PDC Energy Inc. (Nasdaq: PDCE) plans to sell its Piceance, northeast Colorado and other non-core Colorado holdings to Caerus Oil and Gas LLC for approximately $200 million in cash.
The transaction includes the buyer's assumption of all PDC's firm transportation obligations related to the sale assets and certain natural gas hedging positions for the years 2013 through 2015.
The assets to be sold are about 99% natural gas and include an estimated 85 billion cubic feet equivalent (Bcfe) of net proved developed producing reserves as of Dec. 31, 2012. The assets currently produce approximately 42 million cubic feet equivalent (MMcfe) per day net and the sale is expected to reduce PDC's net production volume in 2013 by approximately 10 Bcfe.
"This planned divestiture positions us to accelerate the development of our high-return, liquid-rich Wattenberg and Utica Shale horizontal drilling inventory,” said James Trimble, PDC president and chief executive.
The company sold the assets to boost its proportion of oil- and liquids-rich reserves base, he said.
“The sale represents a major step in our transition toward a high quality, liquid-rich asset base by increasing our year-end 2012 pro forma proved reserve mix to 52% oil/liquids. The transaction also strengthens our balance sheet and debt metrics, increases per-unit margins, and improves our long-term growth profile. Proceeds from this sale and internally generated cash flow are expected to more than fully fund our previously announced 2013 capital program. In order to more accurately reflect the increased liquids mix of our asset base, the company will begin to report our 2013 production and reserves in terms of barrels equivalent, rather than MCF equivalent," he said.
PDC’s total proved reserves have fallen to 1.07 trillion cubic feet equivalent (or 179 million barrels of oil equivalent), from 1.157 trillion cubic feet equivalent as a result of the sale. The company's pro forma proved reserve liquid mix has increased from 48% to 52% as a result of the planned sale.
The effective date of the transaction is Jan. 1, and it is expected to close in the second quarter 2013. Petrie Partners LLC advised PDC on the sale.
The market clearly liked the deal. PDC’s share prices rose 10% on the day the sale was announced and continued to rise on the following day. One independent analyst said the deal was the latest in a renewed interest in the Piceance Basin.
“After a long period in which everybody except environmentalists seemed to be indifferent to the basin, (The Feb. 6) PDC deal marks the third large-scale transaction in the Piceance in the past two months,” according to a recent report from Wells Fargo Securities.
The report stated that the deal will allow PDC to focus on development in Wattenberg, Utica and Marcellus. The report was, in general, supportive of the deal. “Transaction metrics, in today’s gas market, look reasonable enough to us,’’ according to the report.
The $200 million price boils down to approximately $4,760 Mcfe per day of production and $2.35 per Mcfe of proved reserves, which was in the range of the two most recent deals within the Piceance Basin.
Wells Fargo said the sale removes concerns about debt and tightens up its portfolio. Prior to the sale, Wells Fargo estimated the company’s debt would reach four times its EBITDA (earnings before interest taxes, depreciation and amortization) by year-end 2013. This level of debt “would likely have stretched the banks’ patience,” Wells Fargo reported.
But Wells Fargo added it was concerned the deal would increase the ratio of PDC’s proven undeveloped (PUD) reserves to 58% from 54%. Outside of acquisitions and divestitures the organic reserve growth, including price revisions was flat from one year to the next, the report stated.
PDC Energy is a Denver-based upstream oil and gas company with assets in the liquids-rich Wattenberg Field of Colorado, including the horizontal Niobrara and Codell plays, the Utica Shale in Ohio and the Marcellus Shale development in West Virginia.
Privately held Caerus Oil and Gas LLC is also based in Denver. Its principal reserves and producing assets in the Grater Green River Basin, San Juan Basin, Central Kansas Uplift and the Denver-Julesburg Basin.
Referring to wireline logs and pressure and fluid sample data, the company said the well intersected 60 m (197 ft) of net hydrocarbon pay while targeting the primary objective.
The oil and gas producer said annual output rose to 75.5 million barrels of oil equivalent.
U.S. oil production from seven major shale formations is expected to rise about 22,000 barrels per day next month, which would be the smallest monthly increase since shale output declined in February 2019.