American Midstream Survives Hurricanes, Weak NGL Prices in Third-Quarter 2012 as Acquisitions Show Promise

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Researched by Industrial Info Resources (Sugar Land, Texas)--American Midstream Partners LP (NYSE:AMID) (Denver, Colorado), which provides midstream services for natural gas in the U.S. Southeast and Gulf Coast regions, reported stronger revenues in third-quarter 2012 as the company benefited from stronger margins in its two major segments and a major acquisition in July. The company also saw negative effects from Hurricane Isaac and volatile commodity prices, including lower realized prices for natural gas liquids (NGLs). The company reported a net loss of $4.28 million, compared with a net loss of $4.17 million in third-quarter 2011.

American Midstream executives noted that results are different when using the "adjusted EBITDA" method, which deducts the effects of interest expenses; depreciation; accretion; gains and losses on the sales of assets; unrealized gains and losses on commodity derivatives; non-cash equity compensation expenses; income from construction, operating and maintenance agreements; and the termination fee from an advisory services agreement recorded in the third quarter of last year. Using this method, income was $4.11 million, a 16.45% increase from the same period last year.

Revenues for the quarter stood at $58.09 million, a 1.9% increase from third-quarter 2011, boosted by reimbursable projects in the Gathering and Processing segment and the Transmission segment. Hurricane Isaac resulted in lower volumes, and weaker NGL prices impacted the gross margins at the partnership's processing plants. Capital expenditures for the quarter totaled $2.1 million.

In July, American Midstream announced it had closed the acquisition of an 87.4% interest in the Chatom processing and fractionation plant in Washington County, Alabama, from affiliates of Quantum Resources Management LLC. American Midstream has started shipping NGL to the Chatom plant from its Bazor Ridge processing plant in Wayne County, Mississippi, and plans to offer fractionation and treating services to other companies in the region.

Natural gas throughput volumes and processed NGLs in the Gathering and Processing segment were both higher when compared with third-quarter 2011, at 245.4 million cubic feet per day and 59,200 gallons per day, respectively, compared with 209 million cubic feet per day and 52,000 gallons per day. Natural gas throughput volumes in the Transmission segment averaged 427.8 million cubic feet per day, a sharp increase from 373.6 million cubic feet per day in the same period last year.

As part of the ongoing coverage in its North American Oil & Gas Transmission Project Database, Industrial Info is tracking two operational natural gas transmission plants owned by American Midstream: the Decatur Natural Gas Compressor Station in Muscle Shoals, Alabama, and the Duncanville Bear Creek Compressor Station in Duncanville, Alabama.

"The acquisition of the Chatom processing and fractionation plant closed on July 2," said Brian Bierbach, the president and chief executive officer of American Midstream Partners, in the conference call. "We have spent the past few months completing the transition process and integrating the asset into our company, which we have successfully completed. The majority of the one-time costs associated with the acquisition were borne in the third quarter. Chatom has been performing in line with the financial metrics we assumed at the time of the acquisition."

He added, "We see additional market potential to fill this capacity and support a potential expansion."

Both segments reported significantly higher gross margins, although the Transmission segment saw a dip in revenues:

• The Gathering and Processing segment reported $45.38 million in revenues, a 10.09% increase from third-quarter 2011, and a $10.74 million gross margin, a 57.4% increase.
• The Transmission segment reported $12.71 million in revenues, a 19.49% decrease from third-quarter 2011, and a $3.45 million gross margin, a 22.12% increase.

American Midstream announced in August a letter of intent (LoI) with an independent exploration and production company to develop and operate gathering, treating and processing infrastructure in East Texas. According to the LoI, American Midstream will construct a midstream system to gather, treat, compress and process natural gas from wells targeting multiple liquids-rich producing formations, such as the Eaglebine Formation. The system will include up to 60 million cubic feet per day of gathering and processing capacity.

"We are very excited about the East Texas midstream infrastructure project that we announced in mid-August," Bierbach said in the conference call. "We are currently installing the initial gathering system, and expect to have gas flowing by the end of the year. We believe this opportunity has the potential to expand significantly, as producers accelerate their drilling programs in the area."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.