Investing in a commodity market means paying fairly close attention to commodity price, volume and those running the company. Management, in this sense, becomes just as important as what the actual commodity price is doing. An investor that can put the two aspects together, management and a rising commodity price, is one that may profit.
Atlas Pipeline Partners Ltd., a gatherer, pipeline owner and processor of natural gas, operates and processes natural gas in primary natural gas production regions across the United States. The company has primary holdings in the Permian basin, Appalachian basin and into the north eastern US.
Although concentrated within primary natural gas producing regions, the company operates and controls a fairly vast collection and processing system. Several thousand miles of pipeline gathering and associated processing plants located along the system make for a formidable competitor. If one were to assess the natural gas distribution system within the US, they would quickly understand that Atlas is positioned, from a physical infrastructure perspective, at the nexus of natural gas exploration and production. Unlike other basic materials such as oil, which needs to be transported great distances for processing, natural gas relies on a pipeline system that has been put in place over time for processing along that system as demand dictates. Atlas controls over 10,000 miles of gathering pipeline, 8 processing plants and 1 treatment facility within that system and is benefiting.
The first three months of 2010 showed a nice increase from the same period one year earlier. Total revenue for the period was $260.9 million as compared to $144.1 million. Overall, the increase in total revenue can be attributed to volume and commodity price increases but must also be viewed in the light of how a commodity is traded and sold. Just as with an agricultural crop, a hedge is usually made through various financial instruments to insure some sort of protection against commodity price swings. In this area, the company has been very successful in how it has gone about the task of hedging.
In this case, one may look at the company’s use of warrants at the beginning of 2010 where proceeds were used to eliminated certain derivative financing positions. Given current economic conditions, this particular move strengthened the company’s position financially and gave clear evidence that a strong management team was at work. Although natural gas is most assuredly a commodity position in an uncertain energy world, Atlas pipeline is right in the middle of the game and doing well.