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Energen Corp. (NYSE: EGN) is cutting loose its natural gas utility business for $1.6 billion, as it becomes the latest company to switch to a pure E&P focus.
Energen said April 7 it signed a definitive stock purchase agreement with The Laclede Group Inc. (NYSE: LG) to sell Alabama Gas Corp. (Alagasco). The move will pay for drilling in the Permian Basin.
“This transaction allows Energen to clarify its corporate structure by becoming a pure exploration and production company, a trend being rewarded by the financial markets,” James McManus, Energen chair and CEO, said in the release.
The deal will reduce Energen’s indebtedness to a net of $520 million from $1.9 billion. The company is likely to ramp up development in the Wolfcamp shales in the coming years, said Gabriele Sorbara, analyst for Topeka Capital Markets.
Energen isn’t alone in zeroing in on non-core assets or operations by selling away the pieces that don’t fit.
After Devon Energy (NYSE: DVN) acquired Eagle Ford Shale acreage for $6 billion in 2013, the company immediately announced it would divest a large number of assets and spin off its midstream assets into a separate company, EnLink. Devon’s ownership interest is worth $7 billion.
On April 1, Devon closed the sale of its conventional Canadian business for $2.7 billion after taxes. It still has assets in the Rockies, Gulf Coast and Mid-Continent it wants off the books.
Likewise, Hess Corp. (NYSE: HES) spent 2013 transforming itself into a pure play E&P company by fully exiting downstream operations. The company generated $7.8 billion in proceeds from completed and announced asset sales, paid down $2.4 billion of short-term debt, funded its $1 billion cash flow deficit and added a $1 billion cushion to its balance sheet. It also returned money to shareholders.
Hess has several targets as an E&P, particularly in North Dakota’s Bakken Shale, where Hess is one of the two largest oil and gas producers. The company also has interests in the Gulf of Mexico and Norway.
Apache Corp. (NYSE: APA) has also shed more than $7 billion in assets across the globe as it looks to hone in on its U.S. assets.
For its Laclede deal, Energen will be paid $1.28 billion in cash lose about $320 million of debt. Energen’s after-tax proceeds are estimated to be $1.1 billion, after consideration of accelerated intangible drilling costs.
Cash proceeds will be used to reduce short-term indebtedness in order to accelerate drilling and development of its Permian Basin assets in 2015 and beyond.
Energen spent around $1 billion in acquisitions over four years to bring its total net acreage in the Permian to about 300,000 acres.
Spending in the Permian accounts for more than $1 billion of the company’s 2014 capital, drilling and development plans. The company sees substantial drilling potential in the Midland and Delaware basins, where it has an estimated 5,500 unrisked locations.
Energen’s 2014 Capital Plans | |||
---|---|---|---|
Basin | Formations | Wells (net) | Capital ($MM) |
Midland | Wolcamp/Cline, Wolfberry | 116 | 668 |
Delaware | 3rd Bone Spring, Wolfcamp | 34 | 315 |
Other | N/A | 21* | 42 |
Total Capital Investment | 1,025 | ||
Source: Energen Corp. *Includes 8 net injector wells |
J.P. Morgan Chase & Co. is financial advisor to Energen and Bradley Arant Boult Cummings LLP is legal counsel. The transaction is subject to state and federal regulatory approval and is expected to close in 2014.
Energen will remain a Birmingham, Ala.-based company and plans to continue its strong tradition of civic and community involvement.
Founded in 1857 as The Laclede Gas Light Co., Laclede Group’s gas utility segment serves St. Louis and eastern Missouri through Laclede Gas and Kansas City and western Missouri through Missouri Gas Energy. Laclede is headquartered in St. Louis.
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