protected.

When things were booming, there wasn't much audience for our -- maybe to sound boring reiterations of down side protection.

But in the present situation, perhaps people will be interested in learning about the differences, the favorable differences, between Atlas and virtually all other energy companies.

And, of course, we'll continue to emphasize the fact that when it comes to up side, we can hold our own with anyone and our past record and our present successes suggest that.

But beyond our educational efforts, we have a history of benefiting and benefiting our shareholders from judiciously timed cash buy backs of stock.

Accordingly, we plan to utilize our high level of cash from $75 million at quarter end and our continuing flow of free cash to take advantage through stock repurchases of ATLS stock.

To give you an idea of our continuing positive cash flow, we will receive almost $30 million in free cash this quarter from our ownership of interest and our subsidiaries at, Atlas Energy, ATN, Atlas Pipeline ATL, Atlas Pipeline Holdings AHD, and additional millions currently running at almost $2 million a quarter are being held for us by Atlas Energy, reflecting the incentive payments that will actually be received by us when we complete 12 quarters of our required successful results at ATN.

We're now in the fifth quarter dating from Atlas Energy's initial public offering in December of 2006.

Now, of course, that $75 million in cash comes after our spending tens of millions of dollars already to increase our ownership in Atlas Energy and Atlas Pipeline, and we intend selectively to take advantage of the complimentary depression in the stock price of Atlas Energy and Atlas Pipeline.

We've already protected our ownership position in both of these subsidiaries with relatively substantial recent private purchases of stock.

In June 2008, ATLS spent $40 million, $40.1 million to be exact, to purchase 1,112,000 Atlas Pipeline units and 308,109 units of Atlas Pipeline Holdings in private placement transactions at per unit amounts of $36.02 and $32.50 respectively.

Prices far below their recent highs.

In May, we spent $25.2 million to purchase 6 00,000 of Atlas Energy's Class B common units in a private placement transaction at a price of $42 per common unit.

Unlike the proverbial "shoemaker's children", our children are getting attention Atlas adding this pipeline.

On stock price reinvestments.

Now ATLS has to be our primary focus.

And I believe that we will, once again, be proved correct in our opportunistic increase of our ATLS holdings during unjustifiable declines in my opinion, at least, in our stock price.

Well, Matt Jones will now give you a more detailed and, I hope, perhaps less anguished report.

But I felt I had to speak from the heart, and I'm sure Matt will do the same.

But perhaps he'll be more upbeat.

Matt.

Thanks, Ed.

Good morning, everyone.

I'll quickly run through the financial presentation, included in the press release and expand upon some of the highlights.

Please recall that we consolidate 100% of the operations and balance sheet accounts of Atlas Energy resources, Atlas Pipeline Holdings and Atlas Pipeline Partners into our financial statements, minority interest account on the balance sheet and income statement reflect equity interest held by unrelated parties in these companies.

First, however, I'll summarize our equity interest in our key subsidiaries and for simplicity we provided a summary schedule in our press release which you may use for quick reference now and in the future.

To summarize our ownership interest include the following: In Atlas Energy we hold just under 30 million common units representing 46% of the total common units outstanding at that enterprise.

We also own all of the class A units outstanding totaling roughly 1.3 million units.

These units represent the general management interest in the enterprise.

And 100% of the management incentive interest allowing Atlas America to receive the incentives payments that Ed had mentioned if certain threshold levels of distributions are achieved at Atlas Energy.

Speaking of meeting threshold levels, as Ed mentioned, the Second Quarter of 2008 represent the sixth consecutive quarter since its initial public offering that Atlas Energy has presented increased adjusted EBITDA.

Because of continued growth and cash flow per unit reported of late, Atlas Energy's primary segments including natural gas and production in partnership management fee generation for the fourth consecutive quarter Atlas Energy achieved and continues to comfortably exceed the threshold levels required to cause it to satisfy the first four quarters of the 12-quarter period that must be met before distributions can be made under the management incentive interest.

Once the 12-quarter test is achieved, Atlas Energy will make a lump sum payment to Atlas America of the distributions allocated to the incentive interest during the 12-quarter test period and will begin to make cash incentive payments as they're earned in all subsequent periods.

So the cash payments will be allocated to us and ultimately paid to us upon the successful completion of the 12-quarter test period.

The allocated incentive amount this quarter was $1.7 million and now totals $4.7 million accumulatively.

With respect to our ownership in Atlas Energy we'll receive approximately $19 million in distributions for the Second Quarter.

As a result of Atlas Energy's distribution declaration of $0.61 per unit.

A 42% increase compared to the Second Quarter of last year.

At the same time, Atlas Energy increased its coverage ratio to over 1.3 times from 1.1 times in the comparable period last year.

$19 million distributions this quarter compared to $12.9 million received in the Second Quarter of last year, a very healthy increase.

Moving to Atlas Pipeline Holdings, we hold approximately 17,800,000 common unit representing roughly 64% of total common units outstanding.

We also own 100% of the general partner of the enterprise.

Based on increases and distributions received from Atlas Pipeline Partners in the Second Quarter related to Atlas Holdings common unit ownership interest and incentive interest in Atlas Pipeline, Atlas holdings declared a $0.51 distribution for the Second Quarter, a substantial increase compared to the 26% distribution paid in the Second Quarter of 2007.

We'll receive total distribution at an interest of $9.1 million.

This compares to $4.6 million in the Second Quarter of last year, a nearly two-fold increase.

During the quarter we acquired as Ed says approximately 1.1 million common units directly in Atlas Pipeline Partners.

With Atlas Pipeline Partners declaration of the quarter we'll receive cash distributions of roughly $1.1 million for these interests.

In total then and excluding the allocated management incentive amount Atlas Energy resources will receive approximately $29.2 million in cash distributions from our primary subsidiaries this quarter.

This represents a 15% increase compared to the First Quarter of this year.

Quickly moving to our income statement presentation, we have provided an adjusted net income calculation, in order to reflect certain non-cash charges and nonrecurring crude oil hedge termination charges of our two primary subsidiaries.

The adjustments include the nonrecurring charges associated with the termination of crude oil hedges and the impact of a correlation decline associated with these terminated hedges at Atlas Pipeline and non-cash compensation expense.

Atlas Energy in connection with the respected production of natural gas, natural gas liquids.

Hedge arrangements entered into an Atlas Pipeline and Atlas Energy respectively and are not obligations of Atlas America.

The non-cash hydro carbon charge Atlas Pipeline at our Atlas Pipeline subsidiary.

Mark to market valuations of these positions relate to estimates of future hydro carbon prices, the termination charge relates to elimination of certain crude oil hedges at Atlas Pipeline that have become less effective in mitigating price fluctuations in the products that Atlas Pipeline produces.

With the elimination of these positions at Atlas Pipeline, we believe that Atlas Pipeline has reduced risk and created the opportunity for increased cash flow for unit in future periods.

Also with respect to our income statement, the provision for income taxes in the quarter is composed entirely of deferred taxes.

The represented estimate of possible future payments.

As we've said in the recent past, we do not expect to pay cash taxes in 2008 and we believe the tax cash payments of 2009 may be greatly reduced, if not eliminated, because of the circumstances associated with equity offerings with Atlas Pipeline and Atlas Energy in 2007 and termination charges related to the crude oil hedges at Atlas Pipeline.

The G&A reported in the Second Quarter is largely attributable to our subsidiaries.

Interest expense is entirely attributable to our subsidiaries.

Administrative expenses roughly $2.3 million is related to Atlas America.

The components of our G&A included $1.8 million of expense and other expenses including office and salary expenses and director's fees.

Quickly moving to our balance sheet, total debt at the end of the quarter of $2.1 billion was attributable entirely to Atlas Energy and Atlas Pipeline and is not an obligation of ours.

Atlas and Atlas Pipeline fund their operations and growth in their operations from their respective balance sheets.

Atlas Energy has no debt that matures before 2012, and Atlas Pipeline before 2013.

For our Company, we had no debt outstanding at the end of the quarter.

We had approximately $75 million in cash at the end of the quarter.

After making roughly $76 million in additional investments in Atlas Energy, Atlas Pipeline Holdings and Atlas Pipeline, we of course look forward to receiving about $29 million in cash distributions from these enterprises over the next couple of weeks.

Our cash balances remain at best in the US treasury money market funds which are solely treasury funds and bills.

We generated approximately $700,000 of interest expense during the quarter from these balances, interest income is included in the category labeled "other income" on our income statement.

Also, we remain optimistic about our investment in capital partners where we have committed to invest a total of $20 million and have invested approximately $11 million to date.

It tends to concentrate its investment in companies that control assets that generate income that qualify for inclusion in master limited partnership.

Today they have acquired a central Appalachian coal producer and a refined products business.

Finally our pre-tax cash flow this quarter as Ed laid out after allowing of the impact of the three for two stock split came in at $0.70 per share.

This represents a 25% increase compared to the First Quarter of last year.

That concludes my remarks and I'll turn the call back to Ed, our Chief Executive.

Thanks, Matt.

Operator, I think we're ready for questions.

Thank you.

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Wayne Cooperman of Cobalt Capital.

Please proceed.

Hey, Ed.

Good morning again.

Good morning.

How are you?

Great.

So we heard all of the stuff before with all of the different subsidiaries.

I guess the question is does Atlas parent company know -- is there any reason it should be public and be -- could you elaborate a little more about share repurchase, how much share repurchase you may or may not do given our cash balance on our basically $30 million plus per quarter that is coming in without us having to do much of anything at a parent level.

As a question of whether we should be public, of course one is -- can't help but be depressed at the stock price performance.

And I know it doesn't help me any to recognize that our stock price performance at almost any period one looks like has been exceptionally good because we may be down less than other comparable companies and we may not have suffered the difficulties that they've suffered.

But nonetheless, one does like to see a proper respect for amazing achievement.

So I'm not going to reach the conclusion that this company ought to be private, although I can feel that some people might feel if we're not properly appreciated that going private transaction should be considered.

I'm not quite at that point yet.

Because, as I indicated, we're going to reintensify our efforts to get our story across.

It is, we think, an incredible story.

It's not the kind of story that is conventional.

And I know when I often go to energy conferences, which in my capacity I do quite often, in recent years I've been amazed at how each and every company gets up and speaks favorably about their results.

Because, of course, in the buoyant atmosphere that we've been in, how could one if you're operating an energy company not report great results.

And we were always the one jarring note because I've always been concerned about downside and I've always been pointing out the downside of protection that ATLS and its subsidiaries have.

So now some people may think that energy is entering a less optimistic and successful period than previously, and this should be a period when our downside aspects are coming to the forth.

As far as the second part of your question, Wayne, what we intend to do specifically, I would rather be reporting on that at the end of this coming period rather than at the present time, because these are stock market transactions.

Do we have a program in place, and how much is that as of now?

Matt, how much is it?

Do you know?

About $40 million to $50 million under the existing program.

And of course we're free to increase that as appropriate.

So I think our continuing shareholders should be quite pleased with the results of our repurchase program.

And as I indicated, we as corporate executives are not new to repurchase programs.

And looking back over the opportunities we've had in the last decade, I think time has shown that we're pretty good at saying downturns and taking advantage of buying at very low prices, such as ATLS is now suffering from.

Well, you're certainly getting a better price now.

That's absolutely true.

Thanks, Wayne.

(OPERATOR INSTRUCTIONS).

Gentlemen, you have no questions at this time.

All right.

Thank you all very much for participating.

And we look forward to reporting to you with similar successful operating results, but hopefully with a more successful stock market report at the next conference call.

Goodbye, all.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the conference.

You may now disconnect.

Good day.