Gulfport Energy Spins Off Permian Assets To Diamondback
To buy all outstanding equity interests in Windsor Permian LLC, which holds 30,025 net acres of oil and gas interests in W TX Permian Basin, gaining 1,019 BOE/d, 12.88 MMBOE proved.
Diamondback Energy Inc., Midland, Texas, (Nasdaq: FANG) plans to acquire all the outstanding equity interests in Windsor Permian LLC, a affiliate of Gulfport Energy Corp., Houston, (Nasdaq: GPOR) for $64 million in debt plus an equity interest in Diamondback.
Diamondback will issue a non-interest bearing promissory note in exchange for the assets. Gulfport will also gain 35% of Diamondback's outstanding common stock immediately prior to the closing of the Diamondback IPO. The promissory note will be repaid in full upon the closing of the Diamondback IPO with a portion of the net proceeds from that offering.
Windsor Permian’s assets as of March 31 were approximately 30,025 net acres of oil and gas interests in the Permian Basin in West Texas. Gulfport’s share of the assets is 15,300 net acres of leasehold.
Production from Gulfport’s stake during the fourth quarter averaged approximately 1,019 barrels of oil equivalent per day. Proved reserves as of year-end 2011 were 12.88 million barrels equivalent and proved and probable reserves were 23.82 million barrels equivalent.
Diamondback, Windsor Permian and DB Holdings are entities controlled by Wexford Capital LP. Charles E. Davidson, the chairman and chief investment officer of Wexford, beneficially owned approximately 9.5% of Gulfport's outstanding common stock as of March 13. Mike Liddell, Gulfport's chairman, currently is the operating member and chairman of Windsor Permian and has an interest in DB Holdings.
Jefferies Equity Research analyst Biju Z Perincheril says based on the projected value of the Diamondback IPO, Gulfport’s total expected proceeds from the deal will be in the $145-million to $175-million range.
“Metrics for recent Wolfberry deals have been $130,000 to 159,000 per flowing boe and $13.50-$16.50/boe of proved reserves,” says Perincheril. “Using these metrics and an assumed 20% IPO discount, we estimate GPOR’s 35% ownership in Diamondback could be valued in the range of $90-110 million.”
Perincheril adds Jefferies believes the potential monetization of Permian assets makes strategic sense.
“First, the company will realize an immediate cash inflow that can be used to accelerate development of its Utica properties. Second, GPOR can still participate in potential upside from horizontal drilling or other developments on these properties via its stake in Diamondback. Finally, the transaction will discontinue non-op spending in the Permian, allowing the company to have fuller control of its capital budget.”