Chesapeake Midstream Partners, L.P. Reports Financial Results for the 2011 Second Quarter
Partnership Reports 2011 Second Quarter Net Income of $41 Million and Adjusted Ebitda of $79 Million Partnership Increases Quarterly Distribution to $0.3625 per Unit

OKLAHOMA CITY, Aug 09, 2011 (BUSINESS WIRE) -- Chesapeake Midstream Partners, L.P. (NYSE:CHKM) today announced financial results for the 2011 second quarter. Net income for the quarter totaled $41.1 million, an increase of $4.1 million, or 11%, versus the 2010 second quarter. Net income available to limited partners for the 2011 second quarter was $40.3 million, or $0.29 per limited partner unit. The Partnership's adjusted ebitda for the 2011 second quarter was $79.3 million, up $17.8 million, or 29%, from the 2010 second quarter. Distributable cash flow (DCF) totaled $58.0 million, an increase of $15.0 million, or 35%, compared to the 2010 second quarter. Adjusted ebitda and DCF are defined on pages three and four of this release.

Total throughput for the 2011 second quarter was 195.5 billion cubic feet (bcf) of natural gas, or 2.15 bcf per day, an increase of 33% from 2010 second quarter throughput of 1.62 bcf per day. A key driver of the volume increase was throughput from the Haynesville Springridge gas gathering system acquired in December 2010. Partnership revenue for the 2011 second quarter was $133.2 million, an increase of $32.0 million, or 32%, from 2010 second quarter revenue of $101.2 million.

The Partnership connected 143 new wells to its gathering systems during the 2011 second quarter, an increase of 49% compared to the 2010 second quarter. Capital expenditures during the 2011 second quarter totaled approximately $109.7 million, including maintenance capital expenditures of approximately $18.5 million.

Partnership Increases Cash Distribution

On July 26, 2011, the Board of Directors of the Partnership's general partner declared a quarterly cash distribution of $0.3625 per unit for the 2011 second quarter, a $0.0125, or 3.6%, increase over the 2011 first quarter. The distribution will be paid on August 12, 2011 to unitholders of record at the close of business on August 5, 2011. DCF for the 2011 second quarter of $58.0 million provided distribution coverage of 1.13 times the amount required for the Partnership to fund the distribution to both the general and limited partners.

Partnership Updates 2011 Financial Outlook

The Partnership's projection of ebitda for the 12 months ending December 31, 2011 remains unchanged at $332 million. The ebitda projection includes a range of revenue associated with minimum volume commitments of between $10 million and $20 million. The revenue associated with minimum volume commitments will not be recognized until the fourth quarter of 2011. The Partnership is revising its estimate of growth capital expenditures for 2011 to $366 million from $256 million while the estimate of maintenance capital expenditures of $74 million remains unchanged. The increase in projected growth capital expenditures is the result of adjustments to timing of projects. The scope of the Partnership's anticipated construction program remains unchanged.

Management Comments

J. Mike Stice, Chesapeake Midstream Partners' Chief Executive Officer, commented, "I am extremely proud of our performance in 2011. Our construction teams have delivered a 66% increase in well connects year to date, while at the same time achieving an exceptional safety performance record. Our execution on both fronts has been outstanding. This strong operational performance is the basis for meeting our financial objectives and allowing for another distribution increase in the second quarter."

Credit Facility Amendment

On June 10, 2011, the Partnership completed an amendment to its existing credit facility. As amended, the credit facility provides up to $800 million of borrowing capacity, an increase of $50 million. The maturity date was extended one year and will now mature in June 2016. The amended credit agreement also provides for other favorable term modifications, including improved borrowing rates and fees. The amended credit facility is an important aspect of the Partnership's ability to maintain financial flexibility.

Conference Call Information

A conference call to discuss this release of financial results has been scheduled for Wednesday morning, August 10, 2011 at 9:00 a.m. EDT. The telephone number to access the conference call is 719-457-2630 or toll-free 888-401-4685. The passcode for the call is 7566669. We encourage those who would like to participate in the call to dial the access number between 8:50 and 9:00 a.m. EDT. For those unable to participate in the conference call, a replay will be available for audio playback from 12:00 p.m. EDT on August 10, 2011 through 12:00 p.m. EDT on August 24, 2011. The number to access the conference call replay is 719-457-0820 or toll-free 888-203-1112. The passcode for the replay is 7566669. The conference call will also be webcast live on the Internet and can be accessed by going to the Partnership's website at http://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 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, 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 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 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.

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 2010 Annual Report on Form 10-K.

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, Haynesville 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 http://www.chkm.com, where the Partnership routinely posts announcements, updates, events, investor information and presentations and all recent press releases.

CHESAPEAKE MIDSTREAM PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per unit data)

(unaudited)

                               
    Three Months Ended

June 30,

2011

      Three Months Ended

June 30,

2010

      Six Months Ended

June 30,

2011

      Six Months Ended

June 30,

2010

 

Revenues, including revenue from affiliates (1)

  $ 133,217       $ 101,239       $ 256,746       $ 196,625  
                                       
Operating Expenses                                      
Operating expenses, including expenses from affiliates     44,284         32,385         86,845         63,078  
Depreciation and amortization expense     32,747         22,102         63,685         42,712  
General and administrative expense, including expenses from affiliates     9,659         7,387         18,605         14,123  
Other operating (income) expense     923         (37 )       863         (67 )
                                       
Total operating expenses     87,613         61,837         169,998         119,846  
                                       
Operating income     45,604         39,402         86,748         76,779  
                                       
Other Income (Expense)                                      
Interest expense     (3,837 )       (1,866 )       (5,277 )       (3,817 )
Other income     42         40         84         42  
                                       
Income before income tax expense     41,809         37,576         81,555         73,004  
Income tax expense     726         559         1,696         1,073  
                                       
Net income   $ 41,083       $ 37,017       $ 79,859       $ 71,931  
                                       
Limited partner interest in net income                                      
Net income   $ 41,083       $ N/A         79,859         N/A  
Less general partner interest in net income     (820 )       N/A         (1,596 )       N/A  
                                       
Limited partner interest in net income   $ 40,263       $ N/A         78,263         N/A  
                                       
Net income per limited partner unit - basic and diluted                                      
Common units   $ 0.29       $ N/A         0.56         N/A  
Subordinated units   $ 0.29       $ N/A         0.56         N/A  
                                       

Weighted average limited partner units outstanding used for net income per unit calculation - basic and diluted (in thousands)

                                     
Common units     69,224         N/A         69,222         N/A  
Subordinated units     69,076         N/A         69,076         N/A  
                                       

(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 or Haynesville Shale regions, as applicable, under the applicable gas gathering agreement for specified annual periods, Chesapeake or Total, as applicable, is obligated to pay the Partnership a fee equal to the applicable fee for each mcf by which the party's minimum volume commitment for the year exceeds the actual volumes gathered on the Partnership's systems. The Partnership recognizes any associated revenue in the fourth quarter.

CHESAPEAKE MIDSTREAM PARTNERS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands)

(unaudited)

               
    As of

June 30,

2011

      As of

December 31,

2010

 
Assets                  
                   
Total current assets   $ 60,114       $ 131,487  
                   
Property, plant and equipment                  
Gathering systems     2,765,571         2,544,053  
Other fixed assets     46,027         41,125  
Less: Accumulated depreciation     (414,608 )       (358,269 )
                   
Total property, plant and equipment, net     2,396,990         2,226,909  
                   
Intangible assets     164,223         172,481  
Deferred loan costs, net     22,088         15,039  
                   
Total assets   $ 2,643,415       $ 2,545,916  
                   
Liabilities and Partners' Capital                  
                   
Total current liabilities   $ 112,353       $ 97,991  
                   
Long-term liabilities                  
Long term debt     350,000         249,100  
Other liabilities     4,352         4,257  
                   
Total long-term liabilities     354,352         253,357  
                   
Partners' capital                  
Partners' capital     2,176,710         2,194,568  
                   
Total partners' capital     2,176,710         2,194,568  
                   
Total liabilities and partners' capital   $ 2,643,415       $ 2,545,916  
                   

CHESAPEAKE MIDSTREAM PARTNERS, L.P.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

($ in thousands)

(unaudited)

               
   

Six Months
Ended

June 30,

2011

     

Six Months
Ended

June 30,

2010

 
Cash flows from operating activities                
Net income   $ 79,859       $ 71,931  
Adjustments to reconcile net income to net cash provided by operating activities:                  
Depreciation and amortization     63,685         42,712  
Other non-cash items     3,771         2,571  
Changes in assets and liabilities                  
Decrease in accounts receivable     54,543         130,888  
Decrease (increase) in other assets     1,004         (1,603 )
Increase in accounts payable     1,117         6,310  
Increase (decrease) in accrued liabilities     2,009         (55,400 )
                   
Net cash provided by operating activities     205,988         197,409  
                   
Cash flows from investing activities                  
Additions to property, plant and equipment     (216,251 )       (97,448 )
Proceeds from sale of assets     1,318         2,168  
                   
Net cash used in investing activities     (214,933 )       (95,280 )
                   
Cash flows from financing activities                  
Proceeds from credit facility borrowings     184,400         233,800  
Payments on credit facility borrowings     (433,500 )       (166,600 )
Proceeds from issuance of senior notes, net of offering costs     343,000         --  
Distribution to unitholders     (96,921 )       --  
Initial public offering costs     (1,280 )       --  
Debt issuance costs     (2,583 )       --  
Distribution to partners     --         (169,500 )
Contribution from predecessor     --         177  
Other adjustments     4         --  
                   
Net cash used in financing activities     (6,880 )       (102,123 )
                   

Net increase (decrease) in cash and cash equivalents

    (15,825 )       6  
                   
Cash and cash equivalents                  
Beginning of period     17,816         3  
                   
End of period   $ 1,991       $ 9  
                   

CHESAPEAKE MIDSTREAM PARTNERS, L.P.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

($ in thousands)

(unaudited)

                               
   

Three Months
Ended

June 30,

2011

     

Three Months
Ended

June 30,

2010

     

Six Months
Ended

June 30,

2011

     

Six Months
Ended

June 30,

2010

 
       
                                       
Net Income   $ 41,083       $ 37,017       $ 79,859       $ 71,931  
                                       
Adjusted for:                                      
Interest expense     3,837         1,866         5,277         3,817  
Income tax expense     726         559         1,696         1,073  
Depreciation and amortization expense     32,747         22,102         63,685         42,712  
(Gain) Loss on sale of assets     923         (37 )       863         (67 )
                                       
Adjusted EBITDA   $ 79,316       $ 61,507       $ 151,380       $ 119,466  
                                       
                                       
Cash provided by operating activities   $ 68,719         79,084         205,988         197,409  
                                       
Adjusted for:                                      
Changes in assets and liabilities     7,878         (18,688 )       (58,673 )       (80,195 )
Maintenance capital expenditures     (18,500 )       (17,500 )       (37,000 )       (35,000 )
Other non-cash items     (127 )       26         (371 )       42  
                                       
Distributable cash flow     57,970         42,922         109,944         82,256  
                                       
Adjusted for:                                      
Implied minimum volume commitment     --         14,219         5,268         31,395  
                                       
Adjusted distributable cash flow   $ 57,970       $ 57,141       $ 115,212       $ 113,651  
                                       
Cash distribution                                      
Limited partner units ($0.3625 x 138,161,160 units)   $ 50,084                                
General partner units ($0.3625 x 2,819,606 units)     1,022                                
                                       
Total cash distribution   $ 51,106                                
                                       
Distribution coverage ratio     1.13                                
                                       

CHESAPEAKE MIDSTREAM PARTNERS, L.P.

OPERATING STATISTICS

(unaudited)

                       
   

Three Months
Ended

June 30,

2011

   

Three Months
Ended

June 30,

2010

   

Six Months
Ended

June 30,

2011

   

Six Months
Ended

June 30,

2010

                               
Barnett Shale                              
Wells connected during period     81       67       171       120
Total wells connected     2,006       1,685       2,006       1,685
Throughput, bcf per day     1.044       1.059       1.007       1.019
Approximate miles of pipe at end of period     824       700       824       700
Gas compression (horsepower) at end of period     137,210       136,565       137,210       136,565
                               
                               
Haynesville Shale                              
Wells connected during period     18       --       37       --
Total wells connected     201       --       201       --
Throughput, bcf per day     0.563       --       0.529       --
Approximate miles of pipe at end of period     241       --       241       --
Gas compression (horsepower) at end of period     21,970       --       21,970       --
                               
                               
Mid-Continent                              
Wells connected during period     44       29       90       60
Total wells connected     2,446       2,259       2,446       2,259
Throughput, bcf per day     0.541       0.565       0.543       0.558
Approximate miles of pipe at end of period     2,385       2,200       2,385       2,200
Gas compression (horsepower) at end of period     94,129       84,455       94,129       84,455
                               
                               
Total                              
Wells connected during period     143       96       298       180
Total wells connected     4,653       3,944       4,653       3,944
Throughput, bcf per day     2.148       1.624       2.078       1.577
Approximate miles of pipe at end of period     3,450       2,900       3,450       2,900
Gas compression (horsepower) at end of period     253,979       221,020       253,979       221,020

SOURCE: Chesapeake Midstream Partners, L.P.

Chesapeake Midstream Partners, L.P.
Investor Contact:
Dave Shiels, CFO, 405-935-6224
dave.shiels@chk.com
or
Media Contact:
Michael Kehs, 405-935-2560
michael.kehs@chk.com
or
Jim Gipson, 405-935-1310
jim.gipson@chk.com​​​​