Kerkorian Sitting On $700 Million Loss In Delta Petroleum

By Mara LemosStein

Of DOW JONES DAILY BANKRUPTCY REVIEW

Billionaire investor Kirk Kerkorian is feeling the sting from the failed strategic deal between Delta Petroleum Corp. (DPTR) and Opon International LLC. As a holder of 34% of Delta's outstanding shares, Kerkorian's Tracinda Corp. investment vehicle is carrying a paper-loss of approximately $700 million.

Denver-based Delta saw its stock and bond prices fall last week after it announced that discussions with Opon had broken down. Opon and Delta had signed a non-binding agreement in March under which Opon would invest $400 million for a 37.5% stake in some of Delta's assets in the Vega area of the Piceance Basin in Colorado.

Delta was going to use around $225 million of the proceeds to develop natural gas assets and the remainder to address balance sheet needs, including debt repayment.

Tracinda held approximately 93.8 million shares in Delta as of late May, most of which it acquired in two large tranches over the past two years, according to Securities and Exchange Commission filings. In February 2008, it paid $684 million, or $19 per share, for 36 million shares of the oil and gas exploration and production company. In another equity transaction in May 2009, Tracinda purchased 53.3 million shares for approximately $80 million, or $1.50 per share. The remaining 4.5 million shares were purchased in the open market in the last two months of 2008, when Delta's shares traded around $5 each, meaning another investment of $22 million by Tracinda.

At a current Delta share price of 78 cents per share, Tracinda's position in Delta Petroleum is worth approximately $73.2 million, compared with an investment of approximately $786 million since February 2008.

Through a spokeswoman, Tracinda declined to comment.

In late May, Delta registered Tracinda's stake with the SEC, which enables the investment firm to sell part or all of its position. Based on the latest regulatory filings, Tracinda hasn't completed any sales of Delta's shares, which would require disclosure.

Delta's motivation for seeking a strategic partner was the need to boost its liquidity to fund growth. It reported a loss of $328.8 million in 2009, compared with a loss of $468.3 million in 2008. As of March 31, it had $10 million in cash.

With the deal with Opon off the table, Delta now needs to seek a new strategic partner or raise new capital in the markets.

"In our mind, they do have a very good asset, I'm sure they'll be successful in finding another strategic [partner]," Douglas Childs, president of Opon International, said in an interview.

Childs said that Delta didn't accept its final offer for the Vega area assets, which was revised from the original non-binding terms. "Delta has a good asset there and we all worked very hard to get this thing to a point that would be acceptable to all parties, but the final offer that we made was not acceptable to Delta," said Childs. He declined to disclose the value of the offer that was rejected by Delta.

Opon is an investor and developer of oil and gas assets. Its financial partners are Deutsche Bank, Wells Fargo Bank, BBVA Compass, N.M. Rothschild & Sons, an unnamed private equity firm and other industry and institutional partners, according to its website.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-Mara Lemos Stein, Dow Jones Daily Bankruptcy Review; [e-mail]; 212-416-2017