Marcellus Royalty Trust article featured in Oil and Gas Investor

Marcellus Royalty Trust article featured in Oil and Gas Investor

A publicly traded royalty trust will help privately held Energy Corporation of America develop its Marcellus assets without giving up operational control.

October 10th, 2010, Oil & Gas Investor,
By Bertie Taylor

When the management of Energy Corporation of America (ECA) needed a capital source to accelerate development of its large resource base in Appalachia, the team knew it wanted to hang on to opportunities to participate in the upside. After reviewing several financing options, including debt, equity, royalty-trust equity and mezzanine, royalty- trust equity quickly stood out as a win-win for the company and its unitholders.

When ECA was doing its road show for the trust, the way the company kept its own money involved helped sell the story, says John Mork, ECA president and chief executive. ECA kept approximately 50% of the trust units and has a 70% economic interest in the assets because it retained 50% of the wells to be drilled.

The timing of the road show was interesting. “During the first week, the whole market dropped 6%; the HBO television special ‘Gasland’ premiered; the BP oil-spill saga was in full throttle; and, any hiccup in drilling in Appalachia was being presented by the media as aMarcellus problem,” saysMork.

“Nevertheless, the demand was twice the offering size. The range of the offering was $19 to $21 and we priced at $20. In looking at the product, the wells have performed 40% better than what the reserve report indicated.”

The management team was confident the product would sell even in difficult markets. “The royalty trust is relatively low-cost, nonrecourse capital and it gives unitholders a longterm, stable return. Once the basic structure of the trust was developed, the company and underwriters put a lot of energy into designing a product that would be secure for investors and easy for the market to understand. Plus, ECA Marcellus Trust I was actually designed to be successful in a low-gas-price environment.”

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