Whiting sets sights on Niobrara assets while Breitburn looks to steady distribution growth
Los Angeles, CA-based upstream oil and gas partnership BreitBurn Energy Partners LP (BBEP) has agreed to purchase interests in the Postle and North East Hardesty oil fields, along with associated midstream assets, from Whiting Oil and Gas Corp. (NYSE: WLL), a wholly-owned subsidiary of Whiting Petroleum Corp., for approximately $860 million.
Whiting Petroleum, one of the largest acreage holders in North Dakota’s Bakken Shale, had been looking to monetize the mature Oklahoma Panhandle assets “for some time,” noted Wunderlich Securities analysts in a research note Tuesday, and the deal is viewed favorably as it lowers debt and shows the “hidden value within Whiting’s portfolio of assets.”
Net proceeds from the sale are expected to reduce the company’s outstanding balance on its $2 billion credit facility from $1.5 billion to roughly $650 million, putting it at a strong debt-to-capitalization ratio of just over 20%, noted Wunderlich Securities. With its balance sheet in check, look for the company to increase its push into the Niobrara, the analysts noted.
The pay down “would give Whiting about $1.35 billion in liquidity available that it can use to ramp up activity in the Niobrara and Williston while also potentially moving back toward more drilling activity in the Permian” they said.
Risk and opportunity await Breitburn, said Global Hunter Securities analysts in a research note Tuesday.
“These assets are integral in allowing BBEP to rebuild the distribution coverage cushion that has been eroded by expiring natural gas hedges and continue its steady distribution growth. Risk and opportunity exist in the acquired assets, being CO2 EOR wells. While there will be a learning curve, best practices can hopefully be applied to other BBEP properties, driving additional production from existing wells,” they noted.
Financing the large acquisition is also of some concern. “As a pass-through entity that pays out most available cash flow, BBEP must return to the capital markets to expand its asset base with incremental equity financing, typically at the rate of 50-60% of transaction and expansion values.”
That being said, the analysts view the acquisition as “incrementally positive,” estimating the properties will generate roughly $138 million in EBITDA annually, implying a ~6.5x EBITDA multiple on the $890 million purchase price).
The company paid $116,000/flowing boe ( $19.46/bbl of proved reserves) versus a historical average of $98,000/flowing boe and $15.50/bbl of reserves, respectively, noted the analysts, but highlighted the “liquids-rich nature of the transaction (98%) vs. historical transactions.”
“Based on a long-term target equity/debt capital structure of 60%/40%, we estimate the transaction to be approximately 4.1% accretive to distributable cash flow. Assuming 100% debt funding on both a short- and long-term basis results in an estimated accretion of 15% and 39%, respectively,” the analysts concluded.
BBEP is acquiring additional interests in certain of the acquired assets from other sellers for an additional $30.2 million.
The acquisition is subject to customary closing conditions and purchase price adjustments and is expected to close by July 31.