In the unconventional realm of oil and gas, conventional wisdom keeps shouting the same two names.
Permian.
Stack.
Besides being phenomenal plays, the Perm¬ian Basin and the Stack offer a resupply of inventory to companies such as PDC Energy Inc., which just agreed to buy a chunk of the Delaware for $1.5 billion. Add them to the list of Concho Resources Inc. ($1.625 billion), SM Energy Co. ($980 million) and EOG Resources Inc., which recently purchased Permian acreage along with the rest of Yates Petroleum for $2.5 billion.
“The Permian is a frenzy,” Subash Chandra, an analyst at Guggenheim Securities LLC, told Oil and Gas Investor. “It’s like the Haynesville, I remember, as a perfect storm of shale hysteria combined with high commodity prices, when companies that did a deal saw their stock price rise 20% in one day. But how did it end up? For some, not well.”
Perhaps—though the Haynesville is now rebounding thanks to lower costs and LNG development.
So what’s the unconventional wisdom going around? While the Bakken and Eagle Ford no longer get the headlines, they’re still getting attention.
At the A&D Strategies and Opportunities Conference & Workshop held in Dallas in early September, Luke Albrecht, vice president of business development at EnerVest Ltd., said that during the past 12 to 18 months he’s seen a “flight to quality” for A&D activity.
“Companies that have money to invest are focusing on the assets that can be drilled today with economics that are justifiable to their financial sponsors and boards of directors,” he said. “This explains the concentration of deals in the Permian, Eagle Ford and Scoop/Stack plays of Oklahoma.”
Continental Resources Inc. recently carved out 80,000 net acres of Williston Basin prop¬erties in North Dakota and Montana for $222 million, part of a move to pay down debt. As the Williston’s largest leaseholder, the com¬pany won’t miss the acreage.
And while the $1,700/acre price isn’t in the same league as the Permian’s routine $30,000/acre, Continental still received a healthy amount of walking-around money.
Lime Rock Resources, which has been bus¬ily acquiring Williston acreage, is also pruning its Williston portfolio, with help from Meagher Energy Advisors. All told, the firm, backed by private equity, is offering 60,465 net acres with projected August cash flow of $737,750.
Eric Mullins, Lime Rock’s co-CEO and managing director, told Investor the assets are in a “more isolated area,” and that some of the acreage is expiring relatively soon.
Mullins said the company only began marketing the acreage after it received a few calls about the area, and that after a slow first quarter, activity is picking up. In July, Lime Rock turned buyer, purchasing all of Natural Resource Partners LP’s Williston assets for $116.1 million.
“In the second quarter there was a steady [flow]—but certainly not a torrent—of deal activity,” he said. “Since July or so, things have been accelerating in a noticeable way.”
One of the princes of the alternative-play scene is EnerVest. The company made a splash by spending more than $1 billion in the Eagle Ford earlier this year while the Midland and Delaware basins have also commanded its attention.
EnerVest’s recent deals in Karnes County, Texas, presented the company with world-class assets.
“In addition to the Eagle Ford, we also recently acquired an asset from Range Resources in Virginia known as Nora Field,” Albrecht said. “This is a 365,000-net-acre position with an average 96% NRI, significant undrilled inventory, and it receives a premium to Nymex.”
EnerVest is looking to expand in its exist¬ing areas of operation—a list that includes the Midcontinent, Barnett Shale, Appalachia, Austin Chalk, West Texas and the Uinta and San Juan basins.
EnerVest is also “actively screening new deals in a variety of other basins,” he said.
The company’s Fund XIV portfolio is a bal¬ance of investments with a good mix of PDP and undrilled upside potential.
Elsewhere, the market has contracted for assets where drilling is essentially “out of the money right now,” he said.
“There are some assets that have an attrac¬tive PDP component with upside that is contin¬gent on a 10% to 20% increase in commodity prices,” Albrecht said. “This allows some buy¬ers to lean forward for a more aggressive bid on PDP without specifically assigning value to that upside.”
E&Ps may be more willing to invest because they have the added comfort of know¬ing that undrilled locations may be moneymak¬ers with a modest near-term price recovery.
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