Eagle Ford most active shale play for M&A activity 1Q13

With three major deals in a month and a half, the Eagle Ford shale formation remains significant in the unconventional resources space. As noted in a recent report from PwC, the Eagle Ford, with five total transactions representing $5.1 billion, was the most active shale play for M&A activity during the first quarter of 2013. Aurora Oil & Gas Ltd., Sanchez Energy Corp., and Penn Virginia Corp. all announced Eagle Ford asset acquisitions in March.

Sanchez Energy secured commitments for $325M in debt financing and expects to access the capital markets in connection with its plan to buy Eagle Ford properties and acreage from Hess Corp. for $265M.

Aurora Oil & Gas completed its acquisition of a 100% working interest in nearly 2,700 acres in the play, including 11 producing wells and associated interests in field infrastructure and related assets for $117.5M in cash. The acquired assets are close to Aurora's other Sugarkane Field interests in the liquids-rich area of the play.

Penn Virginia recently closed its purchase of producing properties and undeveloped leasehold interest in the Eagle Ford from Magnum Hunter Resources Corp. (MHR) for roughly $360M in cash and the issuance of 10M shares of common stock.

The acquisition, in areas adjacent to PVA's current position in the area, includes 19,000 net Eagle Ford acres in Gonzales and Lavaca counties with 3,000 boe/d of production (March average), composed of roughly 90% crude, from 49 gross (roughly 24 net) producing wells.

Prior to closing, Penn Virginia obtained a senior unsecured bridge facility from the Royal Bank of Canada and Wells Fargo to backstop financing requirements.

According to Jefferies analysts, metrics of the PVA deal "fall within the (wide) range set by prior transactions."

The production metrics value the deal close to $133,000 per flowing boe, higher than the Sanchez/Hess deal valued at roughly $60,000 per flowing boe, noted the analysts.

"On an acreage basis (not adjusted for existing production), the transaction implies $21,000 per acre. This looks cheaper than the Marathon/Paloma deal from mid-2012, which transacted at $44,100 per acre for 17,000 Karnes/Live Oak acres," they said.

The robust activity in the play stems in large measure from its ability to produce not only natural gas, but also oil and condensate, noted a recent study by the Center for Community and Business Research in The University of Texas at San Antonio Institute for Economic Development, further stating that development of oil and natural gas in the formation added more than $61B in total economic impact during 2012.

"In 2008, we saw very little activity in the Eagle Ford shale. Today, it has become one of the most significant oil and gas plays in the country and has generated a tremendous amount of wealth for Texas," said Thomas Tunstall, director of the UTSA Center for Business and Community Research.

"The Eagle Ford continues to provide attractive returns in the current market. It has, on a relative basis, better infrastructure, production history and an attractive oil formation needed to remain viable in the current price environment," said Drew Koecher, KPMG Energy Sector Leader for Transaction Services and Restructuring.

And while the play is likely to remain attractive, Richard Burnett, partner with KPMG Energy Transaction Services, noted, "We do not think the Eagle Ford will see the same level of M&A activity in the near future, as companies refocus on developing what they have acquired, and maximize their portfolio value by monetizing and reallocating capital to develop other holdings with high growth potential. (As evidenced in MHR's recent sale to PVA)."

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