To say it has been a bad year for Eagle Rock Energy Partners, L.P. (NASDAQ: EROC) investors would be an understatement. Just take a look at the following stock chart.
Despite the plunging stock price, company insiders have engaged in big insider buying over the past quarter. That's typically a very bullish signal for a stock because insiders really only buy if they think a stock is going higher. Let's see if that's the case at Eagle Rock Energy Partners.
A look at who is buying
Since the end of August, insiders bought just over 135,000 units against just 55,000 units sold. A big chunk of that buying occurred on August 18 when six officers or directors bought more than 53,000 units. However, the bulk of these units came from a restricted unit grant from the board of directors. The insiders receiving the grant didn't pay anything for these units, so I wouldn't exactly call this insider buying.
The other big insider trade was by Roger Fox on September 15. He bought just over 70,000 units, though like the restricted unit grants from before, these didn't cost him anything. Here is where it gets interesting. Mr. Fox was the SVP of Eagle Rock Energy Partners' midstream business before it was sold to Regency Energy Partners (NYSE: RGP). Interestingly enough Mr. Fox was expected to cease his employment with Eagle Rock Energy Partners after that deal's transition period closed, but he will now replace SVP of Upstream Business Joseph Schimelpfening on the company's board. Mr. Schimelpfening resigned on September 8 to pursue other opportunities. He was part of the group receiving the restricted units that were given to him just few weeks before resigning. Again, not a real bullish sign here either.
In fact, the only insiders actually paying cash to buy units this quarter were CEO Joseph Mills and Robert Haines, who is the interim CFO. Combined, the pair bought 11,000 units at an average of $4.09 per unit. That's actually a lot less than total units sold by insiders.
What to make of all this
Typically insider buying is a big bullish sign, but I'm not so sure that's the case with Eagle Rock Energy Partners. Most of the buys came from stock grants given to insiders by the board of directors. These grants are typically given to retain key employees, but that doesn't appear to be working as one of the recipients left within weeks of receiving the grant.
That being said, those insiders that are remaining with the company likely do see brighter days ahead for the company. These insiders now have a much stronger balance sheet to work with; the midstream deal really cleaned up its balance sheet as its debt fell from $1.3 billion to just $250 million post-closing as we see on the following slide.
Source: Eagle Rock Energy Partners L.P. Investor Presentation.
Even better, its liquidity went from a worrisome $46.5 million to a robust $389.2 million. This is providing the company with a lot of flexibility as it focuses on growing its upstream oil and gas business.
On top of that Eagle Rock Energy Partners has a very compelling acreage position in the SCOOP, which it could develop internally or monetize. Either option would likely bring upside as, for example, if the company monetized this asset it could use those proceeds to acquire assets that would better fit within the company's MLP structure. Add it all up, and there is a catalyst brewing at Eagle Rock Energy Partners that insiders see as a reason to buy.
Investor takeaway
These opportunities suggest that Eagle Rock Energy Partners at least has the assets and flexibility to use to reverse the decline in its unit price. This is why insiders are showing signs of bullishness by increasing their ownership stake in the company. While these insiders still have a lot of work to do, including developing a firm plan for growth, there are enough positives here to keep insiders adding units.
