With recent Delaware, San Juan Basin sales, Energen turns Permian pure play

Energen Corp. (NYSE: EGN) closed or signed purchase and sale agreements (PSAs) for its non-core Delaware Basin and San Juan Basin assets. Including all sales transactions with multiple, undisclosed buyers, the total gross proceeds of $551.7 million are subject to standard closing costs and transaction fees. Asset sales not yet closed are expected to close by mid-August.

Net production associated with all the non-core properties being sold averaged 9.0 thousand oil-equivalent barrels per day (mboepd) in April 2016, of which only 34% was oil; the majority of the production is in the San Juan Basin. In the Delaware Basin, the non-core assets for which sales are closed or pending largely reflect unproved leasehold of approximately 55,000 net acres previously designated as Tier 1 or Tier 2. At December 31, 2015, proved reserves associated with all non-core asset sales totaled approximately 55 million oil-equivalent barrels (boe).

James McManus, Energen’s chairman and CEO noted that the company is increasing its capital investment in 2016 to approximately $450 million “to further build up our inventory of drilled but uncompleted wells (DUCs) at year end.” Up to $130 million is earmarked for the Delaware Basin, where the company plans to drill 17-19 net DUCs in the second half of 2016. “In total, we now expect to end the year with approximately 54-58 net DUCs in the Permian Basin,” McManus continued. [Prior capital guidance was $350-$400 million and 37-50 net DUCs.]

In the core Midland Basin, the company has approximately 68,500 net acres with 2,546 net identified locations in seven horizontal formations. After all the transactions have closed, Energen will have approximately 42,200 net acres in the Delaware Basin in Texas and New Mexico with 954 net identified locations in four Wolfcamp shale formations.

The company’s primary focus in the Delaware Basin will be on bringing forward the value on approximately 31,200 net acres in Loving and parts of Reeves and Ward counties. On this core acreage position, the company has identified 675 net locations, including 148 net locations with at least 10,000 foot laterals and another 217 net locations with average lateral lengths of 7,500 feet.

Irene O. Haas of Wunderlich Securities Inc. says the company will end 2016 “with very low debt and plenty of options for 2017.” The $551.7 million sale price is up from prior expectations of $400 million, and, she noted, “even after increasing spending in 2016 to drill more DUCs, the company estimated a post-sale, net debt/EBITDAX of ~0.6x at year-end 2016 with $392 million cash and a $1.05 billion borrowing base undrawn. With a super clean balance sheet and cash on hand, EGN will have the option to accelerate drilling and completion and ramp production. Alternatively, the company could choose to do a sizable acquisition and ramp production that way.”



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