Eclipse Resources debt upgraded as output plan to resume

  • EnCap-backed firm draws glint of sunshine
  • Energy firm plans to increase production
  • Prospects for company’s debt improve


Eclipse Resources saw its debt upgraded following a $142 million common-stock offering and after the State College, Pennsylvania, oil-and-gas firm said it would resume production plans.

While Eclipse’s debt remains in speculative territory, the company, backed by EnCap Investments LP, appears to be gaining traction as energy prices stabilize. Elsewhere in the sector, more companies are garnering distressed-debt ratings.

“Given current forward commodity prices, we expect to cease our voluntary production curtailment program at the end of the third quarter of 2016 and to complete our drilled uncompleted wells through the remainder of fiscal 2016 and into the first quarter of fiscal 2017,” the company said in a prospectus.

‘Improving margins’

Moody’s Investors Service upgraded Eclipse Resources’ corporate-family rating to Caa1 from Caa2. Obligations with that rating are judged to be speculative, of poor standing and subject to very high credit risk, according to Moody’s definitions.

“With considerable cash balances and improving cash margins on its production, Eclipse is poised to return to a production growth trajectory that should allow for meaningful deleveraging,” Moody’s analyst John Thieroff said in a note.

Moody’s cited Eclipse’s “improved liquidity and good visibility to fund a more robust drilling program through 2017 than we had previously anticipated.” That’s due mostly to proceeds from its equity offering, led by Goldman Sachs, KeyBanc Capital Markets, Morgan Stanley and BMO Capital Markets.

Eclipse had curtailed additional production in 2016 and kept its output at about 200 million cubic feet equivalent of natural gas a day, a June company presentation to investors shows.

Looking ahead, Eclipse Resources plans to lift fourth-quarter 2016 production to about 240 million cubic feet equivalent of natural gas per day, a 20 percent increase from its earlier guidance.

In fiscal 2017, it expects production growth between 40 percent and 60 percent ahead of its forecast production for 2016.

Eclipse Resources operates in the Utica and Marcellus shale formations in Ohio, Pennsylvania and surrounding areas.

The firm has worked to hold down costs by drilling longer wells. In June, the company said it drilled and completed the longest onshore horizontal lateral well ever in the U.S., about 18,500 feet or more than three miles.

At March 31, the company held adjusted cash of $259 million, with debt of $509 million in the form of senior unsecured notes due 2023.

Stock performance

After trading as high as $27.18 a share in second-quarter 2014, the stock traded as low as 65 cents a share in first-quarter 2016. The stock closed at $2.48 a share on July 11.

For the first quarter, adjusted EBITDA rose 22 percent to $25.3 million from $20.7 million in the year-ago period.

EnCap Investments LP invested in Eclipse Resources back in 2011 and owns about 174.5 million shares either directly or indirectly, according to filings and the firm’s website.

Among the company’s institutional holders, Kohlberg, Kravis Roberts & Co owned 11 million shares and Blackstone Group owned about 3.4 million shares as of March 31.

Action Item: Eclipse Resources investor presentation:

A natural gas rig in Springfield Township, Pennsylvania, on Nov. 30, 2012. Springfield Township sits in the center of the Marcellus Shale, a deep repository of natural gas that runs through West Virginia, Ohio, Pennsylvania and New York and that the energy industry has aggressively sought to drill. Photo courtesy Reuters/Brett Carlsen.