Coal Producer Buys Permian Minerals From Wing Resources For $145 Million

[Editor's note: Updated at 2:08 p.m. CDT June 24.]

Alliance Resource Partners LP said June 24 it will add to its growing position of oil and gas minerals in the Permian Basin through the multimillion-dollar acquisition of private-equity backed Wing Resources LLC.

Based in Tulsa, Okla., Alliance is the second largest coal producer in the eastern U.S. The company also began pursuing opportunities in addition to coal in late 2014. This includes a portfolio of oil and gas minerals that Alliance CEO Joseph W. Craft III calls the company’s “growth platform for the future.”

On June 24, Alliance said it agreed to acquire oil and gas mineral interests from Wing Resources and its affiliates for $145 million cash. Wing Resources is a Permian Basin-focused mineral and royalty acquisition company backed by private-equity firm Natural Gas Partners. The Dallas-based company was founded by Nick Varel in 2016.

“We grew [Wing Resources] organically one track at a time and one acquisition at a time,” Varel told Hart Energy in a 2018 interview. “We timed the market right by purchasing large amounts of Tier-One minerals in the Permian Basin in 2016 and 2017. As a result, we have experienced massive well growth.”

__________________________________________________________________________________________________

RELATED:

Oil and Gas Investor’s Forty Under 40 2018 Honorees Feat. Wing Resources’ Nick Varel

__________________________________________________________________________________________________

Wing’s assets in the Permian cover more than 200,000 gross acres with interest in over 4,000 wells, according to the company website. The assets are located throughout the Midland Basin and Delaware Basin of West Texas and New Mexico.

Alliance noted in its release on June 24 that the Wing assets are under “active development by well-capitalized operators bringing visible and near-term growth to current production.”

Through the acquisition from Wing, Alliance said it added roughly 9,000 net royalty acres in the Midland Basin.

According to Alliance, the Wing assets have 783 gross horizontal wells currently producing on its acreage. The wells deliver an estimated 460 barrels of oil equivalent per day (70% oil, 14% NGL) net to the Wing interests. The assets also include 441 drilled but uncompleted wells and 279 permits. 

“The Wing acquisition enhances our already significant ownership position in the prolific, liquids-rich Permian Basin and, upon completion, these assets are expected to complement our existing coal and oil and gas businesses, contributing to long-term cash flow growth for [Alliance] and value creation for our unitholders,” Craft, who also serves as Alliance’s chairman and president, said in a statement on June 24.

Following close of the Wing acquisition expected by early August, Alliance will have exposure to more than 400,000 gross acres in the Permian Basin. In total, Alliance will directly own about 51,000 net royalty acres concentrated in the Permian Basin (47%), Scoop/Stack (40%), Bakken (8%) and Appalachian Basin (5%).

Alliance also indirectly owns roughly 3,950 net royalty acres through its limited partner interest in AllDale Minerals III LP. The company acquired its stake in AllDale through a $176 million acquisition that had closed in January.

At the time, analysts with Seaport Global Energy Research noted the significance that though Alliance won’t be producing any oil and gas, the company will continue to collect royalty checks through its mineral interests.

“The deal, which will be funded by cash on hand and the company’s credit facility, could pave the way for a higher multiple,” the analysts wrote in a Jan. 7 research note.

The Seaport analysts used two publicly-traded oil and gas mineral companies, Blackstone Minerals LP and Viper Energy Partners LP, as an example.

“On consensus estimates, [Blackstone Minerals] and [Viper Energy Partners] trade at 2019 EV/EBITDA multiples of 9.3x and 7.1x, respectively,” the analysts wrote. “Compare that to [Alliance], which is valued at only 4.1x consensus 2019 expectations.”

Alliance said it will fund the purchase of Wing with cash on hand and borrowings under its credit facility. The agreement has an effective date of May 1.

Emily Patsy can be reached at epatsy@hartenergy.com.