Several master limited partners have less dry powder on hand
Since the beginning of April, a number of master limited partnerships (MLPs) have announced redeterminations to their borrowing bases. MLPs have been in a particularly tight spot with the fall of oil prices, leading many of their lenders to lower their borrowing base.
Eagle Rock Energy Partners (ticker: EROC) announced that its borrowing base was lowered to $270 million, down 16% from $320 million, as part of the partnership’s regularly scheduled semi-annual redetermination. As of April 1, the partnership’s total liquidity was approximately $180 million, comprised of $108 million of availability under its senior secured credit facility and approximately 3.1 million Regency Energy (ticker: RGP) units valued at close of market on April 1, 2015 at $72 million.
Mid-Con Energy Partners (ticker: MCEP) similarly had its borrowing base lowered as part of its regularly scheduled bi-annual redetermination. MCEP’s borrowing base was lowered 12% to $220 million from $250 million. Michael Peterson, Chief Financial Officer for Mid-Con, said that the company’s current borrowing capacity of $17 million affords the company ample liquidity.
New Source Energy Partners (ticker: NSLP) entered into an agreement with the Bank of Montreal and other lenders that are parties to the credit agreement governing the partnership’s credit facility to postpone its semi-annual redetermination. This agreement will push back the date of the scheduled redetermination by one month to May 1, 2015. As a part of the deal, the borrowing base available under the revolving credit facility was reduced to $84 million (the amount the company currently has outstanding on its credit facility) from $90 million.
The agreement further provides that, prior to the borrowing base redetermination on May 1, the partnership will not declare or make any distribution on its common units until the total outstanding borrowings under the revolving credit facility is at, or below, $55 million.
Kristian Kos, Chairman and Chief Executive Officer of New Source, said that the company plans to pay down its credit facility by about $20 million to $30 million. “The lenders are currently finalizing their review in order to determine the updated borrowing base. However, we believe the $20 million to $30 million range is still accurate,” said Kos.
Weathering the storm
MLPs have found various ways to strengthen their balance sheets during the current price downturn. Breitburn Energy Partners (ticker: BBEP) recently had its borrowing base lowered to $1.8 billion, down from $2.5 billion, as part of its redetermination. The company also announced that it received a $1 billion investment from EIG Global Energy Partners (EIG), which it plans to use to repay its borrowings under its credit facility, of which it currently has $1.24 billion drawn.
EV Energy Partners (ticker: EVEP) divested its 21% interest in Utica East Ohio Midstream for $575 million recently. EVEP expects the transaction to close by the middle of July 2015 and plans to use the net proceeds of the disposition to repay all amounts outstanding under its revolving credit facility.
Other MLPs have continued to look for ways to grow, even during the current price downturn. LINN Energy (ticker: LINE) signed a non-binding letter of intent with private capital investor Quantum Energy Partners for up to $1 billion of equity capital to fund future acquisitions and development. While the deal did not bring an immediate financial impact, it was seen as a positive move for the company.
“This transaction helps incrementally de-risk LINN’s acquisition story by providing dropdown potential,” said a note from Raymond James. “We view it as a strong positive that a leading private equity company is willing to make a multiyear commitment to LINN.”
ONEOK (ticker: OKS) will offer to sell $800 million of senior notes in order to repay amounts outstanding under its commercial paper program and for general partnership purposes. The notes will consist of $300 million of five-year senior notes with a coupon of 3.8% and $500 million of 10-year senior notes with a coupon of 4.9%. The company expects net proceeds of $793.8 million after deducting underwriting discounts and commissions.
Targa Resources Partners (ticker: NGLS) and its subsidiary Targa Resources Partners Finance Corporation announced today the commencement of an offer to exchange all of its outstanding unsecured 6 5/8% senior notes due 2020 issued by Targa Pipeline Partners (formerly Atlas Pipeline Partners) and Targa Pipeline Finance Corporation (formerly Atlas Pipeline Finance Corporation), which have an aggregate principal amount outstanding of $355.1 million for an equal amount of new unsecured 6 5/8% senior notes due 2020 issued by Targa.
The new notes will have substantially the same economic terms as the outstanding Atlas notes, including interest rate, interest payment dates, optional redemption terms and maturity. The Atlas notes will be traded on a par-for-par basis, except holders that tender after April 24, 2015 will receive $970 in principal amount of Targa notes for each $1,000 principal amount of Atlas notes.
Williams Partners (ticker: WPZ) completed a public offering of $ 1.25 billion of its 3.6% senior notes due March 2022, $750 million of its 4.0% senior notes due September 2025 and $1 billion of its 5.1 % senior notes due September 2045. WPZ plans to use the net proceeds from the offering to repay amounts outstanding under the partnership’s commercial paper program and credit facility, to fund capital expenditures and for general partnership purposes.
MLPs have become aware that in the current price environment, borrowing bases are likely to be reduced during spring redeterminations. With the distribution driven structure present in a MLP structure, the partnerships are more reliant on debt to fund exploration and development. By maneuvering and restructuring current debt loads to pay down revolving credit facilities, this will free up the revolver as an option for funding. Continuing to develop and explore will in turn generate more cash flow that can be distributed to the limited partners.
Ethan Bellamy, Senior Analyst at Robert W. Baird & Co., told Oil & Gas 360® that maxed out borrowing bases would make paying distributions more difficult. “Unless commodities rally between now and the Fall – and we don’t think they will – October bank redeterminations could be rough for a lot of oil and gas companies with too much debt, MLP or otherwise.”
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