With a series of agreements, Denver, CO-based Synergy Resources Corp. (NYSE MKT: SYRG) is consolidating its footprint in the Wattenberg Field in Colorado.
In a $505 million definitive agreement with Noble Energy, Synergy Resources plans to acquire approximately 72,000 gross (33,100 net), largely contiguous acres in Weld County, Colorado, primarily in and around the city of Greeley.
Over 80% of the acquired lands are held by production from vertical wells, allowing for orderly horizontal development. Synergy has identified over 900 gross locations on the acquired lands, of which over 800 of those locations are suitable for mid (<7,500'), long (<10,000') and extended (>10,000') length laterals, using an initial assumption of horizontal development with 20-24 wells per drilling unit, creating multiyear drilling inventory. Drilling locations will target the Niobrara A, Niobrara B, Niobrara C and Codell zones which all produce in the acquired lands.
In February 2014, OGFJ spoke with Synergy Resources executives about the upside potential of the DJ Basin and the multiple pay zones with horizontal wells targeting the Niobrara A, B, and C benches and the Codell formation. Read the full interview here.
For the first quarter of 2016 estimated net daily production of 800 boe/d from non-operated properties and 1,600 boe/d from operated properties.
The acquisition is expected to close on two separate dates, with the undeveloped lands and non-operated production expected to close in 2Q16, followed by the operated producing properties (assuming regulatory approval is obtained) later in 2016. The closings are subject to the completion of customary due diligence and closing conditions. Synergy intends to finance the purchase price of the acquisition with cash on hand and proceeds from financing transactions, including a private placement of $80 million in notes for which it has a commitment letter in place.
In addition, in two separate transactions, Synergy has entered into definitive purchase and sale agreements with two private entities to divest approximately 3,700 net undeveloped acres and 107 vertical wells primarily in Adams County, Colorado for approximately $27 million in cash, subject to customary purchase price adjustments. The divested assets had associated production of approximately 200 boe/d. The vertical well transaction recently closed and the undeveloped acreage transaction is expected to close in the second quarter of 2016.
Pro forma for the closing of these transactions, the company will have an interest in approximately 47,200 net largely contiguous acres in the company's defined Wattenberg fairway area and approximately an additional 22,000 net acres of other Wattenberg acreage.
"This acquisition is transformational for Synergy and a significant step forward in the company's evolution to become a leading operator in the Wattenberg Field. By consolidating our properties into a more focused footprint, we should be able to gain operating efficiencies. We do not expect to increase our operational activity in 2016; however, we anticipate the development of the acquired properties to be a significant part of our expanded 2017 operation program, which is expected to incorporate up to three drilling rigs. This was a unique opportunity to acquire a contiguous block of acreage in the heart of the Wattenberg Field that may never present itself again," stated Lynn Peterson, chairman and CEO.
The deal is a game-changer for the company, said Seaport Global Securities analysts in a note May 4.
“While SYRG was driving strong results out of its legacy acreage, its position was relatively scattered and wasn’t amenable to a large-scale long-lateral development program; we think both issues are solved with this transaction. In terms of the price paid (roughly $13K/undeveloped acre), it isn’t cheap on Wattenberg standards, but we still see acquisition-burdened project returns >30% on our long-term WTI price target of $55/bbl.”