![](/sites/default/files/styles/hart_news_article_image_640/public/image/2019/02/natural-gas-acquisition-ad-private-equity-ep-energy-oil-haynesville-covey-park.jpg?itok=pt4w9Egu)
EP Energy Corp. (NYSE: EPE) is set to walk away from the Haynesville and Bossier shales after a deal to sell substantially all assets there at roughly PDP prices.
EPE said in a Securities and Exchange Commission filing that it will receive $420 million for the Haynesville and Bossier assets from private-equity backed Covey Park Gas LLC. The two companies signed a purchase and sale agreement on March 18 and Covey Park has put down a deposit of $21 million.
The transaction is the latest in a series of natural gas purchases by private equity as commodity prices struggle.
The sale moves EPE toward better financial footing, though more is left to do, said Gordon Douthat, senior analyst with Wells Fargo Securities LLC, in a March 21 report.
“Pro forma for the sale, a successful transaction would put them at just above $2 billion in liquidity and leverage at year-end 2016/2017 moves to 3.7x/7.7x vs. 4.1x/8x,” Douthat said.
Gabriele Sorbara, analyst for Topeka Capital Markets, said the assets were essentially sold for their PDP valuation, but ahead of his estimates of up to $350 million.
Sorbara said that with the loss of its Haynesville reserves, EPE may see its revolver revised downward, making its leverage nearly the same as prior to the sale.
With leverage still elevated as 2017 hedges roll off, more work will be needed to address the balance sheet, Douthat said.
Covey Park will buy about 113 million cubic feet per day (MMcf/d) of current production and 22,884 net undeveloped acres. The transaction amount means Covey spent $6,000 per acre based on production worth $2,500 per thousand cubic feet equivalent per day.
In July 2015, Covey Park purchased Penn Virginia Corp.’s (NYSE: PVA) holdings in East Texas for $75 million. Covey Park is financially sponsored by Denham Capital.
The Haynesville acreage in East Texas and North Louisiana is 100% HBP.
The Haynesville acreage contains no proved undeveloped reserves and 205 Bcf of proved developed.
In 2015, EPE completed four wells and four refracks, including two completions in the fourth quarter. In February, well costs were about $10.2 million for a 7,500-foot lateral well.
The deal is expected to close in the second quarter of 2016.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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