Evolution Petroleum Acquires Tokyo Gas Barnett Shale Assets

Evolution Petroleum acquired about 21,000 net acres in the Barnett Shale in North Texas from Tokyo Gas Americas Ltd., further diversifying the Houston-based oil and gas company’s asset base, according to its top exec.

“This transaction represents another substantive step in the company’s efforts to further diversify and grow its asset base through the acquisition of primarily long-life, developed oil and gas properties, which will be supportive of the company’s dividend,” Jason Brown, president and CEO of Evolution Petroleum, said in a statement on May 10.

Evolution Petroleum is an oil and gas company with a long-term goal to build a diversified portfolio of oil and gas assets primarily through acquisition, while seeking opportunities to maintain and increase production through selective development, production enhancement and other exploitation efforts on its properties.

Currently, Evolution’s primary assets are royalty and working interests in a CO₂ EOR project in Louisiana’s Delhi Field. The company also holds working interest in a secondary recovery project in Wyoming’s Hamilton Dome Field.

In a May 10 company release, Evolution said it had closed an acquisition of nonoperated oil and gas assets in the Barnett Shale from Tokyo Gas subsidiary, TG Barnett Resources LP, for $19.6 million in cash. The asset footprint consists of approximately 21,000 net acres HBP across nine counties in the Barnett Shale Basin of North Texas.

In his statement, Brown said the acquired assets are similar to Evolution’s other properties with long-life characteristics in basins that have stable regulatory environments and access to a premium market.

“The acquisition is highly accretive and should generate a high return on the cash we accumulated over the last few years and utilized in the transaction,” he said. “It further diversifies our asset portfolio into gas which reduces volatility risk and improves the sustainability of our dividend and exemplifies the type of properties we continue to consider for further acquisitions.”

The acquired acreage has an approximate average working interest of 17% and average royalty interest of 14%. The properties consist of approximately 50 Bcf of natural gas and 5 million barrels of liquids proved developed producing reserves based on the seller’s Netherland Sewell reserve report using weighted average prices of $51.41/bbl for oil and $2.74/Mcf for natural gas.

According to its release, Evolution acquired substantially all of the assets, however a portion of the nonoperated dry gas working interests were excluded as a result of potential title defects that the seller was unable to timely cure. Upon resolution of the potential title defects, Evolution said it may purchase those interests at a mutually agreed upon price.

Estimated current net production from the assets is approximately 17 MMcf/d of natural gas and 1,300 bbl/d of liquids. After the removal of the excluded assets, which were all dry gas, the commodity mix has increased to approximately 35% natural gas liquids and 65% natural gas.

Evolution said funded the transaction primarily with cash on hand, plus a small draw on the company’s existing bank facility that is expected to be repaid quickly from operating cash flow.

The transaction closed May 7, according to the company release, with an effective date of Jan. 7.