Ronyld Wise, PLS Inc., Houston
Domestically, deal activity and valuations remain at healthy levels as buyers continue to execute on their strategic game plans and sellers adjust their portfolios toward optimal levels. The fundamental combination of low natural gas prices and strong oil prices creates a somewhat unusual deal-making environment. In the case of natural gas, well-capitalized long-term players can enter this market to build substantial gas portfolios during this cycle. In the case of oil, strong cash flows allow for buyers to continue executing on growth projects.
A case in point this month is KKR Natural Resources, a partnership between private equity firm Kohlberg Kravis Roberts & Co. and Premier Natural Resources, which stepped up and paid $306 million to acquire WPX Energy's holdings in Texas' Barnett shale and Oklahoma's Arkoma basin for $306 million. The Barnett properties include about 27,000 net acres and produce 67 MMcfd while the Arkoma properties hold interests in 66,000 net acres and produce 9 MMcfd. This is the third Barnett acquisition by KKR, which now operates over 150 MMcfed net from over $900 million of investments since inception in February 2010, $600 million of which has occurred just in 2012.
Driving KKR Natural Resources are current market opportunities to acquire developed non-core oil and gas properties from high-quality operators. The sellers, in turn, can reinvest proceeds from developed properties into attractive growth projects. This deal serves as a value benchmark this month for natural gas with PLS analysis yielding metrics of $1.54/Mcf of proved reserves, $4,026/Mcfd of net flowing production, an asset profile of 100% gas and a 7.2 R/P.
Speaking of strategies, on April 9 Chesapeake sold its Texoma Woodford position in four Oklahoma counties to ExxonMobil subsidiary XTO Energy for $590 million ($167 million attributed by PLS to proved reserves). Assets consist of 58,400 net undeveloped acres and net production of 25 MMcfed, which based on PLS analysis is over 90% gas. Assuming the production is valued at $6,667/Mcfd flowing, the deal implies $7,250 per undeveloped Woodford acre.
For Chesapeake, the deal was part of a three-deal asset monetization bringing $2.6 billion in cash. The other two Chesapeake deals were a partial sale of CHK Cleveland Tonkawa LLC for $1.25 billion to a private equity consortium and a $745 million VPP carved from Chesapeake's Granite Wash play for $745 million.
On the oil side, Continental Resources added to its already dominant Williston basin position by agreeing to buy the assets of Wheatland Oil, comprising 37,900 net undeveloped Bakken acres, for $340 million ($189 million attributed by PLS to proved reserves, or $11.08/boe) in Continental shares. The Wheatland assets in North Dakota and Montana include over 1,000 gross wells with net production of 2,500 boepd as of December and year-end net proved reserves of 17 million boe. PLS estimates the value of the undeveloped acreage at $4,000 per Bakken acre or $151.6 million.
The largest deal this month occurred in Canada. Pengrowth Energy entered into an agreement to buy NAL Energy in a stock deal valued at $1.9 billion including debt. "The addition of the NAL assets will enhance our cash flow base and further augment our robust light oil drilling inventory," said Pengrowth CEO Derek Evans. In addition to creating operating efficiencies, the cash flow from NAL's production will help fund Pengrowth's Lindbergh SAGD oil sands project. The deal gives Pengrowth an expanded asset base of conventional and unconventional opportunities with more than 100,000 boepd of current production and 434 MMboe of 2P reserves. The company will have exposure to Western Canadian light oil plays with an inventory of more than 730 locations across the Swan Hills trend, the central Alberta Cardium and southeast Saskatchewan.
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