Formation of MLP, partial IPO possibilities

Venoco Inc. (NYSE: VQ), an independent energy company with substantial holdings in California’s oily Monterey Shale, filed its proxy for the take-private offer of $12.50 per share in cash.

The definitive merger agreement under which Timothy M. Marquez, Venoco’s chairman and CEO, who controls 50.3% of Venoco’s common stock, will acquire Venoco through a wholly owned entity, Denver Parent Corp., was announced by the company January 17.

Marquez intends to finance the offer through a combination of natural gas hedge closures worth roughly $30 million, bank debt of $235 million, and new exchangeable notes issued by Denver Parent Corp. of $152 million, noted Global Hunter Securities in a February 14 note to investors.

The formation of an upstream master limited partnership (MLP) and an initial public offering (IPO) of part of the business is also a possibility. An estimated $350 million in proceeds would be used to redeem the parent company notes.

“The key to the MLP and this take-private offer is the growing value of the company’s 22.3% back-in working interest in the Hastings Field. This field is currently undergoing CO2 injection by operator Denbury Resources. The company estimates that first production for its interest should start in 2014 at 4,000 Bblpd and increase to 5,000 Bblpd in 2015. The field is a long-life oil asset that (utilizing a $90 oil deck) is worth an estimated $275 million. This field receives LLS pricing, currently $115.00 per barrel, and utilizing this price deck would increase the net present value of VQ’s interest to over $400 million,” added the analysts.