Wednesday, May 6, 2009

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.
EROC expects on May 7 to report adjusted EBITDA of approximately $40 million for the first quarter of 2009 (subject to the completion of the Partnership's quarter-end review). Based on normal operating conditions, current expectations of customer drilling activity and assuming no curtailments or shut-in production by the Partnership's producer customer base, management believes the Partnership will generate between $40 million and $45 million of quarterly Adjusted EBITDA for the remainder of 2009. This would enable the Partnership to redirect $75 million to $100 million of cash flow to enhance liquidity and to remain within the financial covenants in its credit facility.

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