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Eagle Rock Energy Partners, L.P. Message Board

  • coochy.cooty coochy.cooty Nov 5, 2009 12:15 AM Flag

    One third of the goal, which should be forgotten

    Another $30M against the debt this quarter, $63M of the self-imposed $200M reduction goal. If none of this NGP crap was floating around, we'd all be cheering and thinking we were well on our way to reinstatement of the distribution around the end of 2010.

    Which brings to me to ask, isn't there a better way to achieve management's leverage goals now? Surely they are no longer concerned with blowing covenants, so let's forget about the $200M, reinstate distributions now at around $1.50. What would happen?

    I submit the stock would rise to be priced at around a 13% yield, a little higher than other MLP's as the market would be skeptical for a quarter, and maybe settle in at around 11-12% for awhile, assuming the MLP yields hold. That means the stock would be in the $12-14 range.

    Management wants another $137M debt reduction? Okay, sell 10.5M shares of stock when things relax a bit, follow the path that nearly every other MLP took when yields dropped and the unit prices rose. That's only a 14% dilution, much less than EVEP for example.

    Doesn't that make sense? Why in the f aren't they doing exactly that?

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    • Remember that new shares means that the company has to pay out that much more under the MQD. In addition, they won't want to issue more shares while there is an arrearage since that must be paid to all holders, thus adding (# shares issued times arrearage) dollars to cost. This would have to come from somewhere. IMHO there won't be an equity offering until arrearage situation is resolved. That is the current predicament.

    • I understand the problems, it just seems to me the quickest way to solve them is to get the unit price up and do an offering, whack the debt down wherever they want, or even replace the current package. And you do that by reinstating.

    • Phil, is the mgt presentation the best source you have found for the minerals pkg?

      It sucks, but wondering if there is more info in public domain.

      I'd like them to break the cash flow out next Q.

      Based on a recent Pickering presentation, there are only 3-4 gas fields that are profitable at 4$ gas. Haynesville is #1.

      Rig count will increase in Haynesville exponentially the next 5 years and production will not peak till then at earliest.

      They also call for 7.50 NG in 2010...have about 60 slides to back it up. Key is rig utilization and 25% decline curve for US gas wells.

      Time is on our side here.

      If anyone has good mineral info please post a link here. EROC presentation sucks, IMO. Tks, AT.

    • I agree, that was the point. Not going to be able to payoff much debt over the next 6-9 months, worried about covenant compliance in the second half of 2010. Due to this a deal will have to be done. Can a deal be done without buying out the subordinated units? Selling just the minerals will not solve all the problems. A good start, but I think they would also sell more units for addition funds. That is the problem. How much dilution?

    • "Surely they are no longer concerned with blowing covenants, so let's forget about the $200M, reinstate distributions now at around $1.50. What would happen?"

      If you understood the covenants then you'd be able to answer that for yourself. They are on track to blow the "Total Funded Indebtedness divided by Adjusted Consolidated EBITDA" in 2010. In either Q3 or Q4 it's going to go about 5.

      They won't blow it by using cash to purchase in-the-money hedges, which is not sustainable and an awful use of cash. Plus they need to position themselves for a Dec 2011 debt rollover.

      This company is not trying to screw you! They have some serious issues that they are trying to navigate. All indications are that they're taking the time to do a good job.

    • Here's a bit of a novel idea.

      Instead of doing a deal where we sell equity, I think we can do the opposite and solve all our problems.

      First...take the $157 million from Blackstone.
      Second down another 70-80 million of debt, and devote the rest of the money and additional cashflows to repurchasing units.

      For every unit we repurchase we're retiring $1 worth of arrearages plus reducing the MQD on the company by $1.44 annually. If we repurchased 20-30% of the oustanding shares at depressed prices (half of book value, just about double cashflow)we can reduce the actual dividends we need to pay in the MQD so that the MQD could be reinstated AND the subs get paid off.

      This strategy would immediately improve prospects because it would drive the PPS up short term, and increase the likelihood of MQD and arrearages being paid long term.

    • It is so frustrating to know that they are making so much money and not handing it out.

      I would guess that they can't issue equity until the subs are converted. At the future income levels, it could take 1-2 years of slightly higher than MQ distributions to make up the arrearages AND get caught up. Which, of course, shouldn't be our problem :(

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