Gulfport Energy Corp. (NASDAQ: GPOR) is buying EnCap-backed Paloma Partners III LLC and strengthening its position in the core of the Utica Shale as it continues to drive eastward.
Oklahoma City's Gulfport said April 15 it entered into an agreement to acquire Paloma, a subsidiary of Macquarie Group, for about $300 million.
Paloma, headquartered in Houston, holds roughly 24,000 net nonproducing acres in the core of the dry gas window of the Utica Shale in Belmont and Jefferson counties, Ohio. The acquisition equates to about $12,700 per acre and brings Gulfport's Utica acreage position to 212,000 gross (208,000 net) acres.
The acreage, which is entirely undeveloped, represents a natural bolt-on to Gulfport's existing position in the play and is expected to add about 150 net locations to its inventory. The company said it plans to add a rig to the acquired acreage during the fourth quarter of 2015.
Daniel Braziller, equity associate at Jefferies LLC, estimates the company now has roughly 740 net dry gas locations assuming 160-acre spacing.
“We expect successful downspacing will add to this location count over time, and likely this year,” Braziller said in a report.
The acreage is also optimally located near midstream infrastructure and transportation.
Gulfport’s first-quarter 2015 production increased 161% to 424.4 million cubic feet equivalent per day (MMcfe/d) compared to first-quarter 2014 production, which significantly beat analyst estimates.
"We had forecast 388 MMcfe/d and the high end of guidance range was 390 MMcfe/d," he said.
Gulfport's first-quarter production in the Utica was 360 MMcfe/d, or 93% of the company's aggregate net production.
The production mix contained more liquids than expected, as the company brought online eight condensate wells toward the end of 2014. Production was 68% gas compared to Jefferies' estimate of 74% gas.
"We expect production to grow gassier throughout the year, as this year's development is focused in the dry gas window," he said.
Braziller said the key takeaway is Gulfport’s execution continues to improve with timely financing, a production beat relative to consensus and a bolt-on acquisition in the Utica.
"The acquired asset is in the dry gas window of the basin, where well results generally have been less variable and economics remain strong," Braziller said. "We continue to believe GPOR combines a strong balance sheet with robust growth at a reasonable valuation relative to peers."
The company plans to finance the acquisition with equity and debt offerings, which were announced April 15. Gulfport is offering $300 in senior notes due in 2023 and, separately, 7.5 million shares of common stock that could generate about $732 million in gross proceeds that would also be used to repay outstanding debt.
The transaction is expected to close during the third quarter of 2015, subject to the satisfaction of certain closing conditions.
Scotia Waterous and Credit Suisse Securities (USA) LLC were financial advisers to Gulfport in connection with this transaction. Paloma was advised on the sale by Jefferies.
Additional Firm Transport
Gulfport continues to secure the movement of its Utica production to premium markets and has recently entered into additional firm transportation agreements with Rockies Express Pipeline and Texas Gas Transmission, the company said.
Gulfport's agreement with Rockies Express Pipeline provides transportation for an additional 50,000 million British thermal units per day (MMBtu/d) of natural gas beginning in mid-2016 for a term of 15 years. Its agreement with Texas Gas Transmission provides for an incremental 54,000 MMBtu/d beginning in April 2017 for a term of 15 years.
These firm transportation agreements are strategically additive to Gulfport's portfolio approach to natural gas marketing, supporting the company's anticipated production growth by providing access to premium natural gas markets across North America, including the Midwest and Gulf Coast regions, while minimizing pricing exposure to local Appalachian markets.
In total, Gulfport has secured firm commitments covering about 900,000 MMBtu/d of natural gas production by year-end 2016, which more than covers its growth needs, Braziller said.
Contact the author, Emily Moser, at emoser@hartenergy.com.
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