Bill Barrett Sells
Purchase of 254,000 net acres producing about 65 MMcfe per day in CO and WY.
Vanguard Natural Resources LLC (NYSE: VNR) plans to buy about 254,000 net producing acres in Colorado and Wyoming from Bill Barret Corp. (NYSE: BBG) for $335 million in cash.
The assets have a total net current production of 65 million cubic feet equivalent (MMcfe) per day, 86% of which comes from natural gas. At current production levels, the reserves are expected to last 13 years.
The assets include proven reserves of 233.4 billion cubic feet (Bcf) of natural gas, 3.6 million barrels (bbl) of oil, 7.6 million bbl of natural gas liquids, for a total 300.4 Bcfe of assets in the Piceance, Wind River and Powder River basins. About 80% of the total reserves are proved, developed.
The assets include about 184,000 net acres in the Wind River Basin (97% undeveloped, 12% held by production with majority of leases expiring in 2015 and beyond) and 67,000 net acres in the Powder River Basin (42% undeveloped, 93% held by production). In the Piceance Basin, Vanguard acquires 4,000 net acres, 37% of which is undeveloped, 95% held by production.
Working interest begins at 18% but increases to 21% on Jan. 1, 2014, increases to 24% on Jan. 1, 2015 and remains at 26% beginning on Jan. 1, 2016. This structure was designed to maintain cash flow from the acquisition without the need for any capital spending until 2016, Vanguard reported.
By hedging natural gas at increasing strip pricing each successive year and having an increased working interest each successive year in the Piceance Basin, Vanguard said it plans to offset the impact of the expected natural production declines and consequently, the cash flow remains relatively stable through 2016.
Vanguard intends to significantly hedge the expected natural gas and oil production through 2016 and the expected natural gas liquids production in 2013.
Scott W. Smith, Vanguard president and chief executive, said the company recently had a successful bod and equity offerings and that it will fund the acquisition from its existing reserve-based credit facility. Vanguard anticipates that after closing this acquisition and the banks perform an interim borrowing base redetermination, and the company will have ample liquidity to continue its growth through acquisitions strategy.
“These assets will be a great addition to our portfolio as they exhibit the characteristics we are looking for: a mature developed production base, predictable operating costs and significant free cash flow with very limited need for reinvested capital based on our acquisition structure,” Smith said.
The effective date of the acquisition is Oct. 1 and the expected closing is Dec. 31.
Vanguard said the assets contain a significant number of proved drilling locations in the Piceance Basin that can be drilled at attractive rates of return in a $4.50 natural gas price environment. In addition, there are a significant number of proved drilling locations in the Powder River Basin that are not economically attractive at current strip pricing but would be viable projects if natural gas prices rise.
Barrett chairman, chief executive and president Fred Barrett said the sale of the natural gas assets allows the company to focus on its long-term strategic objectives.
“The monetization of non-core, lower growth assets is part of a prudent long-term strategy to optimize our portfolio and focus investment dollars in programs that offer the highest returns and best long-term growth profile. Based on our allocations, this transaction pegs the pre-sale market value of our Gibson Gulch asset at approximately $1 billion, which I believe has not been recognized in the market. Proceeds will be applied to debt reduction in the near term and to fund our low-risk reinvestment opportunities," he said.
The transaction includes the sale of an initial 18% working interest in Gibson Gulch that progresses to a 26% interest in 2016, and Bill Barrett Corp. will remain the operator.
Bill Barrett will retain all of its leases in its emerging Powder River Basin Deep stacked oil play. It has the right to propose farmouts, under pre-defined terms, on the Wind River Basin properties to leverage its experience in this area for exploration upside potential.
Bill Barrett Corp., headquartered in Denver, Colo. Is an upstream oil and gas company with assets in the Rocky Mountain region of the U.S. Vanguard Natural Resources is a publicly-traded limited liability company based in Houston that focuses on oil and natural gas properties n the Permian Basin in West Texas and New Mexico, the Big Horn Basin in Wyoming and Montana, the Arkoma Basin in Arkansas and Oklahoma, the Williston Basin in North Dakota and Montana, in Mississippi, and in South Texas.
David Tameroon, a senior analyst with Wells Fargo Securities, said the sale was a good move for Bill Barrett Corp. The deal will allow it to monetize some of its non-core assets and will help bridge a cash flow gap for 2013. An initial analysis of the transaction shows it accretive to earnings per share. “Despite being slightly dilutive to our NAV, we think this transaction makes sense,” he wrote.