Houston-based exploration and production startup Terra Energy Partners LLC has agreed to acquire WPX Energy Rocky Mountain LLC, a wholly owned subsidiary of WPX Energy Inc., Tulsa, for $910 million. The deal is expected to close in the second quarter.
The acquired assets consist of a 200,000-net-acre position in the Piceance basin of Colorado with recent net production of 500 MMcfd of natural gas equivalent. Terra estimates that the assets contain 2 tcfe of proved developed producing reserves and an extensive inventory of low-risk drilling locations.
The assets also include deep rights across 150,000 net acres prospective for the emerging horizontal Mancos-Niobrara play.
Terra also will receive natural gas hedges with currently valued at $90 million that will be used to support cash flow in 2016-17. In exchange for the hedges, Terra has agreed to assume $100 million of WPX’s future firm transportation obligations extending to 2022.
“We are excited to announce our first acquisition since forming Terra last summer,” commented Michael S. Land, Terra chief executive officer and former president of Occidental Petroleum Corp.’s Permian and Midcontinent units. “The Piceance basin is an area that we know well and one that we believe offers considerable upside potential through focused management.”
As part of the deal, Terra has secured an increased equity commitment from existing investor Kayne Private Energy Income Fund LP along with an equity commitment from affiliates of new investor Warburg Pincus LLC. Terra’s aggregate equity commitment now totals $800 million, with Kayne and Warburg Pincus as equal partners.
WPX continues to reshape
The move comes as part of WPX’s effort to become focused on the Permian basin—and Delaware basin in particular—with a more balanced commodity mix given pro forma exposure to oil and gas. In the Permian, WPX has 94,000 acres representing more than 670,000 prospective net effective acres. It also has acreage in the Williston and San Juan basins.
The company now expects oil to comprise half of its future production volumes, up from 20% during 2015. On a per-barrel equivalent basis, WPX’s 2016 cash operating costs are not expected to change materially following the deal.
Over the past 21 months, WPX has made $5.5 billion in deals “to reshape the company, high-grade its portfolio, add decades of drilling inventory, and protect its financial position,” it says.
Since its $2.35-billion acquisition of Permian producer RKI Exploration & Production LLC last summer (OGJ Online, July 15, 2015), WPX has divested nearly $1.5 billion.
That total includes the sale of its Van Hook gathering system in North Dakota for $185 million to a private equity fund managed by the Ares EIF Group, a subsidiary of Ares Management LP; and its San Juan basin gathering system for $309 million to a portfolio company of ISQ Global Infrastructure Fund, a fund managed by I Squared Capital.
The firm notes that it has a variety of options for the Piceance proceeds, including leverage reduction, additional drilling, infrastructure investments such as expanding its Permian gathering system, and buying out of any retained transportation obligations, including obligations associated with Piceance operations.