Eagle Rock LP stock plunges after dividend cut announcement

HOUSTON – Houston-based natural gas company Eagle Rock Energy Partners, L.P.
(NASDAQ: EROC) late on April 29 announced that it was cutting its common unit distribution from $0.41per quarter to $0.025 per quarter.
Although the company said the move was temporary, EROC stock in heavy trading on April 30 declined to $3.79 per common unit, a drop of $2.64 or 41.06 percent per common unit. On May 2, in continued heavy trading, the unit price was down another $0.13 per unit, or 3.43 percent.
EROC said in its initial news release that the move was made to enhance its liquidity position
In September 2008, Kayne Anderson Energy Development Co., a Houston closed-end investment firm, announced the sale of Millennium Midstream Partners LP to Eagle Rock Energy for $236 million. Eagle Rock agreed to pay $181 million cash plus four million units of its stock for Millennium.
The new Eagle Rock distribution of $0.025 per unit will be paid on May 15 to common unitholders of record on May 11. Subordinated units will not receive a distribution.
In the news release announcing the change, EROC said its board made the decision to reduce the distribution due to the continued decline in natural gas prices and drilling activity and the concern that these conditions may persist for the next 12 to 24 months. Also impacting the decision was a recent reduction in the company’s borrowing base which impacted the Partnership's overall liquidity. Management expects the Partnership to continue with a reduced distribution rate until commodity prices rise to a level that supports resumed drilling activity in its core areas and, in the opinion of the board, the Partnership's liquidity is sufficiently improved.
Joseph A. Mills, chairman and chief executive officer, said, "The continued decline in natural gas prices through the end of the first quarter has resulted in a dramatic response from E&P companies. The onshore natural gas rig count has fallen by approximately 45 percent since the start of the year. This reduced drilling activity and unfavorable commodity price environment has had an impact on our overall revenue stream. As the timing of a potential rebound in commodity prices remains uncertain, we have refocused our priorities towards ensuring the sustained viability of the Partnership. By lowering our distributions, we intend to significantly reduce our outstanding debt, which will benefit our common unitholders in the form of greater equity value and more financial and operating flexibility. At the same time, we will continue our efforts to control costs and capital expenditures in these challenging times."