Investing

Natural Gas Partners (NGP) proposed a series of transactions with Eagle Rock Energy Partners (EROC), as detailed in this post. NGP have just submitted a revised term sheet to EROC.

The changes mentioned in EROC’s press release are:

• $145M instead of $135M for Mineral Business
• $4M less in fees to NGP and fee can be paid in units if the equity raising is less than 105M
• Option on remaining GP units extended to 2012 from 2010

By redlining the two documents the following changes are also proposed:

• Warrants only exercisable four times a year
• If the public equity offering price is above $3.40 then EROC will issue up to $140M instead of $105M
• Sale of the Mineral Assets will be effective on January 1^st, 2010. All profits from then until closing will accrue to NGP.
• EROC can set up a data room and may market the mineral business. An alternate deal has 100 days and can be for all or part of the minerals business. It must be for more than $145M and must either close within 100 days or have no conditions.
• They clarify that the transaction fee is only payable if the approvals are obtained
• Proceeds can be used for hedge resets
• NGP could terminate the agreement between the definitive agreement and the approval if the share price dropped below $2. This has been changed to $1.50.
• EROC’s conflicts committee has a fiduciary out. That would allow them to accept another, superior, proposal if their fiduciary duty requires them to. NGP would get a $7M break fee. This out is only available until the Approval date.

All of these revised terms are more favourable to EROC though not substantially so. At best this may provide a few extra percent in value from $6.90 to $7.20 (versus $7.66 before the NGP EROC deal). The pricing of the equity offering is going to be much more important than the minutiae of the NGP EROC terms.

This revised term sheet indicates that a deal is very likely and the timeframe for realizing a good profit on EROC should be around 3 months. EROC closed at $4.57 so there is still a 58% gain if you see through the whole rights issuance (though we may not see all of that gain in 3 months).

posted by Neil  # 6:25 AM