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Eagle Rock Energy Partners, L.P Message Board

  • busy26795 busy26795 Dec 26, 2013 1:42 PM Flag

    2 High Yield Energy Plays For 2014...Brett Jensen article....Excellent addresses the how this sale transforms EROC :-)

    Search for this on seeking alpha or on the net...Brett Jensen..on Seeking Alpha got to EROC the got to relate

    2 High Yield Energy Plays For 2014
    Dec. 23, 2013 12:44 PM ET |

    Brett Jensen

    Eagle Rock Energy Partners (EROC) has traditionally consisted of both a upstream and a midstream business. The company just announced it is selling the midstream part of its business to Regency Energy Partners (RGP) for $1.325B.

    This transaction will obviously have huge implications for the Eagle Rock's prospects going forward. Most of which will be positive which is confirmed by the positive market action Monday after the deal was announced.

    The deal amounts to almost two thirds of Eagle Rock's enterprise value and should provide several benefits to Eagle Rock and its shareholders. The market should reward the stock with a higher multiple as it will now be a pure play E & P concern with promising properties with an average ~12 years of reserve life. It will reduce the company's leverage substantially. Finally, it will provide Eagle Rock with "dry powder" to pursue 'add on' reserves to its existing base.

    This was an over $10 stock earlier in the year before it had to cut its distribution payouts. At $6 a share with a ~11% distribution yield, it is too cheap in light of this game changing transaction.

    Sentiment: Strong Buy

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    • Brett Jensen is a lightweight SA writer. His thinking here is a little confused:

      first he says it is now a pure play E&P and therefore a 11% yield is too cheap. He seems to ignore than many of the other smaller E&P MLPs have yields around there. You have to take into account what the others are trading at. EROC doesn't deserve a better valuation than the existing smaller E&P MLPs. I would suggest it should trade on a par with LRE which is another small/weak E&P MLP and which trades above 11% yield.

      "It will reduce the company's leverage substantially. Finally, it will provide Eagle Rock with "dry powder" to pursue 'add on' reserves to its existing base."
      Those points are correct and if they use the "dry power wisely" they have a chance to boost the price but suggesting they should get a better valuation before we have any idea what they will do with the dry powder is jumping the gun, imo. This management has messed up so many times in the past, why should he expect them to be given the benefit of the doubt this time. The market will want to see what they do, not assume they will manage everything well when they never have in the past.

      Fool me once, shame on you. Fool me twice, shame on me. EROC management has fooled investors twice already in 5 years. You think the market should give them the benefit of the doubt that they will manage everything wisely from this point on?

    • Link

      Sentiment: Strong Buy

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