Chesapeake Midstream Partners, L.P. (NYSE:CHKM) today announced
financial results for the 2010 third quarter. Net income for the
quarter totaled $33.4 million, and adjusted ebitda (defined on page
3 of this release) was $58.9 million. Distributable cash flow
(“DCF”) (defined on page 4 of this release) totaled $40.0 million,
and adjusted distributable cash flow (DCF inclusive of the
quarterly impact of a contractual minimum volume commitment that
will not be recognized until the 2010 fourth quarter) was $56.4
million (see calculation on page 8 of this release).
Total throughput for the 2010 third quarter was 145.7 billion
cubic feet (bcf) of natural gas or 1,584 million cubic feet (mmcf)
of natural gas per day, a decrease of 2% from 2010 second quarter
throughput of 1,624 mmcf per day. The decrease in throughput
resulted from the temporary shut-in of a number of high-volume
wells by Chesapeake Energy Corporation (“Chesapeake”) (NYSE:CHK) in
the Barnett Shale while drilling occurred on shared pad sites.
Volume levels also reflect a shift by Chesapeake from drilling
in dry natural gas plays such as the Barnett Shale to liquids-rich
plays during the current period of low natural gas prices. Movement
of rigs by Chesapeake from the Partnership’s Barnett Shale region
to the Partnership’s Mid-Continent region will generate additional
future throughput in the Mid-Continent region while the decreased
volume in the Barnett region will be recovered through the
Partnership’s contractual minimum volume commitment.
The Partnership connected 121 new wells to its gathering systems
during the 2010 third quarter, an increase of 26% over the 2010
second quarter, and spent approximately $59.0 million on capital
expenditures, including maintenance capital expenditures of $17.5
million. Maintenance capital expenditures consist primarily of well
connect costs required to replace natural declines in gathering
volumes.
Partnership Declares Cash
Distribution
On October 26, 2010, the Board of Directors of the Partnership’s
general partner declared a prorated quarterly cash distribution of
$0.2165 per unit for the 2010 third quarter. The third-quarter
distribution was prorated for the period beginning on the closing
date of the Partnership’s initial public offering and ending on
September 30, 2010 and corresponds to a quarterly distribution of
$0.3375 per unit or $1.35 per unit on an annualized basis. The
third-quarter distribution is payable on November 12, 2010 to
unitholders of record at the close of business on November 5, 2010.
Adjusted distributable cash flow for the full third quarter 2010
was $56.4 million, which provided distribution coverage of 1.19
times the amount required for the Partnership to fund a
full-quarter distribution to both the general and limited
partners.
Partnership Completes Initial Public
Offering
On August 3, 2010, the Partnership completed its initial public
offering of common units at $21.00 per unit. Common units held by
public security holders represent approximately 17.7% of all
outstanding limited partner units. The Partnership received net
offering proceeds of $412.6 million and used $110.0 million to
repay its outstanding credit facility balance and paid fees related
to the amendment of such facility totaling $5.1 million. The
Partnership expects to use a substantial majority of the remaining
net offering proceeds to fund expansion capital expenditures and
acquisitions.
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 is projecting 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. The Partnership’s 2010
third quarter results are consistent with those anticipated in this
projection.
These projections 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 third quarter. The implied minimum volume commitment shortfall
related to the 2010 third quarter was approximately $16 million and
would have impacted revenues, adjusted ebitda and distributable
cash flow.
Management Comments
J. Mike Stice, Chesapeake Midstream Partners’ Chief Executive
Officer, commented, “We are pleased to report our 2010 third
quarter financial results. This is the first time we have been able
to report post-IPO activity. Well connect performance is up
significantly versus second quarter, capex spending is beginning to
increase and our financial results are consistent with our
expectations outlined during our IPO. We are happy to begin paying
our quarterly distributions and look forward to executing a
business model we feel is ‘best in class.’”
Conference Call Information
A conference call to discuss this release of financial results
has been scheduled for Wednesday morning, November 10, 2010, at
9:00 a.m. EST. The telephone number to access the conference call
is 719-457-2633 or toll-free 888-312-3047. The
passcode for the call is 6826428. We encourage those who
would like to participate in the call to dial the access number
between 8:50 and 9:00 a.m. EST. For those unable to participate in
the conference call, a replay will be available for audio playback
from 12:00 p.m. EST on November 10, 2010 through 12:00 p.m. EST on
November 24, 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 6826428. The conference call will
also be webcast live on the Internet and can be accessed by going
to the Partnership’s 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.
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. Further information is
available at www.chkm.com.
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
($ in thousands, except per unit
data)
(unaudited)
Three Months Ended
September 30,
2010
Nine Months Ended
September 30,
2010
Revenues, including revenue from affiliates(1)
$ 100,060 $ 296,685
Operating Expenses Operating
expenses, including expenses from affiliates 34,094 97,172
Depreciation and amortization expense 23,785 69,177 General and
administrative expense, including expenses from affiliates 7,098
21,221 Loss on sale of assets 323 256
Total operating expenses 65,300 187,826
Operating income 34,760 108,859
Other Income (Expense) Interest expense (681 ) (1,818 )
Other income 34 76 Income before
income tax expense 34,113 107,117 Income tax expense 699
1,772 Net income $ 33,414 $
105,345
Limited partner interest in net income
Net income(2) $ 19,514 $ 19,514 Less general partner interest in
net income (390 ) (390 ) Limited partner
interest in net income $ 19,124 $ 19,124 Net
income per limited partner unit – basic and diluted Common units $
0.14 $ 0.14 Subordinated units $ 0.14 $ 0.14
Weighted average limited partner units
outstanding – basic and diluted (in thousands)
Common units 69,083 69,083
Subordinated units
69,075 69,075
(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.
(2) Reflective of general and limited partner interest in net
income since closing the Partnership’s initial public offering.
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
CONDENSED CONSOLIDATED BALANCE
SHEETS
($ in thousands)
(unaudited)
As ofSeptember
30,2010
As ofDecember
31,2009
Assets Total current assets $ 348,155 $
167,517 Property, plant and equipment Gathering
systems 2,155,868 2,013,347 Other fixed assets 35,588 34,130 Less:
Accumulated depreciation (335,231 ) (271,062 )
Total property, plant and equipment, net 1,856,225
1,776,415 Deferred loan costs, net
15,798 14,743 Total assets $ 2,220,178
$ 1,958,675
Liabilities and Equity
Total current liabilities $ 80,413 $ 118,098
Long-term liabilities Revolving bank credit facility –
44,100 Other liabilities 4,127 2,850
Total long-term liabilities 4,127
46,950 Equity Partners' equity 2,135,638
1,793,627 Total equity 2,135,638
1,793,627 Total liabilities and equity
$ 2,220,178 $ 1,958,675
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS
($ in thousands)
(unaudited)
Nine MonthsEndedSeptember
30,2010
Cash flows from operating activities Net income $ 105,345
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 69,177 Loss on
sale of assets 256 Other non-cash items 99 Changes in assets and
liabilities Decrease in accounts receivable 129,592 Increase in
other assets (1,608 ) Increase in accounts payable 10,129 Decrease
in accrued liabilities (45,870 )
Net cash provided by operating
activities
267,120
Cash flows from investing
activities Additions to property, plant and equipment (156,463
) Proceeds from sale of assets 4,416 Net cash
used in investing activities (152,047 )
Cash flows
from financing activities Proceeds from long-term debt
borrowings 252,300 Payments on long-term debt borrowings (296,400 )
Proceeds from issuance of common units 475,009 Debt issuance cost
(5,113 ) Distribution to members (231,919 ) Contribution from
predecessor 177 Net cash provided by financing
activities 194,054 Net increase in cash and
cash equivalents 309,127
Cash and cash equivalents
Beginning of period 3 End of period $ 309,130
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
($ in thousands)
(unaudited)
Three
MonthsEndedSeptember 30,2010
Nine MonthsEndedSeptember
30,2010
Net income $ 33,414 $ 105,345
Adjust
for: Interest expense 681 1,818 Income tax expense 699 1,772
Depreciation and amortization expense 23,785 69,177 Loss on sale of
assets 323 256
Adjusted
EBITDA $ 58,902 $ 178,368
Cash provided by operating activities $ 69,711 $ 267,120
Adjust for: Changes in assets and liabilities (12,048
) (92,243 ) Maintenance capital expenditures (17,500 ) (52,500 )
Other non-cash items (141 ) (99 )
Distributable cash flow 40,022 122,278
Adjust
for: Implied minimum volume commitment 16,406
47,801
Adjusted distributable cash flow
$ 56,428 $ 170,079
Pro-forma
cash distribution Limited partner units ($0.3375 x 138,159,387
units) $
46,628
$ 139,886 General partner units ($0.3375 x 2,819,434 units)
952 2,855
Total pro-forma cash
distribution $
47,580
$ 142,741
Pro-forma distribution coverage
ratio 1.19 1.19
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
OPERATING STATISTICS
(unaudited)
Three
MonthsEndedSeptember 30,2010
Nine MonthsEndedSeptember
30,2010
Barnett Shale Wells connected during period 86 206
Total wells connected 1,771 1,771 Throughput, mmcf per day 1,030
1,023 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 35 95
Total wells connected 2,294 2,294 Throughput, mmcf per day 554 557
Approximate miles of pipe at end of period 2,190 2,190 Gas
compression (horsepower) at end of period 83,335 83,335
Total Wells connected during period 121 301 Total
wells connected 4,065 4,065 Throughput, mmcf per day 1,584 1,580
Approximate miles of pipe at end of period 2,890 2,890 Gas
compression (horsepower) at end of period 219,900 219,900
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