September 5, 2013

Missouri River Resources quizzed on pipeline acquisition

Missouri River Resources quizzed on pipeline acquisition

By Jerry W. Kram
Skepticism ran high at the Northern Lights Community Center in New Town as representatives of Missouri River Resources tried to explain the financing and history behind the tribally owned oil company’s proposal to purchase a gathering pipeline system that collects oil from wells between Mandaree and Watford City.
MRR’s CEO David Williams faced a barrage of questions from a crowd of about 50 people who were mostly hostile to the idea of the acquisition of Arrow Pipelines for a reported $575 million. Williams told the crowd the reason for the forum was to have an open discussion and clear up misunderstandings about the acquisition.
“It comes down to an issue of trust,” Williams said. “That’s why we are trying to have an open forum.”
Williams noted several times that while the Tribal Business Council has approved proceeding with purchase of the pipeline company, the deal is still in its infancy and that there are no firm numbers for the cost or any of the deal’s details.
Carl Artman, an attorney for MRR laid out the history of Arrow Pipelines. The company was created in 2008, after the beginning of the oil boom, by a hedge fund called Och-Ziff. Back in 2008, the tribe was offered an opportunity to purchase 10 percent of Arrow Pipelines, which it accepted. Due the tribe’s shaky finances at that time, it fell behind in its payments for its 10 percent share.
Artman said that with the influx of oil tax revenue, the tribal council negotiated an amending agreement with Och-Ziff that brought the tribe’s payments up to date and gave the tribe the right to purchase an additional 10 percent of Arrow over time, at a rate of 1 percent a month. Currently the tribe holds a 13 percent stake in the pipeline company.
“The tribe is an equity owner in the company,” Artman said. “No matter who winds up buying Arrow Pipeline, the tribe will receive the going price for that equity. So it is in everybody’s interest for Och-Ziff to receive the highest price possible. It is possible that the tribe could increase the return on its investment manyfold.”
Williams explained the need for confidentiality in the negotiation process. He said that when major companies do financial deals, they don’t disclose any of the details until after the deal is finished, even to their shareholders. Those details, if released, could lead other companies to try muscle in on the deal or otherwise interfere in the transaction. The tribe has little choice but to play by those rules when it participates in that world, Williams said.
“In that world, information is power,” Williams said. “The more you know, the better deal you are going to get. The more other people know, the worse you’ll do. That’s just the way it works.”
One of the rumors that Williams addressed directly was that Spencer Wilkinson was going to benefit from the deal. Williams said that at one time, Wilkinson had an option to buy a few percent of the company, but he let those options lapse. He does not own any part of Arrow Pipelines, Williams said.
“Spencer is not a part of this process at all,” Williams said. “I only bring him up because that is what people have been bringing up to me for the last several weeks.”
Mark Fox, tribal tax director, went over some of the details of the proposed deal for Arrow Pipelines. Again, Artman emphasized that the numbers Fox referenced were speculative and will almost certainly be different if a deal is struck.
Fox said that of the proposed $575 million purchase, $140 million would come from a relatively low interest bank loan. $320 million would come from financing, most likely through a hedge fund. Fox said that section of funding was the most controversial in discussion among the tribal council members. The identified source of that funding is asking for a 17 percent return on its money after 4.5 years.
The remaining $115 million would be paid by the tribe, Fox said. However, since the tribe already has an equity stake in Arrow worth $65 million, it would only need $50 million in additional funds. After five years, Fox said, the pipeline would be worth an estimated $1.1 billion.
Williams said the tribe should be earning more money from the oil boom. MRR wasn’t formed until after nearly all of the oil acreage was already leased out. So the next best thing is for the tribe to become a middle man and take its fair share of the oil industry pie.
Fox answered a question about why the tribe hadn’t gotten into the business when the boom first began. He said that in 2008, the tribe’s budget was $30 million compared to $300 million today. Back then, the tribe’s cell phone bill was going unpaid so it could meet payroll.
“We just weren’t in a position to do anything like this back then,” Fox said.
Even after presentation, Marilyn Hudson of Parshall, expressed her doubts about the deal.
“I think we are out of our league here,” Hudson said. “Just let it go. Instead we should invest in the health and education of the people.”
Others weren’t so sure, noting that some estimates have the oil boom peaking within 10 years and production falling drastically soon after. They noted that the people will be here long after the oil companies leave and the tribe should be making long term investments to provide for future genarations.


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