Chesapeake Midstream Partners, L.P. (NYSE:CHKM) today announced
financial results for the 2011 fourth quarter and full year. The
Partnership’s 2011 fourth quarter net income totaled $66.3 million,
down $23.6 million from the 2010 fourth quarter. Adjusted ebitda
for the 2011 fourth quarter was $110.0 million, down $5.6 million,
or 4.8%, from 2010 fourth quarter adjusted ebitda of $115.6
million. The fourth quarter results include revenue associated with
minimum volume commitments (MVC) of $17.4 million in 2011 as
compared to $56.8 million in 2010. Annual revenue from MVC is
recognized in the fourth quarter of each year. After eliminating
the MVC impact in each period, fourth quarter adjusted ebitda was
up 57.5% and net income was up 47.8%.
The Partnership’s 2011 full year net income was $194.3 million,
down $0.9 million, or 0.5%, compared to 2010 full year net income
of $195.2 million. Adjusted ebitda for the 2011 full year was
$349.5 million, an increase of $55.5 million, or 18.9%, compared to
2010 adjusted ebitda of $294.0 million.
Adjusted distributable cash flow (DCF) for the 2011 fourth
quarter totaled $78.9 million, an increase of $30.0 million, or
61.3%, compared to the 2010 fourth quarter and resulted in a
coverage ratio of 1.34. DCF for the 2011 full year was $262.0
million and resulted in a full year coverage ratio of 1.23.
Financial terms are defined on pages three and four of this
release.
Throughput for the 2011 fourth quarter totaled 213.4 billion
cubic feet (bcf) of natural gas, or 2.32 bcf per day, an increase
of 41.5% from 2010 fourth quarter throughput of 1.64 bcf per day.
For the 2011 full year, total throughput was 794.3 bcf of natural
gas, or 2.18 bcf per day, an increase of 36.3% from 2010 full year
throughput of 1.60 bcf per day. The increases in throughput were
driven by the Haynesville Springridge gas gathering system acquired
in December 2010 and strong well-connect performance in the Barnett
Shale region. The Partnership connected 166 new wells to its
gathering systems during the 2011 fourth quarter, an increase of
31.7% compared to the 2010 fourth quarter, resulting in the most
well connects for any quarter during 2011. For the 2011 full year,
the Partnership connected 610 wells to its systems, an increase of
42.9% compared to 2010.
Partnership revenue for the 2011 fourth quarter was $169.1
million, an increase of $6.6 million, or 4.1%, compared to 2010
fourth quarter revenue of $162.5 million. After eliminating revenue
related to MVC in each period, fourth quarter revenue was up 43.5%.
For the 2011 full year, Partnership revenue was $565.9 million, an
increase of $106.7 million or 23.2%, compared to 2010 full year
revenue of $459.2 million.
Capital expenditures during the 2011 fourth quarter totaled
$92.2 million, including maintenance capital expenditures of $18.5
million. Capital expenditures for the 2011 full year totaled $418.8
million, including maintenance capital expenditures of $74.0
million.
Partnership Completes Acquisition
On December 29, 2011, the Partnership closed its second
significant acquisition, acquiring 100% of Chesapeake’s interest in
Appalachia Midstream Services which owns an average 47% of the 10
gas gathering systems in the Marcellus Shale consisting of
approximately 200 miles of gathering pipeline in West Virginia and
Pennsylvania. At the end of 2011, total gross throughput for these
systems was just over 1.0 bcf per day. The acquisition broadens the
Partnership’s operating footprint, increases its basin and customer
diversification, increases its exposure to liquids-rich plays and
provides access to the Marcellus Shale, the largest and most
profitable gas shale in North America.
Partnership Increases Cash
Distribution
On January 27, 2012, the Board of Directors of the Partnership’s
general partner declared a quarterly cash distribution of $0.39 per
unit for the 2011 fourth quarter, a $0.0525, or 15.6%, increase
over the 2010 fourth quarter distribution and a $0.015, or 4.0%,
increase over the 2011 third quarter distribution. The distribution
was paid on February 14, 2012 to unitholders of record at the close
of business on February 7, 2012. Adjusted DCF for the 2011 fourth
quarter of $78.9 million provided distribution coverage of 1.34
times the amount required for the Partnership to fund the
distribution to both the general and limited partners.
Outlook for 2012 Unchanged
The Partnership is projecting ebitda for the twelve months
ending December 31, 2012 to be $475 million with expansion capital
expenditures of $660 million and maintenance capital expenditures
of $74 million.
Management Comments
J. Mike Stice, Chesapeake Midstream Partners’ Chief Executive
Officer, commented, “I’m pleased to report results exceeding
expectations for the 2011 fourth quarter and full year. Our
business model is performing exactly as anticipated. With the
Marcellus assets now in our portfolio, we are well positioned to
continue delivering steady, growing cash flows for investors. After
recent announcements of curtailments by producers in dry gas plays,
we conducted a thorough review of our business plans and are
confident in affirming our outlook for 2012. This is a testament to
the resiliency of our low risk business model and related
contractual protections.”
Conference Call Information
A conference call to discuss this release of financial results
has been scheduled for Wednesday, February 29, 2012 at 9:00 a.m.
EST. The telephone number to access the conference call is
719-325-4835 or toll-free 877-545-1403. The passcode
for the call is 3415504. 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 February 29, 2012 through 12:00 p.m. EDT on March
14, 2012. The number to access the conference call replay is
719-457-0820 or toll-free 888-203-1112. The passcode
for the replay is 3415504. 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, DCF and adjusted
DCF. The accompanying schedules provide reconciliations of these
non-GAAP financial measures to their most directly comparable
financial measures 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, DCF or
adjusted DCF 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, DCF and adjusted DCF may not be comparable to similarly
titled measures of other companies, thereby diminishing their
utility.
Adjusted Ebitda. The Partnership agreement 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 agreement defines DCF
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 DCF the Partnership generates to the
cash distributions it expects to pay its partners. Using this
metric, management computes a distribution coverage ratio. DCF 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. DCF 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 DCF is net cash provided by
operating activities.
Adjusted Distributable Cash Flow. The Partnership includes the
quarterly impact of contractual minimum volume commitments that are
not recognized until the fourth quarter of each year in its
calculation of adjusted DCF for the purpose of calculating the
distribution coverage ratio.
Chesapeake Midstream Partners, L.P. (NYSE:CHKM) is the
industry’s largest gathering and processing master limited
partnership as measured by throughput volume 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,
Haynesville Shale, Marcellus Shale and Mid-Continent regions of the
U.S. The Partnership’s common units are listed on the New
York Stock Exchange under the symbol CHKM. Further
information is available at www.chkm.com where the Partnership
routinely posts announcements, updates, events, investor
information and presentations and all recent press
releases.
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, capital expenditures,
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 2010 Annual Report on Form 10-K and in
the other reports we file with the Securities and Exchange
Commission.
CHESAPEAKE MIDSTREAM PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in
thousands, except per unit data) (unaudited)
Three Months Ended December 31,
2011 2010 Revenues,
including revenue from affiliates (1) $ 169,078 $
162,468
Operating Expenses
Operating expenses, including expenses
from affiliates
46,773 36,121 Depreciation and amortization expense 37,463 23,482
General and administrative expense,
including expenses from affiliates
12,835 10,771 Other operating (income) expense (84 )
29 Total operating expenses 96,987
70,403 Operating income 72,091 92,065
Other income (expense) Income from unconsolidated affiliates
433 — Interest expense (5,357 ) (1,550 ) Other income 66
26 Income before income tax expense
67,233 90,541 Income tax expense 928 659
Net income $ 66,305 $ 89,882
Limited partner interest in net income Net income 66,305
89,882 Less general partner interest in net income (2,510 )
(1,798 ) Limited partner interest in net income
63,795 88,084 Net income per
limited partner unit – basic and diluted Common units 0.46 0.64
Subordinated units 0.46 0.64
Weighted average limited partner units
outstanding used for net income per unit calculation – basic and
diluted (in thousands)
Common units 69,678 69,083 Subordinated units 69,076 69,076
(1)
If 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 or
Chesapeake does not meet its minimum volume commitment in the
Haynesville Shale region under the relevant gas gathering agreement
for specified annual periods, Chesapeake or Total is obligated to
pay the Partnership a fee equal to the applicable 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
with respect to any year, the Partnership recognizes the associated
revenue in the fourth quarter of that year. The Partnership
recognized $17.4 million in the 2011 fourth quarter and $56.8
million in the 2010 fourth quarter related to these commitments.
CHESAPEAKE MIDSTREAM PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ in
thousands, except per unit data) (unaudited)
Twelve Months Ended December 31,
2011 2010 Revenues,
including revenue from affiliates $ 565,929 $ 459,153
Operating Expenses
Operating expenses, including expenses
from affiliates
176,851 133,293 Depreciation and amortization expense 136,169
88,601
General and administrative expense,
including expenses from affiliates
40,380 31,992 Other operating expense 739 285
Total operating expenses 354,139
254,171 Operating income 211,790 204,982
Other income (expense) Income from unconsolidated affiliates
433 — Interest expense (14,884 ) (7,426 ) Other income 287
102 Income before income tax expense
197,626 197,658 Income tax expense 3,289 2,431
Net income $ 194,337 $ 195,227
Limited partner interest in net income Net income 194,337
109,396
(1)
Less general partner interest in net income (5,070 )
(2,188 )
Limited partner interest in net income 189,267
107,208 Net income per limited partner unit –
basic and diluted Common units 1.37 0.78 Subordinated units 1.37
0.78
Weighted average limited partner units
outstanding used for net income per unit calculation – basic and
diluted (in thousands)
Common units 69,371 69,083 Subordinated units 69,076 69,076
(1)
Reflective of general and limited partner interest in net
income from closing of the Partnership’s initial public offering on
August 3, 2010 through December 31, 2010.
CHESAPEAKE MIDSTREAM PARTNERS, L.P. CONDENSED
CONSOLIDATED BALANCE SHEETS ($ in thousands)
(unaudited) As of As
of December 31, December 31, 2011
2010 Assets Total current
assets $ 88,188 $ 131,487 Property, plant and
equipment Gathering systems 2,954,868 2,544,053 Other fixed assets
53,611 41,125 Less: Accumulated depreciation (480,555 )
(358,269 ) Total property, plant and equipment, net
2,527,924 2,226,909 Investment
in unconsolidated affiliates 886,558 — Intangible assets, net
158,621 172,481 Deferred loan costs, net 21,947
15,039 Total assets $ 3,683,238 $
2,545,916
Liabilities and Partners’ Capital
Total current liabilities $ 143,094 $ 97,991
Long-term liabilities Long-term debt 1,062,900 249,100 Other
liabilities 4,099 4,257 Total
long-term liabilities 1,066,999 253,357
Partners’ capital Partners' capital 2,473,145
2,194,568 Total partners’ capital
2,473,145 2,194,568 Total liabilities
and partners’ capital $ 3,683,238 $ 2,545,916
CHESAPEAKE MIDSTREAM PARTNERS, L.P. CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS ($ in thousands)
(unaudited) Twelve Months
Twelve Months Ended Ended December 31,
December 31, 2011 2010
Cash flows from operating activities Net income $
194,337 $ 195,227
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 136,169 88,601 Income from
unconsolidated affiliates (433 ) — Other non-cash items 6,486 5,261
Changes in assets and liabilities Decrease in accounts receivable
31,501 58,172 Increase in other assets (292 ) (4,833 ) Increase in
accounts payable 11,258 7,474 Increase (decrease) in accrued
liabilities 19,990 (32,811 ) Net cash
provided by operating activities 399,016
317,091
Cash flows from investing activities
Additions to property, plant and equipment (418,834 ) (216,303 )
Acquisition of gathering system assets — (500,000 ) Investment in
unconsolidated affiliate (600,000 ) — Proceeds from sale of assets
1,730 4,823 Net cash used in
investing activities (1,017,104 ) (711,480 )
Cash flows from financing activities Proceeds from credit
facility borrowings 1,576,700 529,300 Payments on credit facility
borrowings (1,112,900 ) (324,300 ) Proceeds from issuance of common
units, net of offering costs — 474,579 Proceeds from issuance of
senior notes, net of offering costs 350,000 — Distribution to
unitholders (200,897 ) (30,522 ) Initial public offering costs
(1,280 ) — Debt issuance costs (11,332 ) (5,113 ) Distribution to
partners — (231,919 ) Contribution from predecessor — 177 Other
adjustments 3 — Net cash
provided by financing activities
600,294
412,202
Net increase (decrease) in cash and cash
equivalents
(17,794 ) 17,813
Cash and cash equivalents Beginning
of period 17,816 3 End of period
$ 22 $ 17,816
CHESAPEAKE MIDSTREAM
PARTNERS, L.P. RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES ($ in thousands) (unaudited)
Three Months Ended December 31,
2011 2010 Net
Income $ 66,305 $ 89,882
Adjusted for: Interest
expense 5,357 1,550 Income tax expense 928 659 Depreciation and
amortization expense 37,463 23,482 (Gain) loss on sale of assets
(84 ) 29 Income from unconsolidated affiliates (433 ) — EBITDA from
unconsolidated affiliates 488 —
Adjusted EBITDA $ 110,024 $ 115,602
Adjusted for: Maintenance capital expenditures (18,500 )
(17,500 ) Cash portion of interest expense (4,168 ) (732 ) Income
tax expense (928 ) (659 )
Distributable
cash flow 86,428 96,711
Adjusted for: Q1 through Q3 minimum volume commitment
(7,479 ) (47,801 )
Adjusted distributable cash
flow $ 78,949 $ 48,910
Cash
provided by operating activities $ 100,522 $ 49,971
Adjusted for: Change in assets and liabilities 4,122 64,241
Interest expense 5,357 1,550 Income tax expense 928 659 Other
non-cash items (1,393 ) (819 ) EBITDA from unconsolidated
affiliates 488 —
Adjusted
EBITDA $ 110,024 $ 115,602
Adjusted
for: Maintenance capital expenditures (18,500 ) (17,500 ) Cash
portion of interest expense (4,168 ) (732 ) Income tax expense
(928 ) (659 )
Distributable cash flow 86,428
96,711
Adjusted for: Q1 through Q3 minimum volume
commitment (7,479 ) (47,801 )
Adjusted
distributable cash flow $ 78,949 $ 48,910
Cash distribution Limited partner units ($0.39 x 147,975,772
units) $ 57,711 General partner interest 1,221
Total cash distribution $ 58,932
Distribution coverage ratio 1.34
CHESAPEAKE MIDSTREAM PARTNERS, L.P. RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES ($ in thousands)
(unaudited) Twelve Months Ended
December 31, 2011
2010 Net Income $ 194,337 $ 195,227
Adjusted for: Interest expense 14,884 7,426 Income
tax expense 3,289 2,431 Depreciation and amortization expense
136,169 88,601 Loss on sale of assets 739 285 Income from
unconsolidated affiliates (433 ) — EBITDA from unconsolidated
affiliates 488 —
Adjusted
EBITDA $ 349,473 $ 293,970
Adjusted
for: Maintenance capital expenditures (74,000 ) (70,000 ) Cash
portion of interest expense (10,224 ) (2,550 ) Income tax expense
(3,289 ) (2,431 )
Distributable cash
flow $ 261,960 $ 218,989
Cash
provided by operating activities $ 399,016 $ 317,091
Adjusted for: Change in assets and liabilities (62,457 )
(28,002 ) Interest expense 14,884 7,426 Income tax expense 3,289
2,431 Other non-cash items (5,747 ) (4,976 ) EBITDA from
unconsolidated affiliates 488 —
Adjusted EBITDA $ 349,473 $ 293,970
Adjusted for: Maintenance capital expenditures (74,000 )
(70,000 ) Cash portion of interest expense (10,224 ) (2,550 )
Income tax expense (3,289 ) (2,431 )
Distributable
cash flow $ 261,960 $ 218,989
Cash
distribution
Limited partner units
$ 207,962 General partner interest 4,287
Total cash distribution $ 212,249
Distribution coverage ratio 1.23
CHESAPEAKE MIDSTREAM PARTNERS,
L.P.
OPERATING STATISTICS
(unaudited)
Three Months Ended December 31,
2011 2010 Barnett Shale Wells
connected during period 117 64 Total wells connected 2,219 1,835
Throughput, bcf per day 1.243 1.031 Approximate miles of pipe at
end of period 882 781 Gas compression (horsepower) at end of period
159,810 138,435
Haynesville Shale Wells
connected during period 7 — Total wells connected 220 164
Throughput, bcf per day 0.528 0.444 (1) Approximate miles of pipe
at end of period 260 226 Gas compression (horsepower) at end of
period 23,745 11,320
Mid-Continent Wells
connected during period 42 62 Total wells connected 2,526 2,356
Throughput, bcf per day 0.549 0.558 Approximate miles of pipe at
end of period 2,487 2,358 Gas compression (horsepower) at end of
period 94,621 86,251
Total Wells connected
during period 166 126 Total wells connected 4,965 4,355 Throughput,
bcf per day 2.320 1.642 (1) Approximate miles of pipe at end of
period 3,628 3,365 Gas compression (horsepower) at end of period
278,176 236,006
(1)
Total throughput volume for the Springridge gathering system
from closing of the acquisition on December 21, 2010 through
December 31, 2010 was 4.888 billion cubic feet, or 0.444 bcf per
day.
CHESAPEAKE MIDSTREAM PARTNERS, L.P.
OPERATING STATISTICS (unaudited)
Twelve Months Ended December 31, 2011
2010 Barnett Shale Wells connected during
period 384 270 Total wells connected 2,219 1,835 Throughput, bcf
per day 1.083 1.025 Approximate miles of pipe at end of period 882
781 Gas compression (horsepower) at end of period 159,810 138,435
Haynesville Shale Wells connected during
period 56 — Total wells connected 220 164 Throughput, bcf per day
0.541 0.444 (1) Approximate miles of pipe at end of period 260 226
Gas compression (horsepower) at end of period 23,745 11,320
Mid-Continent Wells connected during period 170 157
Total wells connected 2,526 2,356 Throughput, bcf per day 0.552
0.557 Approximate miles of pipe at end of period 2,487 2,358 Gas
compression (horsepower) at end of period 94,621 86,251
Total Wells connected during period 610 427 Total
wells connected 4,965 4,355 Throughput, bcf per day 2.176 1.595 (1)
Approximate miles of pipe at end of period 3,628 3,365 Gas
compression (horsepower) at end of period 278,176 236,006
(1)
Total throughput volume for the Springridge gathering system
from closing of the acquisition on December 21, 2010 through
December 31, 2010 was 4.888 billion cubic feet, or 0.444 bcf per
day.
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