PEDEVCO Corp. (NYSE MKT: PED) entered into three deals Feb. 24, selling its stake in a privately held E&P, doubling its acreage in the Denver-Julesburg (D-J) Basin and taking over all of Sweden’s Dome Energy AB’s (NNASDAQ: DOME) U.S. operations.
The announced transactions, largely stock-based, double cash flow and strengthen the D-J Basin focused company’s balance sheet.
Frank C. Ingriselli, PEDEVCO chairman and CEO, said the company will be eyeing other deals in the down market.
“We can now seek to fully execute our business plan, acquire additional acreage that is stranded within other companies, and grow our company,” he said.
The series of transactions should significantly alter PEDEVCO.
In a deal with Golden Globe Energy (US) LLC, PEDEVCO acquired 13,000 net D-J Basin acres and interest in 53 gross wells that produce about 500 barrels of oil equivalent per day (boe/d).
The transaction doubles reserves, cash flow and production to 1,000 boe/d while increasing debt by about 8%, enabling the company to become cash-flow positive.
The new assets have a nearly identical footprint and working interest in the 14,000 net acres PEDEVCO already owns.
Condor Exit
PEDEVCO also sold its 20% interest in Condor Energy Technology LLC, a privately held oil and gas company with operations in the D-J Basin. PEDEVCO said the divestment includes about 2,300 net noncore acres, including 945 net acres and interests in three wells in noncore Niobrara acreage.
The company’s debt obligations to Condor’s owner, MIE Jurassic Energy Corp., were reduced by about 50%. PEDEVCO expects to gain $3 million on the sale.
Thunder Dome
PEDEVCO also said it has an agreement to acquire Dome’s conventional, primarily gas assets in Texas and Wyoming. Production is about 1,250 net boe/d, the company said.
The deal would give Dome shareholders 140 million PEDEVCO shares. Based on the closing share price and exchange rate, the deal is worth about $127 million, Dome said. The transaction requires shareholder approval.
Members of Dome Energy management are expected to take executive positions in a new entity to assist in the ongoing development and growth of the merged company. At close, the combined assets are projected to have production of 3,300 boe/d from 300 wells. The majority of Dome's long-life assets have production hedges in place until the end of 2016 for oil and 2017 for gas.
“We have actively been searching for scalable shale assets to complement our existing portfolio,” said Dome CEO Paul Morch. “In PEDEVCO we have found a company that has large prime Niobrara acreage in Wattenberg, Colo. This is one of the most attractive basins onshore U.S., due to the good economics at lower oil prices.”
Dome also owns assets in Arkansas, Kentucky, Louisiana, Michigan, Mississippi and Oklahoma. Dome’s portfolio of assets in the U.S. include substantial PDP and 1P reserves, and it has a $44 million asset-backed credit line with Société Générale.
The deal:
- Pays off PEDEVCO’s existing senior debt;
- Provides drilling capital with a 3.75% bank credit facility;
- Adds capital to buy back company stock; and
- Increases estimated PV-10 value of 1P reserves to about $280 million.
“We are in an unprecedented time in the energy sector with crude prices falling over 50% since the summer of 2014,” said Ingriselli, former president of Texaco International Operations.
Unlike many E&Ps, PEDEVCO has a large drilling inventory that can generate IRRs at prices of $50 per barrel.
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