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Mid-Con Energy Partners: An Excellent Set Of Developments


  • The management team at Mid-Con Energy Partners surprised investors with a series of developments aimed at resolving some of the firm's key issues.
  • This set of developments will involve significant shareholder dilution, but it will materially reduce the risk to investors in the process.
  • Though not an ideal outcome, the move is far better than it could have been and investors should applaud these steps.
  • Looking for a helping hand in the market? Members of Crude Value Insights get exclusive ideas and guidance to navigate any climate. Get started today »

During these uncertain times, silence is rarely a good thing from struggling oil and gas E&P (exploration and production) firms. Yet that is what shareholders of Mid-Con Energy Partners (NASDAQ:MCEP) have had to contend with. After engaging in a 1-for-20 reverse stock split following an announcement about it on March 20th, the management team at Mid-Con went dark. Prior to that, on March 12th, the firm announced that due to the COVID-19 pandemic, it would be delaying the release of its first quarter earnings results to some unspecified point in the future.

Between the firm’s leverage and the sudden and violent downturn in energy pricing we saw earlier this year, there were questions over the company’s ability to survive. In truth, a bankruptcy filing could have occurred, especially if energy pricing had remained depressed, but instead of that management came out with an interesting series of developments aimed at creating shareholder value in the firm in the long run. The company is not entirely out of the woods yet, but with new leadership and a plan in place, the picture is looking better than it has in many months.

Some bold moves

The developments entered into by management can best be summed up as three distinct, but important, events. The biggest of these relates to the company’s preferred shares. Back in 2016, the firm took in $25 million from outside investors and issued to them Series A Preferred units. In 2018, the firm repeated the process with $15 million in exchange for virtually identical Series B Preferred units. These units each carried an annual distribution (payable quarterly) of 8%, or $3.2 million, but this figure would rise to 10% if the firm could not pay out the distributions in cash.

Preferred shares can be tricky because they never are one-size-fits-all. For

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This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor.

He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein. Learn more.

Analyst’s Disclosure: I am/we are long MCEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (9)

darwon profile picture
The market cap of MCEP just increased 100 million dollars. Goff just made 90 million and the stockholders only got 10 million. Vantastic.
Daniel Jones profile picture
Better than nothing though.
Congrats Daniel! I hope you stayed long!
Daniel Jones profile picture
Yep! Thanks. Still sticking with it. :)
darwon profile picture
Thanks for the detailed summary of past events, Daniel. I had almost forgotten some of it. However, your conclusion should have said that common shareholders just got screwed out of any attempts to make their losses back. Because of the massive dilution, 90 percent of the upside now goes to Goff. The company was just handed over to him for pennies on the dollar. If oil prices recover and the shareholders equity increases by a hypothetical 28 million (share price $2 higher), only 3 million goes to us, and 25 million to Goff. Without the dilution, the share price would have risen to $21 per share....an $18 increase...a 600 percent gain. After dilution, an increase of $28 million in shareholder equity ($2 share) only results in a 50% gain. Of course, I'm sure this was the plan all along when the preferred was issued. Olmstead probably agreed to dilute the common at the worst possible time for the shareholders (and the best time for Goff), in exchange for a golden parachute when he exited the company. Do you know how much Olmstead will net out of this deal?
PawnPower profile picture
This zombie is going BK by the end of the year. All equity will be worthless which is why management struck a deal with the preferred so they can then dump the common shares being issued. The preferred wasn't publicly traded so without a conversion to common the preferred would be wiped out in BK. For the record, everyone one of Daniel's companies goes BK. The borrowing base doesn't get reduced for companies with good financials. The bank sees serious issues which is why the reduced the borrowing base. You will likely see a "going concern" disclosure in the next report. You have been warned. I exited this zombie a while ago. Take any profit now.
rrb1981 profile picture
No, Goff will inject more capital if needed.

I expect this to get rolled into Goff’s Contango eventually.
Thanks Daniel. I appreciate your thoughts on MCEP.
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