Triad Hunter LLC, a wholly-owned subsidiary of Houston-based independent energy company Magnum Hunter Resources Corp., has closed on the acquisition of leasehold mineral interests located predominately in Noble County, Ohio from an undisclosed seller for a total purchase price of $24.8 million. The Utica Acreage consists of approximately 15,558 gross (12,186 net) acres predominately located in Noble County, Ohio. The net price paid per acre for this acquisition was $2,037.
Details
The valuation on the acreage is attractive and the purchase price is in line with previous transactions from Petroleum Development Corp., Rex Energy, and Gulfport Energy at an average price of $2,400/acre, noted analysts at Stifel Nicolaus following the announcement.
While most industry drilling and activity has taken place further north in Carroll, Jefferson, and Columbiana counties, the perceived core of the oil window, there is a move towards expansion outside of these counties, say the analysts. “Currently, there are six wells permitted in the Noble County, four by APC [Anadarko Petroleum Corp.] and two by CNX [Consol Energy Inc.] The acreage should be in the wet gas or live oil window, but testing will be needed to determine the real potential,” they continued.
The majority of the leasehold acreage acquired in this transaction is held by shallower production. The purchase includes all depths of 300 feet below the top of the Queenston Formation down to all further depths. There is no associated shallow production included with this acquisition. There is a possibility of a second closing on another block of similar acreage that may occur on or before April 16, 2012, assuming the seller can satisfy certain title deficiency requirements.
The acreage acquired is in close proximity to Triad Hunter’s existing acreage position in Washington and Noble Counties, Ohio, and now provides Triad Hunter approximately 18,187 gross (14,815 net) acres in these two counties, and a total of 23,214 gross (17,316 net) acres that are presently prospective for the Utica Shale.
Key drivers, risks
Going forward, analysts at Stifel Nicolaus believe that continued execution on the liquids growth front and the potential partial sale of its midstream assets later in the year are key drivers for the company with the largest risk being the leverage and outspending of cash flow.
The midstream monetizations, however, should help with funding gap. “We estimate a funding gap of $85 million in 2012 using $3.25/MMbtu gas or $93 million using $2.50 gas in 2012. The company has $80 million left under its revolver, the ability to issue additional Series D preferreds, and on ongoing common equity ATM in place. Additionally, the company has suggested selling a portion of its midstream business to a private equity partner and/or spinning out its MLP in 2H12,” the analysts concluded.
Gary C. Evans, chairman and CEO of Magnum Hunter, commented, “This acquisition represents another “bolt-on” transaction in one of Magnum Hunter’s core unconventional resource plays. It is truly a win-win acquisition because it not only significantly expands our existing acreage position in a strategic region in Ohio at a very attractive price per acre, but also now provides the expansion opportunity for our midstream business, Eureka Hunter Pipeline, to immediately begin construction work into a region presently not served by other competitors, yet greatly controlled now by our upstream Appalachian Division."
