‘Game-changing’ transaction solidifies company’s oil-weighted portfolio
In what one analyst called a game-changing event, Bill Barrett Corp. has signed agreements for $757 million in divestitures that comprised of a combination of cash, added Niobrara properties, and reduced liabilities, setting the company up as a majority oil-weighted company poised to focus its efforts on its DJ Basin assets.
With a “much bigger sale than most anyone was expecting,” said Wunderlich Securities analyst Jason Wangler, Bill Barrett signed agreements with several undisclosed purchasers to sell the majority of its Powder River Basin acreage and its remaining position in the Gibson Gulch natural gas program in the Piceance Basin. The deals include an acreage exchange whereby Bill Barrett will gain 7,856 net acres and 390 boe/d net production within the southern block of its operated Northeast Wattenberg area in exchange for acreage in the Powder River Basin. The expanded Niobrara position boosts the company’s position by 20% to over 48,000 net acres.
The assets sold include 46,510 net acres in the Powder River Basin and 12,000 net acres in the Piceance Basin. While Bill Barrett noted “undisclosed purchasers,” Vanguard Natural Resources LLC said in a statement that it has agreed to acquire 12,000 net acres in Colorado’s Piceance Basin from Bill Barrett for $525 million. The properties are currently producing approximately 67 MMcfe per day, after consideration of ethane rejection, with approximately 76% natural gas, 5% oil and 19% NGLs.
Scott W. Smith, president and CEO of Vanguard, said the company will take over operations of 950 producing wells in the natural gas basin, and as a result, the company can "govern the pace of development of both recompletion opportunities and development drilling projects to take advantage of positive changes in market conditions."
New balance sheet, new focus
On the whole, Bill Barrett is set to receive $568 million in cash proceeds, $69 million in acquired Niobrara assets (the exchange), $36 million for the assumption by a purchaser of a lease financing obligation and $84 million in future commitments assumed by a purchaser for natural gas firm gathering and transportation obligations, redefining the company's balance sheet and portfolio.
The transactions produce a cash influx set to reduce the company's net debt from $1.1 billion to approximately $450 million and “truly define a game-changing event for Barrett,” said Wangler, as “now the company will be solely focused on its DJ and Uinta assets, has a strong balance sheet with ample cash to develop its plays, and can be considered an oily name with a 70% oil weighting by year-end.”
Going forward, Bill Barrett plans to sell its remaining Powder River Basin position. While Wangler noted the remaining Powder River Basin assets could fetch $50 million or more, there is no immediate need to sell given the company’s renewed balance sheet and the company can now focus on operations.
Citigroup Global Markets, Inc. acted as financial advisor to the Company on the Gibson Gulch sale and BMO Capital Markets acted as financial advisor on the Powder River Basin transactions.
The transactions are subject to customary closing conditions and are scheduled to close by the end of the third quarter of 2014.