I think it is obvious the newfound position of being under levered will likely change. It seems likely that EROC will need to push their debt/ebitda metrics upwards towards 4.0x, using those borrowings to acquire existing production, or finance aggressive drilling of high IRR wells.
Also, the RGP units really aren't a core holding. EROC will be collecting7-8% on that capital, when one could hope they could acquire production a6 6-7x ebitda, or a return (after maintenance capital) of close to 10-11%. That delta of 4% is ~$8 million annually, plus, if the money is deployed into existing production, it would result in an increase in reserves, which would enhance their borrowing base.
Fully agree with you that the trust never says 50 yr reserve life. It seems highly likely that many of the wells that they own will be producing for 50+ yrs, but as you so astutely noted, production drops, almost hand in hand with overall reserves, so R/P life continues to lengthen but existing production declines. Countering this decline is any new drilling and of course any uplift in production prices (oil, NGLs, natural gas).
At current prices, it's a decent buy. But anyone thinking that this is a real steal, isn't factoring in depletion.
I have to agree with Liza.
Eagle Rock is a poorly run E&P MLP. Joe Mills has been a disaster as a CEO. The first time he nose-dived the company, he had to divest the crown jewel assets (the mineral royalty business). The mineral royalty business required very little capital reinvestment, yet threw off plenty of free cash flow.
Now the second time around, Eagle Rock is divesting their midstream assets, which, while they were cobbled together piece-meal, they had acquired a nice strong hold in the Texas panhandle. It does look like EROC got a fair price, unlike with the minerals business.
What it does, is leave EROC under levered and a pure E&P MLP. EROC's E&P portfolio is not terribly exciting. They are very high on the SCOOP, but it remains to be seen if they can achieve above average returns.
What I find a bit funny is that EROC now yields under 10%, making it one of the lower yielding E&P MLPs. They find themselves with a yield comparable to well run E&P MLPs like Legacy and Vanguard, which I find laughable. However, I doubt it takes long for Mills to blow the cash windfall, relever and once again nose dive the company. I wonder which asset he will be forced to divest next time?
I will state that I fully expect EROC to screw up by drilling more wells than they have in the past, letting their overall decline rates get untenable and forcing them to allocate increasingly larger amounts of cash flow towards maintenance. I don't believe this management team is capable of managing drilling risk, overall portfolio decline, interest rate risk, commodity price risk and capital market risk.
I think it will only be a matter of time before they screw up again.
Regency is finally shaping up.
Penn Virginia, Hoover, Eagle Rock...
Distribution increase of 6-8% in 2014. May finally climb back towards $27 (a 7% yield)
It's taken Energy Transfer a few years to turn this around, but looks like it is finally shaping up.
I'm fairly certain that CPLP is not shipping LNG. Refined products, yes, but LNG I don't think so.
As for a topic more germane to this board, NDRO finds itself near its 52 week low. It is actually starting to look attractive at these prices. With a high enough yield, it can compensate for the natural decline of the production.
Doesn't Excelon (or whatever utility that bought Constellation) still hold some of the units? I knew they divested some of them to PostRock, but wasn't sure they divested all of them.
White Deer seriously screwed up with their initial investment. Then they doubled down, to try and save PSTR. They've meddled with CEP, trying to effectuate a merger. The reality is that PSTR needs a huge uptick in gas prices and they need continued flawless execution in the oil program to SURVIVE. White Deer has injected massive amounts of capital into the business to help them delever, just to save the equity. Now PSTR needs to earn a decent return on that investment.
Given White Deer has been self dealing, I wish them nothing but rotten luck.