Mid-Con Energy Partners LP (NASDAQ: MCEP) had earlier announced that it was planning to monetize all of its oil and natural gas assets in the Hugoton area. The company said it had already found a willing buyer and a definitive agreement drawn and it was expecting to unlock $18 million from the sale of the Hugoton assets.
But with the OPEC members failing to agree to cap oil production, questions have been raised about whether MCEP could be forced to monetize more of its assets to strengthen its balance sheet. The questions arise based on the reason MCEP said it was selling its Hugoton property. The management clearly said that they had determined that the company needed funds to reduce its indebtedness. As such, the proceeds from the sale of the Hugoton assets will go into paying servicing the company’s revolving credit facility.
There seems to be urgency in reducing the outstanding revolving credit considering that Mid-Con Energy Partners LP (NASDAQ: MCEP) said it expected to close the deal to sell the Hugoton properties before July 29. While monetizing assets within Hugoton area would help MCEP to reduce its indebtedness, the $18 million expected from the transaction is a small amount compared with the company’s debt position. MCEP’s balance sheet reflected a total debt of $169 million at the end of the latest quarter.
Mid-Con Energy Partners LP (NASDAQ: MCEP) and the OPEC issue
Even in the decision to dispose of the Hugoton assets, you can see that the management of MCEP hoped that crude oil prices would recover faster to enable the company to generate enough cash flow to keep reducing its other debts. While crude prices have improved from their historic lows in the recent months, the price recovery appears slow and the OPEC meeting that should have accelerated price improvement failed to reach a favorable deal.
OPEC members appeared to agree that oil prices would strengthen without them having to do anything about it. But that will hurt companies such as Mid-Con Energy Partners LP (NASDAQ: MCEP) that have been praying and hoping for a speedy recovery in the oil market.
Nevertheless, taking out the Hugoton assets should help Mid-Con Energy Partners LP (NASDAQ:MCEP) pare its operating costs and hopefully find way to save cash to pay down its debts.