EnerVest Ltd. will sell Permian Basin assets to QEP Energy Company, a subsidiary of Denver-based QEP Resources Inc. (NYSE: QEP) for $950 million.
The acquisition of the properties, located in the Midland sub-basin, primarily in Martin and Andrews counties in west Texas, is part of QEP’s plan to diversify its portfolio and continue its emphasis on high-margin crude oil and natural gas liquids production.
Strong oil potential
“This deal provides a second repeatable, well-understood, stacked pay resource play to QEP's inventory. Results from successful offset operators show strong oil potential exists in 3-4 zones within the Wolfcamp formation, as well as shallower and deeper formations. The 26.5K net acre position in west Texas should provide oil diversification and ample running room for the company in two prolific basins into next decade,” noted analysts with Sterne Agee.
Current net production from the properties is roughly 6,700 barrels of oil equivalent per day (boepd), of which nearly 68% is crude oil, according to QEP. The deal adds proved reserves of approximately 47MMboe and approximately 300MMboe of potentially recoverable resources.
“This acquisition is part of our continuing strategy to become more focused on crude oil and natural gas liquids,” said Chuck Stanley, chairman, president, and CEO of QEP.
The deal should “put to rest persistent concerns on oil inventory that have overshadowed QEP's clear signals that it will fully separate its midstream business,” noted Sterne Agee analysts.
Valuing production at $75,000 per flowing boe, the analysts derive a residual acreage value of $16.9K/acre. On a pure reserves basis, the acquisition translates to a price of $20.21/boe of estimated net reserves, they continued.
“Pricing seems fair, and the properties are in the right zip codes, between well-known operators who have led the delineation charge in the northwest portion of the Midland Basin,” said the analysts.
According to Stern Agee, on a pro forma basis, the acquisition increases net debt to $3.7 billion. Net debt/TTM EBITDA increases to 2.4x from 1.8x. The company plans to fund the acquisition with proceeds from its revolving credit facility and cash on hand, but has noted that it may sell various non-core assets located in the Midcontinent during the first half of 2014.
“Along with the planned separation of QEP Field Services Company, the acquisition and the anticipated asset sales will continue the Company’s transformation into a liquids-focused, pure-play E&P company with assets located in premier basins across North America,” concluded Stanley.
Holland & Hart LLP represented QEP Energy in connection with the Permian Basin acquisition. EnerVest was represented by Vinson & Elkins.
In November, Houston-based EnerVest and its affiliates reported that, since August, they have acquired, or will acquire by year-end, approximately $1.4 billion in producing properties from seven separate sellers in the US Mid-Continent, Uinta, Barnett and San Juan areas. Including this deal with QEP, EnerVest has divested more than $1.4 billion in properties.
The deal with is expected to close by Jan. 31.