2010-05-21-2010-05-20-2010-05-20

Transaction Type
Sellers
Buyers
Announce Date
Post Date
Close Date
Estimated Price
75MM
Description

Bought 8,300 acres in TX Permian Basin in Midland, Ector, Martin, Andrews counties, gaining 8.5 MMBOE 2P.

Denver-based Petroleum Development Corp. (Nasdaq: PETD) will acquire certain liquids-rich assets in the West Texas Wolfberry trend from an undisclosed private seller for cash and an exchange of other producing assets in a deal valued at $75 million.

Petroleum Development Corp. will pay $45 million in cash and swap its noncore Michigan producing gas assets, valued at $30 million by the private seller, for an entry position into the Wolfberry oil trend, comprising the Spraberry, Dean and Wolfcamp formations.

The assets include 72 wells on approximately 8,300 net acres primarily in Midland, Ector, Martin and Andrews counties. Petroleum Development will be operator. More than 120 Wolfberry prospects have been identified on 40-acre spacing.

Proved plus probable reserves are approximately 8.5 million barrels of oil equivalent (70% oil). Eighty-five of the 120 drilling leads are included in the proved plus probable reserves. Additionally, the company anticipates production growth in the Permian Basin of 900 barrels of oil equivalent over the next year.

In addition to the Wolfberry trend, the assets contain multiple oil-producing zones, including the Ellenberger, Strawn and Fusselman formations.

Petroleum Development Corp. chief executive Richard McCullough says, "We believe we will be able to deliver strong production growth from this Wolfberry trend acquisition as it has many operational similarities to our Wattenberg Field assets. The transaction provides us the opportunity to exchange developed nonstrategic Michigan producing gas assets for a foothold in the prolific Permian Basin through the high-growth Wolfberry trend."

Petroleum Development Corp. is planning a one-rig drilling program targeting the Wolfberry trend for fourth-quarter 2010.

The company will draw from its revolving credit facility to provide the cash portion of the transaction. The deal is expected to close on July 30 and will be structured as a like-kind exchange. The effective date is May 1.

Petroleum Development Corp. is focused in the Appalachian and Michigan Basins.

Pritchard Capital Partners analyst Ray Deacon estimates the metrics at $83,000 per daily flowing barrel based on the 12-month production projection, compared with $99,000 for other E&P trades, but just $8.82 per BOE on 2P reserves, "very cheap," says Deacon.

Likewise, Global Hunters Securities analyst Michael Bodino places the metrics at $13,889 per flowing Mcfe, and as "attractive" compared with recent Permian basin transactions: $16,154 per Mcfe per day by Berry Petroleum; $18,155 per Mcfe per day by Linn Energy acquiring Henry Resources assets; and $30,103 per Mcfe per day in the SandRidge Energy/Arena Resources merger.

Bodino says the sale multiple for the Michigan Basin properties of $2 Mcfe of proved reserves is attractive compared to the $1.24 per Mcfe multiple for the recent Linn Energy/Highmount Exploration & Production Michigan Basin transaction. The Michigan Basin assets had proved reserves of 15 Bcfe year-end 2009, with estimated 2010 production of 1.3 Bcfe (100% gas).