Crescent Buys Into Uinta

Purchase of Uinta Basin assets producing about 7,800 BOE per day, 88% of which is oil and liquids.

Crescent Point Energy Corp. (Toronto: CPG) plans to buy privately-held Ute Energy Upstream Holdings LLC for about $861 million in cash and assumed debt.

The agreement for the Ute acquisition includes $784 million in cash and the assumption of $77 million in Ute net debt. The acquisition is expected to close around the end of November.

Ute’s primary operated areas in the Uinta Basin are Randlett and Horseshoe Bend, where it has 41,000 and 29,000 net acres respectively. Of the 166,000 net acres, about 87,000 are non-operated, with 29,000 in Blacktail Ridge and 30,000 in Lake Canyon.

The Ute assets have current production of about 7,800 barrels of oil equivalent (BOE) per day, of which 88% is oil and liquids, and about 590 gross (270 net) sections of land in the center of the Uinta Basin light oil resource play in northeast Utah.

Crescent said the properties contain more than 1,000 net internally identified low-risk drilling locations, of which 253 proved plus probable locations have been booked to reserves. More than 400 net drilling locations are 100% operated, and are low-risk vertical infill wells.

Production from the various zones in the central basin is 42-degree API yellow wax crude and 32 degree-API black wax crude, which trade at a differential of 16 to 18% against West Texas intermediate.

Operating costs in the region are about $9 per BOE and transport costs are estimated at $3 per B OE. Royalties are about 23%, Crescent reported. GLJ Petroleum Consultants have determined that proved plus probable reserves are about 55.1 million BOE, while proved reserves are 37.6 million BOE. The reserve life index of proved plus probable reserves is 19.4 years, while the proved reserves have an index of 13.2 years.

Crescent Point estimated that the purchase price (after adjusting for the estimated land value of $11 million, or $700 per acre of undeveloped land), is about 6.5 times estimated cash flows. The current production multiple is about $96,154 per producing BOE, based on current production of 7,800 BOE per day. The price also represents a reserves multiple of about $13.61 per proved and probable BOE and $19.95 per proved BOE.

Those metrics are based on estimates that West Texas intermediate will hold around $90 per barrel nd natural gas prices will average around $3.75 per MMBtu.

Crescent Point said it believes the Ute acquisition will establish a new core area for long-term growth and that the acquired properties have significant upside potential through vertical and horizontal infill drilling and multi-stage fracture stimulation.

Scott Saxbert, Crescent Point chief executive and president, said the transaction marks the company’s initial position in the Uinta Basin. “This resource play is a new core area for Crescent Point and is consistent with our strategy of acquiring high-quality large oil-in-place pools with long-term upside potential. We believe we can apply the extensive horizontal multi-stage fracture stimulation expertise that we’ve developed in Canada to the Uinta Basin to deliver long-term value to our shareholders,” he said.

Based on the acquisition, Crescent Point has increased its projected capital expenditure plans for 2012 to C$1.4 billion, an increase of C$150 million. A portion of the increase is expected to be allocated to the development of the acquired Ute assets. The remainder of the increase in capital expenditures will be spent on drilling, completions, land and facilities.

Crescent Point’s average daily production in 2012 is expected to increase to more than 97,000 BOE per day from 95,000 BOE per day and its end of year production rate is expected to increase to more than 109,000 BOE per day, from the current estimate of 100,000 BOE per day.

Wells Fargo Securities LLC said the transaction gives a good benchmark for similar operators in the Uinta Basin. Crescent’s entry into the region can be a catalyst to add additional midstream infrastructure and improve the basin’s overall potential.

BMO Capital Markets and RBC Capital Markets are financial advisors to Crescent Point, while Evercore Partners is a strategic advisor. Tudor, Pickering, Holt & Co. is a financial advisor to Ute with respect to the Ute Acquisition and Credit Suisse Securities (USA) LLC is strategic advisor to Ute.

Crescent Point is an upstream energy company based in Calgary. Denver-based Ute Energy was formed in 2005 by the Ute Indian Tribe of the Uintah and Ouray Reservation. It is backed by private equity from Quantum Energy Partners and Quantum Resources Management.