Source: Eagle Rock Energy Partners
Eagle Rock Energy Partners, L.P. (Nasdaq:EROC) has signed a definitive agreement to acquire all of the equity interests in Tulsa, Oklahoma-based CC Energy II L.L.C. (Crow Creek Energy), a portfolio company of Natural Gas Partners VIII, L.P. with reserves located in multiple basins across Oklahoma, Texas and Arkansas, for total consideration of $525 million.
"Crow Creek brings an extensive inventory of low-risk development prospects in established plays such as the Golden Trend Field and developing plays such as the Cana Shale," said Joseph A. Mills, Eagle Rock's Chairman and Chief Executive Officer. "The acquired assets more than double our current production and reserves, and add more than 600 identified drilling locations."
Crow Creek Energy Assets
Eagle Rock estimates the Crow Creek Energy properties contain approximately 268 Bcfe of proved reserves and 740 Bcfe of 3P reserves as of December 31, 2010 using February 15, 2011 strip prices. Core operating areas include 327 operated wells and 1,040 non-operated wells on approximately 115,500 net acres across the Golden Trend Field, Verden Field and the Cana Shale Play, all located in the Anadarko Basin, the Mansfield Field and other various fields in the Arkoma Basin, and the Barnett Shale in Texas. Crow Creek Energy's proved reserve base as of December 31, 2010 was approximately 80% natural gas, 66% proved developed and 34% proved undeveloped; 75% of the projected 2011 production is operated.
In addition to the current cash flow and low-risk development opportunities provided by Crow Creek Energy's proved reserve base, the acquired assets include approximately 12,700 net acres with 434 identified drilling locations in the emerging Cana Shale play in Oklahoma. The majority of Crow Creek Energy's interests in the Cana Shale are operated by large upstream companies with significant experience and expertise in developing shale gas reserves. This area has recently experienced a high level of horizontal drilling activity, with 54 rigs currently active across the trend.
Net production from the Crow Creek Energy properties in the first quarter of 2011 was approximately 47.0 MMcfe/d. The Partnership expects, based on its anticipated drilling plans and the current natural gas price environment, that production from the acquired properties will total approximately 51 MMcfe/d in 2011 and will continue to increase through 2015. Assuming the transaction closes on May 3, 2011, the Partnership's capital budget for the remainder of 2011 related to the Crow Creek properties is expected to total approximately $81 million.
As part of the acquisition, Eagle Rock intends to assume the majority of Crow Creek Energy's current commodity hedges which had a mark-to-market value of approximately $10.8 million as of April 6, 2011.
The total consideration includes approximately $303 million of Eagle Rock equity to be issued to the sellers, $15 million of cash and $207 million of assumed debt. Closing is expected to occur on May 3, 2011, subject to customary closing conditions. The Partnership's lenders have pre-approved an increase of $245 million to Eagle Rock's current $160 million borrowing base related to Crow Creek Energy's reserves, resulting in a total borrowing base of $405 million effective upon closing. This transaction is not subject to the pre-merger notification requirement of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.