While Eagle Rock’s acreage is dwarfed by Continental Resources, Inc. (NYSE:CLR)’s 232,000 net acres, it is a substantial position for a company of its size. These acres could potentially be monetized, or Eagle Rock could earn high rates of return in the 25%-30% range by investing its own capital to drill. The issue here though is that the company doesn’t have a whole lot of capital to work with, so selling the asset might be in its best interest.
In fact, a monetization of some sort seems fairly likely. On last quarter’s conference call, the company’s chairman, Joseph Mills, stated:
We’ve received several unsolicited inquiries, offers to purchase our position. And you can imagine, they come in all different forms, from outright trades to outright purchases of our acreage. … Historically, I’ve talked about the reserve potential here or resource potential could be in the, call it, 35 million to 55 million barrels oil equivalent for our acreage. … A lot of offers we’re getting are kind of per dollar, per acre, which are probably not something that we’re interested in. But we’ve had a few offers where they’re interested in trading us potentially proven — proved developed assets for this upside, and that’s kind of interesting to us given, in particular, our MLP structure.
Selling its SCOOP assets could potentially bring in additional assets of value or provide much needed cash to shore ups its balance sheet, which would put the company’s distribution on solid ground.
Final Foolish thoughts
Eagle Rock has built a solid reserve base from which it expects to produce for the next 13 years. In addition, there is compelling upside from its position in the SCOOP. Those ingredients are key for the company’s ability to maintain and possibly grow its already generous distribution. There is more to Eagle Rock: I’ve not yet touched on its midstream operations. Stay tuned to Fool.com for more on this side of its business.
The article Should You Scoop up This Energy Stock Before It Soars? originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo owns shares of LINN Energy, LLC and has the following options: short October 2013 $25 puts on LINN Energy, LLC. The Motley Fool has no position in any of the stocks mentioned.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.