Bill Barrett Corp. (NYSE: BBG) has signed a purchase and sale agreement with an affiliate of Vanguard Natural Resources LLC for the sale of certain of the company's non-core natural gas assets including all Wind River Basin natural gas producing properties, the Powder River Basin coal bed methane (CBM) assets and a working interest in its Gibson Gulch-Piceance Basin development property. Total consideration is $335 million.
In a prepared statement, Bill Barrett chairman, CEO, and president Fred Barrett said the transaction is closely aligned with the company’s long-term objectives, and highlighted two key points. “One, the monetization of non-core, lower growth assets is part of a prudent long-term strategy to optimize our portfolio and focus investment dollars in programs that offer the highest returns and best long-term growth profile. Two, based on our allocations, this transaction pegs the pre-sale market value of our Gibson Gulch asset at approximately $1 billion, which I believe has not been recognized in the market.”
The transaction includes the sale of an initial 18% working interest in Gibson Gulch that progresses to a 26% interest in 2016, and Bill Barrett Corp. will retain operatorship. At closing, the transaction will include in the three areas approximately: 254,000 net acres of leasehold, predominantly in the Wind River and Powder River basins; 239 Bcfe of total proved reserves (based on year-end 2011); and 50 MMcfe/d of projected 2013 production. The company retains all of its leases in its emerging Powder River Basin Deep stacked oil play. The company has the right to propose farmouts, under pre-defined terms, on the Wind River Basin properties.
Analysis
Following the announcement, in a note to investors, Stifel Nicolaus analysts provided an investment summary, noting that Bill Barrett reported “a cash flow beat, a miss on earnings, increased 2012 capex spending due to acreage acquisitions, and new oil results that were mixed (positive developments on existing assets, but negative results on new resource test results).
The key drivers for the company, noted the analysts, are oil volume growth, new resource testing, and its ability to manage its CF outspend.
“In terms of operational update, positive Uinta and Wattenberg wells should allow oil volumes to continue growing at a good pace. Resource test results were generally negative with test results in CR4, Black Shale, shallow Green River, and Paradox Basin not living up to expectations. In terms of managing FCF, 2012 capex was increased, but a $335 mm asset sale was also announced this morning to help fund some of the FCF outspend. Bottom line, key takeaways are (1) the oil volume growth is key for CF growth in 2013, (2) the higher capex, although driven by acreage acquisitions, will cause some concern for investors given the ongoing outspend and need for run rate capex to drop meaningfully on a sequential quarterly basis, (3) the poor resource test results takes away some of the upside for the name,” the analysts concluded.
The $335 million asset sale is expected to close by December 31, 2012.
