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Atlas Pipeline Launches Midcontinent Expansions

To respond to the "significant growth" of its Midcontinent gas midstream processing businesses, which are operating "at or near" 100% of capacity, Atlas Pipeline Partners LP (APL) late Thursday increased its capital budget to expand its Western Oklahoma and West Texas systems.

APL added $400 million to its capital spending plan for 2011 and 2012 to pay for a:

The WestOK Chaney Dell processing system expansion includes more plant compression and associated pipelines, as well as a debottlenecking project that would add a 40-mile, 24-inch diameter high-pressure gathering header pipeline. The expansion would double processing capacity at the Waynoka plant by 200 MMcf/d and is designed to handle production increases from horizontal drilling in the Mississippian Limestone and Carbonate formations in Northwest Oklahoma and Southern Kansas, APL said. The WestOK system's capacity would grow cumulatively to 428 MMcf/d, the partnership said.

"The oil wells being drilled in the Mississippian play are producing large amounts of associated gas high in natural gas liquids (NGL) content, adding economic value for both the producers and processors like Atlas Pipeline." Currently, the system is "being forced to bypass and offload approximately 30 MMcf/d to third parties because of lack of processing capacity."

The high-pressure Madill to Velma (MTV) line, completed in summer 2009, is approaching capacity of 100 MMcf/d and "potential intake continues to climb," APL said. To keep pace APL would build a 60 MMcf/d cryogenic plant to increase processing capacity to 160 MMcf/d.

APL also wants to obtain 45 MMcf/d in takeaway capacity for the MTV line in Kinder Morgan Energy Partners' NGPL line, which would bring the total available for takeaway to 100 MMcf/d. Early next year the partnership then plans to begin using another residue gas delivery point to increase takeaway by an another 100 MMcf/d into Enogex LLC.

Because of "explosive growth in production from the Permian Basin, including the prolific Spraberry and Wolfberry formations," APL said its West Texas (WestTX) facility is at capacity and would be expanded for the second time in less than 18 months. Two years ago APL constructed the 150 MMcf/d Consolidator plant, a cryogenic processing facility, and removed the 110 MMcf/d Midkiff plant from service.

The Consolidator plant added an incremental 40 MMcf/d to bring capacity to 195 MMcf/d, "while improving ethane recoveries and decreasing operating expenses," the partnership said. "This increased and improved capacity has been already fully utilized as of today. Accordingly, the partnership will refurbish and return to service the 60 MMcf/d cryogenic processing skid from the retired Midkiff plant."

The restart of the cryogenic skid would expand processing capacity at the WestTX system by 60 MMcf/d, increasing total capacity to 255 MMcf/d. In-service is scheduled for the third quarter.

APL also said it has completed an $85 million transaction with Buckeye Partners LP that gives it a 20% stake in West Texas LPG Pipeline LP. The pipeline owns a 2,295-mile common carrier pipeline system that transports NGLs from New Mexico and Texas to Mont Belvieu, TX, for fractionation. The pipeline is operated by Chevron Corp. subsidiary Chevron Pipe Line Co. (80%).

Philadelphia-based Atlas Energy LP owns the general partner of APL. In the Midcontinent region of Oklahoma, southern Kansas, as well as in North and West Texas, APL owns and operates five active gas processing plants as well as 8,600 miles of active intrastate gas gathering pipeline.

Once the projects are completed, APL said its earnings would increase by about $150 million a year, assuming "full utilization, continuation of current contractual arrangements and persistence of current prevailing prices." The capital budget and expenditures in 2012 are to be funded through operating cash flow and through credit. No additional equity is expected to be issued to fund the projects and all of the expansions are scheduled to be in full operation by mid-2012.

APL now expects 2011 earnings before interest, taxes, depreciation and amortization to range $170-205 million, up from previous guidance of $160-200 million. The partnership also updated 2011 distributable cash flow to $2.00-2.60/unit, up from $1.80-2.60.

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