Atlas Resource Partners LP (NYSE: ARP) has entered into a definitive agreement to acquire oil assets in the Eagle Ford shale play in south Texas for $225 million. The assets consist of 22 producing wells and 19 undeveloped locations containing estimated net reserves of 12 million barrels of oil equivalent (Mmboe).
The transaction is expected to close in the fourth quarter of 2014, with an effective date of July 1. The company will pay $200 million of the purchase price upon closing, with the remainder of the purchase price paid in installments in 2015.
In connection with the acquisition, Atlas Energy LP's (NYSE: ATLS) E&P development subsidiary will purchase eight wells that have been drilled but not completed and 53 undeveloped drilling locations for $115 million, which is to be paid in the 12 months following closing.
ARP will acquire oil-rich production in Atascosa County, Texas, located in the oil window of the Eagle Ford shale. The production comprises 87% oil, 7% natural gas liquids, and 6% natural gas from 22 producing wells, from which the company expects net daily production to average 1,900 barrels of oil equivalents per day (boe/d) in 2015. ARP's oil and liquids production is expected to increase as a result of the acquisition to 25% of ARP's total daily oil and gas production.
In addition to the oil-producing assets, ARP will acquire 19 undeveloped drilling locations in the Eagle Ford position. The company expects that these drilling locations will provide valuable inventory for ARP's investment partnership business. The Eagle Ford assets also have contracted agreements for gathering and processing capacity as well as saltwater disposal.
ARP intends to finance a portion of the transaction through borrowings under the company's revolving credit facility. ARP will pay $200 million upon closing the transaction, subject to purchase price adjustments, and the remaining $25 million will be paid in three quarterly installments beginning March 31, 2015. The Company is also currently working with its lending group to expand the borrowing base on its revolving credit facility as a result of the transaction.
Morgan Stanley and Co. LLC acted as financial advisor on the transaction, and Jones Day and Ledgewood (Philadelphia) acted as legal advisors.