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    EP Energy takes center stage as deal markets remain on the slow side

    Brian Lidsky, PLS Inc., Houston

    PLS reports that from May 17 to June 16, 2013, the pace of US oil and gas deal activity slowed to just 27 deals for $2.5 billion (versus 45 deals for $2.1 billion last month). Canada has stalled with only 10 deals for $35 million, yet international markets are improving having struck 39 deals for $5.5 billion compared to 12 deals for $1.6 billion last month.

    At press time as of June 20, global deal markets in Q2 totaled just $17.6 billion (169 deals) putting the markets within range of eclipsing the low-water mark (since 2007) of quarter deal value of $20.9 billion (188 deals) struck in Q1 2013. The US total is $6.5 billion, Canada $1.8 billion and international is $9.3 billion.

    This month EP Energy takes center stage in the US deal markets where it sold $1.3 billion of assets in a series of deals. For perspective, EP Energy was born out of the transaction that occurred back in October 2011 when Kinder Morgan paid $37.8 billion to buy El Paso Corporation. Subsequently, Kinder Morgan sold off the upstream assets of El Paso to a private equity led consortium of Apollo, Riverstone, Korea National Oil Corporation and Access Industries for $7.15 billion just a little over a year ago in February 2012. At the time of the private-equity purchase, EP Energy had 2.8 Tcf of gas reserves and 201 MMbbls of oil reserves producing 746 MMcfpd and 22,300 bopd respectively. The current series of deals represent roughly 18% of the original purchase price, 23% of original reserves and 24% of original production. According to EP Energy, the sales represent an important step toward transforming and concentrating the portfolio to focus on high-margin oil plays while retaining the largest gas asset in the Haynesville shale.

    In the largest deal of the EP Energy deals, Atlas Resource Partners (ARP) picked up 119 MMcfpd of coalbed methane production and 466 Bcf of reserves for $733 million. The assets (93% PDP) nearly double ARP's existing production and are split between New Mexico's Raton basin (320 Bcf), Alabama's Black Warrior basin (141 Bcf), and Wyoming's County Line region (6 Bcf). The metrics for this 100% gas deal are $1.57 per proved Mcf and $6,160 per daily Mcf. Deemed to be "transformative" by ARP's CEO Edward Cohen, the deal will immediately be accretive to cash flow and ARP increased its 2014 distribution guidance up by 27% to $2.60 per unit.

    The second buyer, by way of agreement with ARP, is ARP's parent, Atlas Energy, L.P. (ATLS) who picked up 45 Bcf of EP Energy's coalbed methane assets in the Arkoma basin in southeastern Oklahoma for $67 million. These assets are 100% natural gas, 100% proved developed, 97% operated and have current annualized EBITDA of ~$10 million. Production is 13 MMcfpd from over 550 wells and the metrics on this deal are $1.53 per proved Mcf and $5,150 per daily Mcf.

    On June 17 (one day after the timeframe in the Table below), EP Energy announced two more deals totaling $500 million. Privately-owned Wildhorse Resources II bought conventional Ark-La-Tex and North Louisiana assets while an undisclosed buyer purchased EP Energy's legacy conventional South Texas gas package. These two deals were struck at a combined $1.26 per proved Mcf (398 Bcf of reserves) and $6,024 per daily Mcf (total of 83 MMcfpd of net production).

    In total, EP Energy sold 909 Bcf of conventional and CBM gas reserves and 215 MMcfpd of production at valuations of $1.43 per Mcf and $6,050 per daily Mcf. These metrics provide a good valuation market data point for today's natural gas PDP-oriented deals.

    Elsewhere in the US markets, Kodiak struck a $660 million deal to buy out Liberty Resources' Bakken position adding 42,000 net acres and 6,000 boepd of production. Privately-held Wapiti Energy paid $375 million, with funding from Wells Fargo and Carlyle, for producing assets in Texas, Louisiana and North Dakota from Layline Petroleum.

    In other deals, Petrobras sold a 50% interest in its African assets to BTG Pactual for $1.5 billion and in Canada, Surge Energy bought Shaunavon tight oil assets in Saskatchewan from Cenovus for $235 million.

    New large deals hitting the markets include a $1.5 billion asset sales target from Freeport McMoRan Copper & Gold following the completion of its acquisition of Plains E&P and McMoRan Exploration and Halcon Resources selling four conventional US packages totaling 4,500 boepd. Occidental is reportedly looking to sell Middle East assets and in Canada, Penn West has started a process to review all strategic alternatives.

    PLS Inc., Monthly Deal Monitor

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