We will receive net proceeds of approximately $180.7 million from this
offering, after deducting the underwriting discounts, structuring fees and
commissions and offering expenses (assuming no exercise of the underwriters'
option to purchase additional common units).
We will use the net proceeds from this offering (excluding the net proceeds
from any exercise of the underwriters' option to purchase additional common
units) to repay $180.7 million of indebtedness outstanding under our revolving
credit facility. We will incur indebtedness under our revolving credit facility
to fund capital expenditures and for working capital needs. We have incurred
indebtedness from time to time under our revolving credit facility to fund
capital expenditures and for working capital purposes. On December 15, 2011 we
used borrowings under the facility to purchase the compression units previously
leased from Caterpillar for $43 million. On June 1, 2012, we amended our
revolving credit facility to increase the overall commitments under the
facility from $500 million to $600 million and entered into our amended and
restated credit facility, which will become effective only upon the closing of
this offering, to, among other things, permit the offering-related
transactions. At September 30, 2012, the interest rate on amounts borrowed
under the revolving credit facility was 3.0%. Affiliates of each of the
underwriters participating in this offering are lenders under our revolving
credit facility and will receive a substantial portion of the proceeds from
this offering pursuant to the repayment of a portion of the borrowings
thereunder.
We will use the net proceeds from any exercise of the underwriters' option to
purchase additional common units to repay outstanding borrowings under our
revolving credit facility.
889,099
horsepower in our fleet and 31,630 horsepower on order for delivery, of which
23,135 horsepower has been delivered as of November 30, 2012 and 8,495
horsepower is expected to be delivered in December 2012. In October 2012, we
ordered 35,880 of additional horsepower which is expected to be delivered
between January 2013 and April 2013. In December 2012, we ordered 50,915 of
additional horsepower which is expected to be delivered between April 2013 and
July 2013. We employ a customer-focused business philosophy in partnering with
our diverse customer base, which is comprised of producers, processors,
gatherers and transporters of natural gas. Natural gas compression, a
mechanical process whereby natural gas is compressed to a smaller volume
resulting in a higher pressure, is an essential part of the production and
transportation of natural gas. As part of our services, we engineer, design,
operate, service and repair our compression units and maintain related support
inventory and equipment. The compression units in our modern fleet are designed
to be easily adaptable to fit our customers' dynamic compression requirements.
By focusing on the needs of our customers and by providing them with reliable
and flexible compression services, we are able to develop long-term
relationships, which lead to more stable cash flows for our unitholders. From
2003 through the third quarter of 2012, our average horsepower utilization was
over 90%. We have been providing compression services since 1998.
We focus primarily on large-horsepower infrastructure applications. As of
September 30, 2012, we estimate that over 90% of our revenue generating
horsepower was deployed in large-volume gathering systems, processing
facilities and transportation applications. We utilize a modern fleet, with an
average age of our compression units of approximately five years. Our standard
new-build compression unit is generally configured for multiple compression
stages, allowing us to operate our units across a broad range of operating
conditions. This flexibility allows us to enter into longer-term contracts and
reduces the redeployment risk of our horsepower in the field. Our modern and
standardized fleet, decentralized field-level operating structure and technical
proficiency in predictive and preventive maintenance and overhaul operations
have enabled us to achieve average service run times consistently above the
levels required by our customers.
The following table provides a summary of our compression units by horsepower
as of September 30, 2012 (including additional new compression unit horsepower
on order for delivery between October 2012 and December 2012):
Percentage
Fleet Horsepower Total of Total
Unit Horsepower Horsepower on Order(1) Horsepower(2) Horsepower
<500 141,354 2,250 143,604 15.6 %
>500 <1,000 114,540 1,380 115,920 12.6 %
>1,000 633,205 28,000 661,205 71.8 %
Total 889,099 31,630 920,729 100.0 %
(1) As of November 30, 2012, 23,135 horsepower has been delivered and 8,495
horsepower is expected to be delivered in December 2012. In October 2012,
we ordered 35,880 of additional horsepower which is expected to be
delivered between January 2013 and April 2013. In December 2012, we ordered
50,915 of additional horsepower which is expected to be delivered between
April 2013 and July 2013.
(2) Comprised of 1,175 compression units, including 26 new compression units
on order.
We generally provide compression services to our customers under long-term,
fixed-fee contracts, with initial contract terms of up to five years. We
typically continue to provide compression services to our customers beyond
their initial contract terms, either through contract renewals or on a month-
to-month basis. Our customers are typically required to pay our monthly fee
even during periods of limited or disrupted natural gas flows, which enhances
the stability and predictability of our cash flows. We are not directly exposed
to natural gas price risk because we do not take title to the natural gas we
compress and because the natural gas used as fuel by our compression units is
supplied by our customers without cost to us.
We provide compression services primarily in shale plays, including the
Fayetteville, Marcellus, Woodford, Barnett, Eagle Ford and Haynesville shales.
We believe compression services for shale production will increase in the
future. According to the Annual Energy Outlook 2013 Early Release prepared by
the U.S. Energy Information Administration, or EIA, natural gas production from
shale formations will increase from 34% of total U.S. natural gas production in
2011 to 50% of total U.S. natural gas production in 2040. Not only are the
production and transportation volumes in these and other shale plays
increasing, but the geological and reservoir characteristics of these shales
are also particularly attractive for compression services. The changes in
production volume and pressure of shale plays over time result in a wider range
of compression requirements than in conventional basins. We believe we are well
-positioned to meet these changing operating conditions as a result of the
flexibility of our compression units. While our business focus is largely
compression serving shale plays, we also provide compression services in more
mature conventional basins. These conventional basins require increasing
amounts of compression as they age and pressures decline, which we believe will
provide an additional source of stable and growing cash flows for our
unitholders.
For the year ended December 31, 2011, our business generated revenues, net
income and net income before interest, taxes, depreciation and amortization,
and certain other adjustments, or Adjusted EBITDA, of $98.7 million, $0.1
million and $51.3 million, respectively. For the nine months ended September
30, 2012, our business generated revenues, net income and Adjusted EBITDA of
$87.0 million, $3.6 million and $46.7 million, respectively.
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Our principal executive offices are located at 100 Congress Avenue, Suite 450,
Austin, Texas 78701 and our telephone number is (512) 473-2662. Our website is
located at www.usacpartners.com.