Extraction Oil & Gas Heads Deeper Into D-J With Two Deals

About two months after its IPO, Extraction Oil & Gas Inc. (NASDAQ: XOG) is getting back to buying with a 16,800 net acre purchase in the Denver-Julesburg (D-J) Basin, the company said Dec. 12.

Extraction, with exploration and production centered in the D-J’s Wattenberg Field in Colorado, said it recently closed two transactions from two unrelated sellers for $177 million. The sellers were not disclosed.

“While these assets currently have minimal production, they provide XOG with 425 net, one-mile equivalent drilling locations,” said David Deckelbaum, an analyst at KeyBanc Capital Markets.

The deal works out to $10,500 per acre, “comparable with recent deals for higher quality Wattenberg acreage. While details were not provided, acquired locations are said to achieve sub-$45 per barrel breakeven [prices], placing the acreage quality toward the upper end of XOG's inventory,” Deckelbaum said.

To fund the transaction, Extraction said it would sell about 25 million shares—about 16% of outstanding shares—for net proceeds of $442 million.

“Pro forma for the transaction and the share issuance, we show XOG with about $550 million of liquidity at the end of 2017, including the undrawn amount on its $450 million revolver,” Deckelbaum said.

Based on the $177 million acquisition price, RBC Capital Markets LLC said the purchase price looks attractive but more information is needed on the exact location of the asset to evaluate the deal.

“However, XOG did indicate that offsetting operator well results have included some of the best results in the Wattenberg,” said Kyle Rhodes, RBC analyst.

Extraction will retain $265 million in proceeds from its private placement.

“We think the most likely use of these proceeds are the pre-funding of the Bayswater option acreage [9,100 net acres] which XOG has the ability to acquire for $180 million any time prior to March 31, 2017,” Rhodes said.

Extraction said in August it would purchase assets from Bayswater Exploration & Production for $420 million in cash. The company has an option to purchase additional acreage for $200 million.

Extraction said it has budgeted $60 million to $80 million not included in the $265 million of additional liquidity for further organic leasing in the basin.

“We intend to use the remaining $265 million of proceeds from today’s private placement to selectively add to our D-J Basin leasehold position,” said Mark Erickson, Extraction chairman and CEO. “Extraction intends to opportunistically continue to add to its premier D-J Basin acreage position and is actively evaluating several opportunities that meet its investment criteria.”

Credit Suisse, Barclays, Goldman Sachs, Tudor, Pickering Holt & Co. and Wells Fargo acted as placement agents for the stock offering.

Darren Barbee can be reached at dbarbee@hartenergy.com.