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Natural Resource Partners LP Message Board

  • jrad52 jrad52 Oct 10, 2013 8:35 AM Flag

    PVR being acquired by RGP

    PVR, the only other coal royalty MLP, is being acquired by RGP. A few years back, PVR bet the ranch on an oil & gas gathering operating (Chief Gathering) in the Marcellus to diversify away from coal. The bet has paid off today with the acquisition of the company. On the face of it, it wouldn't look like the acquisition of Chief was a great deal - PVR's stock was trading around $ 23 when the Chief deal was announced, and now the company is being acquired for $ 27 and a bit. But when you consider that the coal royalty business has lost a lot of value since that deal was announced, it's clear that the Chief acquisition added a lot of value to PVR (which I had doubts about).

    My points - I doubt RGP has much interest in PVR's coal royalty business so I would expect it to be for sale. I wonder if NRP would be interested at a rock bottom price. Also, this might be an incentive for NRP to try harder to diversify.

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    • I agree. Maybe an equity offering to pay for it. PVR has around 650 million tons. Buy it for $1 per ton or $650 million. Production is around 30 million tons. We can dilute 30% and increase our coal production 60% (our current is 50-56 million tons). Not a bad idea.

      • 2 Replies to karen7015
      • Depends on the reserves. In the early/mid 2000s, when coal's prospects were looking better than do today, NRP paid anywhere from 15 cents/ton to almost $ 2/ton (another great buy from Cline). $ 1 could be way high or a bit low. PVR's royalty rate is always lower than NRP's, because it doesn't have met coal, and CAPP, where most of PVR's reserves are located, has been a disaster for coal the last few years.

        But PVR's carrying value for the coal and natural resources business was $ 665 MM at June 30. And this year. it's on a run rate of $ 90 million of gross royalties and maybe $ 65 million after cash expenses. Especially if those expenses can be eliminated by consolidating with NRP, maybe $ 1/ton might be OK.

        I don't at all like the fact that PVR's reserves are mostly CAPP, so if it's up to me, NRP should pass unless (or maybe even if) it gets an unbelievable price. And since I've got to think that NRP is the only logical bidder for the coal reserves if RGP puts them up for sale maybe NRP is in the cat bird's seat on this one.

      • Correction: PVR has 650 million tons in Central App and 871 total. It's still probably a good deal if we want to double down on Central App. They do have some Illinois Basin properties too.

    • What sell price do you think that NRP management might consider? How would you value the shares??
      Appreciate your comments.

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