Billionaire Leon Cooperman Has Found A Dividend Monster

Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Billionaire Leon Cooperman of Omega Advisors has upped his stake over 88% in a monster dividend paying oil and gas company. Per a recent SEC filing, Cooperman now owns 2.87 million shares, or 7.2% of the outstanding shares, of Atlas Resource Partners (NYSE: ARP), which pays a dividend that yields 8.5%. At the end of the third quarter, Cooperman owned only 1.52 million shares. 

Keeping it in the family

Cooperman is actually a big fan of all of the Atlas companies, not just Atlas Resource Partners. Cooperman also owns Atlas Energy (NYSE: ATLS) and Atlas Pipeline Partners (NYSE: APL). At the end of the third quarter Cooperman had Atlas Energy as his 13th largest 13F holding, or 2.67% of his portfolio, and had Atlas Pipeline as his 6th largest, at 3.42% of his portfolio (check out Cooperman's entire portfolio). 

Atlas as a whole

Atlas Energy is a master limited partnership that owns all the general partner units of Atlas Resource Partners and 44% of the limited partner interests in its upstream subsidiary Atlas Resource Partners. So Atlas Energy is collecting a large part of the dividends paid out by Atlas Resource Partners. Atlas Energy also owns the general partner of its midstream oil and gas subsidiary Atlas Pipeline Partners.

The suite of Atlas companies all pay rather robust dividend yields: 

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>Dividend Yield</strong></p> </td> </tr> <tr> <td> <p>Atlas Resource Partners</p> </td> <td> <p>8.53%</p> </td> </tr> <tr> <td> <p>Atlas Energy</p> </td> <td> <p>3.15%</p> </td> </tr> <tr> <td> <p>Atlas Pipeline Partners</p> </td> <td> <p>7.00%</p> </td> </tr> </tbody> </table>

The outlook for the oil and gas industry is positive, which indeed bodes well for the industry. U.S. GDP is expected to grow 3.0% in 2013, according to S&P, versus the expected 2.3% in 2012. Also helping the oil and gas outlook is the Energy Information Administration's estimates that natural gas consumption is expected to rise 0.6% in 2013. 

Other major oil and gas companies in the industry includes Range Resources Corp. (NYSE: RRC) and Continental Resources, Inc. (NYSE: CLR). It has been speculated that Chevron, with its robust cash position, could be interested in snatching up more assets or companies, including Range or Continental. Continental has the best position in the highly popular Bakken shale, owning over 900,000 acres. Check out how Continental stacks up in the Bakken:

<img src="/media/images/user_15651/land-holders-bakken_large_large.jpg" />

Source: Motley Fool

Continental would be a great opportunity for Chevron to further expand its asset base into another highly productive shale play, the Bakken. Range, on the other hand, is a stable oil and gas company in the Marcellus shale, owning over 900,000 acres there. Range Resources’ assets would be a solid addition to the some 480,000 acres in the Marcellus shale that Chevron bought from Atlas Energy in 2011.

Both companies have also been showing strength in their production numbers. Range Resources recently released fourth quarter production numbers that showed production was up 35% for the quarter on a year over year basis, with liquids (oil and natural gas liquids) leading the way, and production for that segment was up 41%. This was the ninth consecutive year of double-digit production growth. Continental Resources also recently reported production results. This oil and gas company showed full year 2012 production up 58% year over year. 

I still prefer Atlas to either Continental or Range Resources, and worth noting is that Continental does not pay a dividend, and the dividend yield for Range Resources is only 0.2%. Atlas Resource is also well below the other two on a price to book and price to sales basis:

<table> <tbody> <tr> <td> </td> <td>Price to Book</td> <td>Price to Sales</td> </tr> <tr> <td>Atlas Resources</td> <td>1.3</td> <td>2.4</td> </tr> <tr> <td>Continental Resources</td> <td>5.3</td> <td>7.6</td> </tr> <tr> <td>Range Resources</td> <td>5.0</td> <td>8.8</td> </tr> </tbody> </table>

Atlas' robust production growth

Production has been on the rise for both Atlas Resource and Atlas Pipeline. For the first nine months of 2012, Atlas Resource produced 60,531 Mcfd of natural gas, compared to the 31,687 Mcfd in 2011, almost 50% production growth. Meanwhile, total production costs fell from $1.15 per Mcfe to $0.92 per Mcfe for the same time period. 

As for its sister company Atlas Pipeline, the company gathered 35% more gas and processed 31% more for the first nine months of 2012, compared to the same period in 2011.

Dividend on the rise

The production growth is expected to continue and translate into doubling revenues for Atlas Resource 2013, in part thanks to its $255 million North Texas acquisition that added 250 wells and 88,000 acres to its portfolio. This will help the company meet expectations to pay out between $2.35 and $2.50 a unit in 2013. If the oil and gas company does manage to pay out $2.35 per unit (and in accordance to the sliding scale below) in dividends, at the stock's current trading range its dividend yield would be upwards of 10%.  

As Atlas Resource ramps up production thanks to its newly acquired assets, the benefits could be recognized for both Atlas Resource and Atlas Energy shareholders. According to Atlas Energy and Atlas Resource partnership agreement, Atlas Resource must distribute 100% of all available cash to unit holders. This is initially set up as a 98% (limited partners) and 2% (general partner) split, but as the amount of cash available for distribution increases, so does Atlas Energy's (Atlas Resource's general partner) share of the cash. Here is how the distribution rights from Atlas Resource to Atlas Energy shakeout: 

- 13% of all cash distributed in any quarter after each common unit has received $0.46

- 23% of all cash distributed in any quarter after each common unit has received $0.50

- 48% of all cash distributed in any quarter after each common unit has received $0.60

For investors bullish on the entire industry, a good pick could be Atlas Energy, which has exposure to the production, gathering, and processing of natural gas.

Don’t be fooled

The Atlas Resource dividend is high, and in the context of the company alone might appear to be too high--but with the backing of Atlas Energy, this could well be an underappreciated dividend payer. The oil and gas company also has a healthy balance sheet when compared to major peers:

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>Debt Ratio</strong></p> </td> </tr> <tr> <td> <p>Atlas Resource Partners</p> </td> <td> <p>19.5%</p> </td> </tr> <tr> <td> <p>Cabot Oil & Gas</p> </td> <td> <p>23.6%</p> </td> </tr> <tr> <td> <p>Range Resources</p> </td> <td> <p>42.0%</p> </td> </tr> <tr> <td> <p>Continental Resources</p> </td> <td> <p>35.0%</p> </td> </tr> <tr> <td> <p>EQT Corp</p> </td> <td> <p>28.0%</p> </td> </tr> </tbody> </table>

Although Cooperman (check out Cooperman's upside picks) appears to be one of the few hedge fund interested in Atlas Resource Partners (see all the hedge funds owning Atlas), it doesn't mean investors shouldn't give the company a look. 

mhargra has no position in any stocks mentioned. The Motley Fool recommends Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus