QEP Resources Inc. (NYSE: QEP) will sell its Pinedale Anticline Field in Wyoming—and about 22% of its total estimated reserves—as it moves toward a more oily production mix, the Denver-based company said July 24.
An Oak Ridge Natural Resources LLC affiliate will purchase the assets, which include about 17,400 net acres in Sublette County, Wyo., for $740 million. In a separate transaction which closed in June, QEP said it also sold natural gas assets in southern Wyoming to an undisclosed buyer for $37.5 million.
QEP said in late April it would sell its Pinedale asset in Wyoming. Its $777.5 million haul is close to analyst expectations of the asset’s worth.
David Tameron, senior analyst at Wells Fargo Securities, said in a July 24 report that the price was “a little light” versus an estimated $800 million value but that the deal is still positive overall. The Pinedale contributed more than $100 million of EBITDAX annually to the company's bottom line.
“Focus now turns to the use of proceeds, with the clear preference being more northern Midland Basin acreage around current leasehold,” Tameron said, adding smaller, multiple bolt-ons are more likely than a single transaction.
Pairing the sale with an acquisition within 180-days would also have positive tax implications, he said.
Thomas R. Driscoll, an analyst for Barclays, estimated in April that the Pinedale could sell for $800 million to $1 billion, basing the valuation on the enterprise value of Pinedale pure play Ultra Petroleum Corp. (NYSE: UPL).
And Brian Velie, an analyst with Capital One Securities, previously estimated the asset was worth $625 million. However, Linn Energy Inc.'s sale of acreage in Wyoming's Jonah and Pinedale fields for a solid $581.5 million, suggested QEP’s assets could garner $1 billion, Velie said in May.
QEP’s last major deal was struck in June 2016, when it purchased 9,400 net acres in the northern Midland Basin in Martin County, Texas, for what analyst calculated was $57,800/acre.
Chuck Stanley, chairman, president and CEO of QEP, said the Wyoming assets have made significant contributions to the company’s early success. He suggested proceeds would be used to address debt but also fund additional deals.
“As we continue to evolve as a company, these transactions are a necessary next step in simplifying our asset portfolio and delivering significant financial proceeds that will further strengthen our balance sheet and help fund future development projects and acquisition opportunities,” he said.
As part of the Pinedale divestiture, QEP agreed to reimburse up to $45 million to the buyer for certain deficiency charges it might incur related to gas processing, NGL transportation and fractionation contracts between the sale’s effective date and December 2019.
In the June 30 sale, QEP divested an estimated 15.2 billion cubic feet equivalent (Bcfe) of proved reserves. First-quarter 2017 production was about 4 MMcfe/d.
The Pinedale transaction is expected to close by Sept. 30, QEP said.
BMO Capital Markets served as financial adviser and Vinson & Elkins LLP provided legal counsel to QEP. Wells Fargo Securities LLC served as financial adviser and Baker Botts LLP provided legal counsel to Oak Ridge affiliate Pinedale Energy Partners LLC.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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