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Atlas Pipeline's Onshore NatGas Volumes Jump 63%

Driven by steadily increasing midstream business, Atlas Pipeline Partners LLP's (APL) natural gas volumes from onshore U.S. plays jumped by double digits in the first three months of this year from a year ago to average 1.03 Bcf/d, the operator said late Monday.

Record volumes were reported across the operations in the first three months, with the Arkoma Basin assets now processing more than 1 Bcf/d on average, APL noted. Gross margin from all operations climbed year/year to $91.1 million from $69.1 million, "primarily due to the increased volumes and expansions that have been completed on the WestOK and Velma systems, as well as the newly acquired Arkoma system." Partially offsetting the gains were lower natural gas liquids (NGL) prices.

Now in the middle of the second quarter, APL is looking forward, said CEO Eugene Dubay. In mid-April, APL agreed to a $1 billion cash deal to buy privately owned Teak Midstream, an Eagle Ford Shale natural gas processor (see Shale Daily, April 18). The acquired assets included Silver Oak, a 200 MMcf/d cryogenic processing plant, and 265 miles of 20-to-24-inch high pressure gas gathering lines with 750 MMcf/d of throughput capacity.

"This is a major win for the partnership, adding tremendous expected future growth while reducing APL cash flow volatility through diversity and significant fixed fee business," said Dubay. "Since the end of the quarter, we have also brought the Driver expansion online in West Texas and are receiving NGL takeaway capacity relief on our two largest systems, which will lead to more NGLs being produced and more future cash flow..."

APL's results in the first three months of this year "came in line with expectations, aside from some weather disruptions, which can be a normal occurrence during winter months. More important, looking forward, our business and future opportunities have never looked better..."

Gas volumes on the WestTX system averaged 280.8 MMcf/d from January through March, ahead of the same period of 2012, when 230.5 MMcf/d was processed. Higher volumes resulted from "increased production in the Spraberry and Wolfberry formations of the Permian Basin, including an increase in the number of horizontally drilled wells by our producer customers," said APL. Average NGL production volumes were nearly flat at 33,245 b/d.

The WestOK system averaged 425.4 MMcf/d in the first three months of this year, up more than 50% from a year ago. NGL output, which averaged 16,251 b/d, was nearly 16% more than a year ago, lifted by the start-up of the Waynoka II plant in September, APL noted. However, the latest results were impacted by bad weather in western Oklahoma, "which caused the loss of power and the shut-in of significant volumes for approximately 10 days in late February and early March." The financial impact from the event was estimated at $2-3 million.

APL's Velma system processed on average about 125.4 MMcf/d in 1Q2013, about 2% higher than in the year-ago quarter, and average NGL production was 2.6% more than a year ago at 13,997 b/d, on stronger Woodford Shale and Arkoma Basin volumes. Condensate volumes, however, fell more than 28% to 405 b/d from 564. The V-60 plant, a 60 MMcf/d cryogenic facility, was completed last year at Velma to support more volumes from ExxonMobil Corp. subsidiary XTO Energy Inc. The Woodford is one of ExxonMobil's most active holdings in the U.S. onshore.

Meanwhile, APL brought the Arkoma system in southeastern Oklahoma into its portfolio in December with its purchase of Cardinal Midstream LLC, as well as a 60% stake in Cetrahoma Processing LLC, a joint venture with MarkWest Energy Partners LP (see Shale Daily, Dec. 6, 2012). Under APL's operatorship, the Arkoma system reported average volumes of 201.3 MMcf/d and 20,555 b/d of NGLs.

The Philadelphia-based partnership lost $27.49 million net (minus 48 cents/unit) in 1Q2013, versus earnings of $6.47 million (6 cents) in 1Q2012. Cash flow totaled $43.5 million, compared with $35.2 million. Revenue topped $407.9 million, well ahead of $292.29 million a year earlier.

The weighted average for APL's realized natural gas prices in 1Q2013 was almost 25% higher from a year ago at $3.17/Mcf. NGL prices fell, down 10.8% on average to 83 cents/gallon at the Conway Hub and 85 cents at Mont Belvieu. In 1Q2012, APL received about 93 cents/gallon at Conway and $1.18 at Mont Belvieu. Condensate prices also dropped year/year almost 12% to $86.00/bbl from $97.44.

APL is forecasting adjusted earnings of $450-500 million this year, with distributions of $2.75-2.85/unit. Capital spending in 2013 is forecast to be about $450 million, based on announced expansion projects, including the now completed Driver plant at the WestTX facility and anticipated phase one of the Stonewall plant.

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