Gulfport Energy Corp. has entered into agreements to acquire additional acreage in the Utica shale play, associated assets and incremental firm transportation commitments from American Energy -- Utica LLC (AEU).
Acquisition highlights include contiguous bolt-on acreage acquisitions totaling 35,325 net acres in Monroe, Belmont, and Jefferson counties, Ohio; an 11-mile gas gathering system currently in-place and operational in Monroe County to support near-term development; and incremental 287,000 MMBtu per day of firm transportation commitments provide access to favorable pricing points outside of the Appalachian Basin.
As of June 8, Gulfport purchased 6,198 gross (6,198 net) acres in Belmont and Jefferson counties, Ohio, from AEU for $68.2 million. This acreage is located near, or adjacent to, the acreage included in Gulfport's previously and still pending acquisition of Paloma Partners III LLC. This newly acquired Belmont and Jefferson county acreage is undeveloped and is expected to fit into the company's development plan for the Paloma acreage area.
Also as of June 8, Gulfport entered in to a definitive purchase agreement with AEU to acquire 38,965 gross (27,228 net) acres located in Monroe County, Ohio; 14.6 MMcfpd of net production estimated for April; 18 gross (11.3 net) drilled but uncompleted wells; one fully constructed four well pad location; and an 11-mile gas gathering system for a total purchase price of $319 million, of which $52 million has been allocated to the existing production and the drilled but uncompleted wells and $20 million has been allocated to the gathering system.
Gulfport has also agreed to acquire an additional 4,950 gross (1,900 net) acres in Monroe County for an additional $19.4 million from AEU if AEU completes the acquisition of such acreage within 30 days of the closing of the Monroe acquisition. The Monroe County acreage has an NRI of 84% and is 85% held by production by a 10-well-per-year drilling commitment. The Monroe acquisition is expected to close by mid-June. Gulfport intends to add one rig to operate on this acreage beginning in the first quarter of 2016.
Pro forma for the full 35,325 net acres contemplated in the Belmont/Jefferson acquisition and the Monroe acquisition, including the additional Monroe acreage, and the full 24,000 net acres subject to the pending Paloma acquisition, Gulfport's holdings of Utica Shale leasehold are expected to total 262,000 gross (243,000 net) acres under lease in the core of the play. Gulfport will become the operator of all the acreage acquired in these transactions with AEU and anticipates that this acreage will add 200 net locations to its existing drilling inventory, based on 160-acre spacing. The AEU acreage overlaps with a number of Gulfport's planned units and is located in the vicinity of existing interstate pipelines with gathering and compression infrastructure already under development.
Accompanying these transactions are incremental firm transportation commitments totaling 287,000 MMBtu per day to be phased in over a multi-year period beginning in mid-2015, which are expected to support Gulfport's production growth and allow the company to continue to access premium gas markets across North America, including the Gulf Coast, Michcon and Dawn regions, while further diversifying its basin exposure away from local Appalachian markets. Pro forma for the incremental 287,000 MMBtu per day of firm transportation commitments contemplated by this transaction, Gulfport has secured firm commitments covering 1,262,000 MMBtu per day of natural gas production by year-end 2017.
Global Hunter Securities commented: “Ex-infrastructure and existing production value, we calculate that GPOR paid ~$1.67MM/well based on 160-acre spacing (better than the $2MM paid to Paloma); this translates to an ‘acreage-burdened’ IRR at $3.50 gas at 20% in our model vs. an unburdened project IRR at 33%. However, we expect returns to improve as well costs come in and EURs potentially exceed our 15 Bcfe estimate. With only one rig running, we estimate GPOR recouping its undeveloped acreage cost of $335MM in the form of NAV creation in six years (we estimate the NPV of one well at $4MM and assume GPOR drills 14 wells per year with each rig). This can be meaningfully improved upon an increase in activity levels. Net/net, we think higher gas prices and/or higher activity levels will ultimately justify this transaction.”