Pritchard Capital Initiates Coverage of Atlas

RAYMOND DEACON, Pritchard Capital Partners LLC (10/29/2009)
"ATLS' substantial presence in the Marcellus Shale combined with its unparalleled hedged position and recent transition to a C corporation from a MLP supports our view that ATLS is one of the best ways to play the Marcellus Shale.

. . .We are initiating coverage on ATLS with a $41 a share price target based on a $62 per share NAV. ATLS has a significant 'core' acreage position in the Marcellus shale (266,000 net acres). The majority is concentrated in western Fayette County, Pennsylvania, abutting some of the best wells in the basin in the southwest corner of the play. We believe that, over time, the company will be able to expand its Marcellus production from approximately 50 MMcf/d at year end 2009 to 500-1,000 MMcf/d, while generating significant free cash flow. The company's drilling partnership business looks more stable with capital markets now more favorable to alternative investments in comparison to the second quarter. ATLS is the most hedged company in the peer group with 70% of 2010 production hedged at average price of $8.00 per Mcfe and the remainder of the 2009 is hedged at $8.14.

The company, on a pro forma basis, has in excess of $355 million of liquidity on its bank borrowing base, which will likely benefit from hedges and reserve growth in 2009. The company has a significant competitive advantage given that the bulk of their gas reserves are 'dry' gas. Their relationship with Williams Companies, Inc. (WMB-$19.52), which intends to complete construction of a 'header' system to allow the company access to markets for its gas once the full 200 MMcf/d of takeaway capacity is completed gives ATLS another advantage in the play. On a debt-adjusted production measure, ATLS beats the group median significantly on a compound basis."

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