EnerVest, EV Energy Look To Corner Barnett Shale With $1.2B Add-On

Acquired 82,000 net acres with 763 active wells in core and combo areas of North Texas Barnett shale primarily in Montague, Wise, Denton, Parker & Tarrant counties, gaining 43 MMcfe/d, 405 Bcfe proved.

John Walker’s privately held EnerVest Ltd. and related MLP EV Energy Partners LP, Houston, (Nasdaq: EVEP) have expanded their interests in the Barnett shale in North Texas via two acquisitions totaling $1.2 billion in cash.

Encana Oil & Gas (USA) Inc., a subsidiary of Encana Corp., Calgary, (NYSE: ECA) sold all of its North Texas natural gas producing properties to EnerVest for $975 million. The second deal involves an undisclosed private seller for $233 million.

EV Energy acquired an approximate 31% interest in both acquisitions for a combined $372.3 million.

"These acquisitions are consistent with our stated strategy of establishing dominant positions in proven resource basins,” says EnerVest chairman and chief executive John Walker.

The assets include 82,000 net acres (25,000 net to EV Energy; 79% held by production) in the core and combo areas of the Barnett shale, deemed as “liquids rich” by the company, primarily in Montague, Wise, Denton, Parker and Tarrant counties. Current net daily production is approximately 43 million cubic feet of gas equivalent (79% gas; 21% liquids) from 763 active wells (92% operated). The reserves-to-production ratio is 25.8 years. Upside includes more than 300 identified proved undeveloped drilling locations.

Estimated proved reserves net to EV Energy are approximately 405 billion cubic feet equivalent (53% proved developed). EV Energy plans to initially finance its portion of the acquisitions with debt.

The Encana deal involves production of 125 MMcfe per day and includes associated gathering pipelines on about 50,000 net acres in the Fort Worth Basin.

With these deals, EV Energy and EnerVest will have acquired more than $2 billion of Barnett shale assets in the past year, making the group one of the largest producers in the basin, says Walker. "The Encana transaction also represents the largest acquisition we've ever done."

Encana president and chief executive Randy Eresman says, “The sale of this North Texas asset in the Barnett shale is part of Encana’s ongoing portfolio optimization aimed at enhancing the long-term value of the company’s vast resource potential. Since we first acquired substantive Barnett shale production in North Texas seven years ago, we have greatly expanded production and assets on other earlier-life resource plays in Texas and Louisiana.”

Encana anticipates raising some $1.7 billion in net divestitures by year-end, within the company’s 2011 target of between $1 billion and $2 billion. Encana continues to market a joint-venture partnership on its undeveloped lands in its Cutbank Ridge resource play in British Columbia, and the sale of its Cutbank Ridge midstream assets in British Columbia and Alberta.

Encana recently completed the sale of a portion of its Piceance Basin midstream assets for approximately $590 million.

Eresman adds, “As we look to 2012, we continue to focus on our highest return projects and we plan to direct a greater portion of our capital investment to grow our oil and natural gas liquids production from the more than 2 million net acres we hold on liquids-rich lands across North America,”

The effective date is Nov. 1.

RBC Richardson Barris advisor to EV Energy and EnerVest on the Encana acquisition. Scotia Waterous (USA) Inc. is advisor to Encana.

The Encana portion of the transaction implies a valuation of $7,800 per flowing Mcfe, according to Global Hunter Securities analyst Michael Bodino, while the combined Encana and private portion of the transaction implies an $8,700 per flowing Mcfe valuation. The acreage trades a $14,732 per acre.

“The deal metrics are in line with the sale of Range Resource’s assets in the Barnett earlier this year,” says Bodino, which were valued at $8,000 per flowing Mcfe and $17,308 per acre.