Chesapeake Midstream Partners, L.P. (NYSE: CHKM), a master
limited partnership, today announced financial results for the 2010
second quarter. Net income for the 2010 second quarter totaled
$37.0 million, an increase of 6% over 2010 first quarter net income
of $34.9 million. The Partnership’s second quarter adjusted ebitda
(defined on page 3 of this release) was $60.9 million and
distributable cash flow (defined on page 3 of this release) was
$42.9 million.
Total throughput for the 2010 second quarter was 147.8 billion
cubic feet (bcf) of natural gas or 1,624 million cubic feet (mmcf)
of natural gas per day, an increase of more than 6% over 2010 first
quarter throughput of 1,530 mmcf per day. The Partnership connected
96 new wells to its gathering systems during the 2010 second
quarter and spent approximately $58 million on capital
expenditures, including maintenance capital expenditures of $18
million. Maintenance capital expenditures consist primarily of
well-connect costs required to replace natural declines in
gathering volumes.
Partnership Completes Initial
Public Offering
Subsequent to the end of the 2010 second quarter, the
Partnership completed its initial public offering of common units.
Common units held by public security holders represent
approximately 17.7% of all outstanding limited partner units. The
Partnership received net offering proceeds on August 3, 2010 of
$412.6 million and used $110.0 million to repay its outstanding
credit facility balance and paid fees related to the amendment of
its credit facility totaling $5.5 million. The Partnership expects
to use a substantial majority of the remaining net offering
proceeds to fund future capital expenditures. As of September 6,
2010 the Partnership had over $1 billion of liquidity
(approximately $275 million of cash and $750 million of unused
borrowing capacity) for future investment purposes. The Partnership
expects to declare and pay a prorated distribution following the
quarter ending September 30, 2010, covering the period from the
closing of its initial public offering through September 30,
2010.
Outlook for July 1, 2010 through
June 30, 2011
As described in the Partnership’s prospectus dated July 28, 2010
and filed with the Securities and Exchange Commission on July 30,
2010, the Partnership expects revenues for the twelve months ended
June 30, 2011 to be approximately $480 million, net income for the
period to be approximately $200 million and adjusted ebitda to be
approximately $300 million. Distributable cash flow is estimated to
be $225 million for the period. These estimates include
approximately $59 million of revenue related to the Barnett Shale
minimum volume commitments. The commitments are contractually
calculated on an annual basis and are not recognized until the
fourth quarter of each year. Thus, no revenue related to these
commitments has been recognized for the 2010 second quarter. The
implied minimum volume commitment shortfall related to the 2010
second quarter was approximately $14 million and would have
impacted revenues, adjusted ebitda and adjusted distributable cash
flow.
Management Comments
J. Mike Stice, Chesapeake Midstream Partners’ Chief Executive
Officer, commented, “We are pleased to report operating results for
the 2010 second quarter consistent with the expectations outlined
to investors during our recent initial public offering. Our fixed
fee contractual structure is designed to produce predictable
results as confirmed by today’s announcement. We have multiple
projects underway that we believe will continue to leverage the
potential of our strong asset base and we look forward to the
opportunity for a drop-down acquisition of midstream assets from
Chesapeake Energy Corporation to further enhance our growth
potential.”
Conference Call
Information
A conference call to discuss this release of financial results
has been scheduled for Wednesday afternoon, September 8, 2010, at
2:00 p.m. EDT. The telephone number to access the conference call
is 719-325-4886 or toll-free 877-723-9502. The
passcode for the call is 8709740. We encourage those who
would like to participate in the call to dial the access number
between 1:50 and 2:00 p.m. EDT. For those unable to participate in
the conference call, a replay will be available for audio playback
from 5:00 p.m. EDT on September 8, 2010 through 5:00 p.m. EDT on
September 22, 2010. The number to access the conference call replay
is 719-457-0820 or toll-free 888-203-1112. The
passcode for the replay is 8709740. The conference call will
also be webcast live on the Internet and can be accessed by going
to Chesapeake Midstream Partners' website at www.chkm.com in the "Events" subsection
of the "Investors" section of the website. An archive of the
conference call webcast will also be available on the website.
Use of Non-GAAP Financial
Measures
This press release and accompanying schedules include the
non-GAAP financial measures of adjusted ebitda and distributable
cash flow. The accompanying schedules provide reconciliations of
these non-GAAP financial measures to their most directly comparable
financial measure calculated and presented in accordance with GAAP.
Non-GAAP financial measures should not be considered as an
alternative to GAAP measures such as net income, net cash provided
by operating activities or any other measure of liquidity or
financial performance calculated and presented in accordance with
GAAP. Investors should not consider adjusted ebitda or
distributable cash flow in isolation or as a substitute for
analysis of the Partnership’s results as reported under GAAP.
Because these non-GAAP financial measures may be defined
differently by other companies in our industry, the Partnership’s
definition of adjusted ebitda and distributable cash flow may not
be comparable to similarly titled measures of other companies,
thereby diminishing their utility.
Adjusted Ebitda. The Partnership defines adjusted ebitda as net
income (loss) before income tax expense, interest expense,
depreciation and amortization expense and certain other items
management believes affect the comparability of operating results.
Adjusted ebitda is a non-GAAP financial measure that management and
external users of our consolidated financial statements, such as
industry analysts, investors, lenders and rating agencies, may use
to assess:
- The Partnership’s operating
performance as compared to other publicly traded partnerships in
the midstream energy industry, without regard to capital structure,
historical cost basis or financing methods;
- The Partnership’s ability to
incur and service debt and fund capital expenditures;
- The ability of the Partnership’s
assets to generate sufficient cash flow to make distributions to
unitholders; and
- The viability of acquisitions
and other capital expenditure projects and the returns on
investment of various investment opportunities.
Management believes it is appropriate to exclude certain items
from ebitda because management believes these items affect the
comparability of operating results. The Partnership believes that
the presentation of adjusted ebitda in this press release provides
information useful to investors in assessing its financial
condition and results of operations. The GAAP measure most directly
comparable to adjusted ebitda is net income.
Distributable Cash Flow. The Partnership defines distributable
cash flow as adjusted ebitda attributable to the Partnership
adjusted for:
- Addition of interest
income;
- Subtraction of net cash paid for
interest expense;
- Subtraction of maintenance
capital expenditures; and
- Subtraction of income
taxes.
Management compares the distributable cash flow the Partnership
generates to the cash distributions it expects to pay its partners.
Using this metric, management computes a distribution coverage
ratio. Distributable cash flow is an important non-GAAP financial
measure for our limited partners since it serves as an indicator of
our success in providing a cash return on investment. Specifically,
this financial measure indicates to investors whether or not the
Partnership is generating cash flows at a level that can sustain or
support an increase in its quarterly cash distributions.
Distributable cash flow is also a quantitative standard used by the
investment community with respect to publicly traded partnerships
because the value of a partnership unit is in part measured by its
yield, which is based on the amount of cash distributions a
partnership can pay to a unitholder. The GAAP measure most directly
comparable to distributable cash flow is net cash provided by
operating activities.
This press release includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements give our current expectations or forecasts of future
events. They include but are not limited to throughput volumes,
revenues, net income, adjusted ebitda and distributable cash flow,
as well as other statements concerning our business strategy and
plans and objectives for future operations. We caution you not to
place undue reliance on our forward-looking statements, which speak
only as of the date of this release, and we undertake no
obligations to update this information. Although we believe the
expectations and forecasts reflected in these and other
forward-looking statements are reasonable, we can give no assurance
they will prove to be correct. They can be affected by inaccurate
assumptions or by known or unknown risks and uncertainties. Factors
that could cause actual results to differ materially from expected
results are described under “Risk Factors” in our prospectus dated
July 28, 2010 and filed with the Securities Exchange Commission on
July 30, 2010.
Chesapeake Midstream Partners, L.P. is one of the industry’s
largest midstream master limited partnerships and owns, operates,
develops and acquires natural gas gathering systems and other
midstream energy assets. Headquartered in Oklahoma City, the
Partnership's operations are focused on the Barnett Shale and
Mid-Continent regions of the U.S.
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
($ in thousands)
(unaudited)
Three Months Ended
June 30,
2010
Six Months Ended
June 30,
2010
Revenues, including revenue from affiliates(1)
$ 101,239 $ 196,625
Operating Expenses Operating
expenses, including expenses from affiliates 32,385 63,078
Depreciation and amortization expense 23,442 45,392 General and
administrative expense, including
expenses from affiliates
7,946 15,196 (Gain) loss on sale of assets (37 ) (67
) Total operating expenses 63,736
123,599
Operating income 37,503 73,026
Other Income (Expense) Interest expense (526 ) (1,137
) Other income 40 42 Income
before income tax expense 37,017 71,931 Income tax expense —
— Net income $ 37,017 $ 71,931
(1) In the event either Chesapeake Energy Corporation
(“Chesapeake”) or Total E&P USA, Inc. (“Total”) does not meet
its minimum volume commitment to the Partnership in the Barnett
Shale Region under applicable gas gathering agreements for any
annual period through 2019, Chesapeake or Total, as applicable,
will be obligated to pay the Partnership a fee equal to the Barnett
Shale fee for each mcf by which the applicable party’s minimum
volume commitment for the year exceeds the actual volumes gathered
on the Partnership’s systems. Should payments be due under the
minimum volume commitment in any year, the Partnership will
recognize the associated revenue in the fourth quarter of that
year.
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
CONDENSED CONSOLIDATED BALANCE
SHEETS
($ in thousands)
(unaudited)
As ofJune
30,2010
As ofDecember
31,2009
Assets Total current assets $ 37,734 $ 167,517
Property, plant and equipment Gathering systems
2,098,336 2,013,347 Other fixed assets 35,645 34,130 Less:
Accumulated depreciation (313,002 ) (271,062 )
Total property, plant and equipment, net 1,820,979
1,776,415 Deferred loan costs, net
12,063 14,743 Total assets $ 1,870,776
$ 1,958,675
Liabilities and Equity
Total current liabilities $ 67,027 $ 118,098
Long-term liabilities Revolving bank credit facility 111,300
44,100 Other liabilities 2,965 2,850
Total long-term liabilities 114,265
46,950 Equity Members' equity 1,689,484
1,793,627 Total equity 1,689,484
1,793,627 Total liabilities and equity $
1,870,776 $ 1,958,675
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
($ in thousands)
(unaudited)
Six Months
Ended
June 30, 2010
Cash flows from operating activities Net income $ 71,931
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 45,392 Gain on
sale of assets (67 ) Other non-cash items (42 ) Changes in assets
and liabilities Decrease in accounts receivable 130,888 Increase in
other assets (1,603 ) Increase in accounts payable 6,310 Decrease
in accrued liabilities (55,400 )
Net cash provided by operating
activities
197,409
Cash flows from investing
activities Additions to property, plant and equipment (97,448 )
Proceeds from sale of assets 2,168 Net cash
used in investing activities (95,280 )
Cash flows
from financing activities Proceeds from long-term debt
borrowings 233,800 Payments on long-term debt borrowings (166,600 )
Distributions to members (169,500 ) Contribution from Predecessor
177 Net cash provided by (used in) financing
activities (102,123 ) Net increase (decrease) in cash
and cash equivalents 6
Cash and cash equivalents
Beginning of period 3 End of period $ 9
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES
($ in thousands)
(unaudited)
Three Months Ended
June 30,
2010
Six Months Ended
June 30,
2010
Twelve Months Ended
June 30,
2011
Net income $ 37,017 $ 71,931 $ 203,900
Adjust for: Interest expense 526 1,137 3,800 Depreciation
and amortization expense 23,442 45,392 92,500 (Gain) Loss on sale
of assets (37 ) (67 ) —
Adjusted
EBITDA $ 60,948 $ 118,393 $ 300,200
Cash provided by operating activities $ 79,084 $
197,409
Adjust for: Changes in assets and liabilities
(17,716 ) (80,195 ) Maintenance capital expenditures (17,500 )
(35,000 ) Other non-cash items (946 ) 42
Distributable cash flow 42,922 82,256
Adjust for: Implied minimum volume commitment 14,219
31,395
Adjusted distributable cash
flow $ 57,141 $ 113,651
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
OPERATING STATISTICS
(unaudited)
Three Months Ended
June 30,
2010
Six Months Ended
June 30,
2010
Barnett Shale Wells connected during period 67
120 Throughput, mmcf per day 1,059 1,019 Approximate miles of pipe
at end of period 700 700 Gas compression (horsepower) at end
of period
136,565 136,565
Mid-Continent Wells connected
during period 29 60 Throughput, mmcf per day 565 558 Approximate
miles of pipe at end of period 2,200 2,200 Gas compression
(horsepower) at end
of period
84,455 84,455
Total Wells connected during
period 96 180 Throughput, mmcf per day 1,624 1,577 Approximate
miles of pipe at end of period 2,900 2,900 Gas compression
(horsepower) at end
of period
221,020 221,020
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