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Since at least December 2012, Goodrich Petroleum Corp. (NYSE: GDP) had considered selling a slice of its noncore Cotton Valley assets to raise capital.
In a third-quarter 2014 earnings release blotted by lower oil production, the Houston company said Nov. 4 it is selling its Beckville/Minden assets in Panola and Rusk counties, Texas, for $61 million.
Analysts said the sale price fell short of expectations that the noncore assets would bring in $75-$100 million.
The market is still worried about the company’s liquidity, said J. Marshall Adkins, analyst, Raymond James. Goodrich needs a joint venture partner.
“The Cotton Valley sale buys the company a little more time to secure a joint venture partner in the Tuscaloosa Marine Shale (TMS), which remains the single most important event for the company over the next three months,” Adkins said.
The Beckville and Minden fields consist of 37,400 acres. At year-end 2013, they had 143 billion cubic feet equivalent (Bcfe) in proved reserves. Goodrich is not spending any capital on the fields.
Mike Kelly, senior analyst, Global Hunter Securities, said the low price for the assets “will require management to give a convincing argument that its liquidity heading into 2015 is in good standing.”
Kelly cited a rising default risk, with the ratio of net debt/EBITDA climbing higher than five times by the end of fiscal year 2014. Goodrich also suffers from negative free cash flow and has drawn $118 million on a $230 million pro forma revolver.
While the price fell short of estimates, the deal was made in an environment of lower commodity pricing, said Gordon Douthat, senior analyst, Wells Fargo Securities.
“Execution on the sale is more important to us and liquidity [$173 million pro forma] improved as $61 million in proceeds exceed [the] $20 million in borrowing base reduction,” Douthat said.
Goodrich’s third-quarter 2014 results were mixed, with good well results. But clearly there is a hill to climb for a company that has staked a great deal in the TMS, where it has 300,000 net acres.
The company scaled down capex for its 30,000 net acres in the oil window of the Eagle Ford Shale from 2013. While it previously said its total capex for 2014 would be an estimated $325-$375 million, spending will be at the low end of that range, Goodrich said.
The agreement to sell the Beckville/Minden assets puts focus squarely on the TMS. The company drilled extremely good wells in the quarter, analysts said.
Two Mississippi wells were highlighted. One achieved peak 24-hour production rates to date of about 1,360 barrels of oil equivalent per day (boe/d), comprised of 1,290 barrels (bbl) of oil (95%). Another achieved a peak 24-hour production rate to date of about 1,215 boe/d, comprised of 1,140 bbl of oil (94%).
However, third-quarter production of 11.1 Mboe/d (43% liquids) missed estimates of 11.5 Mboe/d (44% liquids) by 4%, with oil production of 4.8 Mboe/d whiffing on estimates by 5.6%, said Ethan Bellamy, senior analyst, Baird Energy.
“TMS results remain impressive, though costs remain among the highest in the U.S. core plays,” Bellamy said.
Oil production averaged about 4,800 bbl/d, a 17% increase over the prior year period. Oil production grew 15% sequentially over the prior quarter. Since the end of the third quarter, oil production has averaged about 6,000 bbl/d, which is mid-point of fourth quarter guidance.
Goodrich’s fourth-quarter 2014 production guidance tempered the strength of its strong TMS well results.
The company’s adjusted revenues for the third quarter were $55.1 million compared to $53.5 million in 2013. Average realized price per unit was $9/Mcfe versus $6.91/ Mcfe in the prior year period.
Adjusted EBITDAX was $37.1 million for the quarter compared to $34.7 million in the prior year period.
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