EPL Buys Oily Gulf Of Mexico Assets From China’s Nexen For $70.4 Million
To buy oil-weighted properties in shallow water GoM with 900 BOE/d current production.
EPL Oil & Gas Inc. (NYSE: EPL) announced Jan. 2 that it has executed a purchase and sale agreement of oil-weighted properties in the shallow water central Gulf of Mexico for $70.4 million.
The deal gives Houston’s EPL the Eugene Island 258/259 field owned by Nexen Petroleum Offshore U.S.A. Inc., a subsidiary of China state-owned CNOOC Ltd. The field consists of five leases – 254, 255, 257, 258 and 259 – with 100% working interest.
Current production is about 900 net barrels of oil equivalent per day (BOE/d), about 95% of which is oil.
EPL estimates proved reserves as of Sept. 1 consisted of about 2.6 million BOE of proved developed producing reserves, about 91% of which is oil.
EPL said the field areas show shallow decline and the company has identified upside potential beyond the current proved reserves. EPL also estimates the asset retirement obligation (ARO) to be assumed in the acquisition is expected to total roughly $27 million.
The price metrics for the deal, including ARO, are about $108,222 per BOE/d flowing and $37.46 per proved BOE reserves, which are substantially higher than the 2013 averages for oil-weighted Gulf M&A deals, said Curtis Trimble, an analyst for Global Hunter Securities, in a Jan. 2 flash note.
“Despite somewhat high price comps, this deal should be a positive for GOM Shelf pure-player EPL, which has been investing heavily in the acquisition of new seismic data over this particular part of the shelf,” Trimble said. “These five blocks, located in the far southeastern corner of the Eugene Island area, are right in the heart of EPL's position and help to bridge the gap between the company's legacy assets in South Timbalier and the Hilcorp core assets in Ship Shoal and South Pass acquired in 2012.”
In February 2012, Nexen said in its annual report that its shelf producing assets located offshore Louisiana and Eugene Island areas 255, 257, 258 and 259 among others would little capital expenditure.
“Given the mature nature of these assets, our 2012 capital investment on these assets is expected to be minimal,” the company said in a Securities and Exchange Commission filing.
Gary Hanna, EPL’s president and CEO, said the purchase adds another layer of long-lived oil production to its current asset base and additional upside.
“The assets are within our shallow water Central GOM focus area, which allows for excellent operational synergies and efficient integration,” Hanna said. “As our successful strategy has demonstrated with prior acquisitions, we will apply our proven regional knowledge and technical skills to exploit the upside potential of these assets.”
EPL is a $1.1 billion company with 1P reserves of 77 MMBOE, 61% of which is oil.
The purchase dovetails with EPL’s commitment to acquire new 3-D datasets. A new Full Azimuth Nodal dataset is currently being shot covering these field areas.
“We expect to have the data in house during the second half of 2014. Additionally, post transaction, we will maintain substantial liquidity through our expanded revolving credit facility,” Hanna said.
EPL has worked with its lenders to expand the borrowing base under its senior secured credit facility to $475 million from $425 million, maintaining liquidity for the company.
The deal should close by late January.