Bill Barrett Finishes D-J Basin Deal

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Acquired approximately 28,000 net acres targeting Codell & Niobrara formations in Weld & Adams cos., CO & Laramie County, WY, gaining 650 BOE/d, 7 MMBOE proved.

Denver-based Bill Barrett Corp. (NYSE: BBG) has closed its acquisition of Denver-Julesburg (DJ) Basin properties targeting Niobrara oil from an affiliate of David Honeycutt’s Texas American Resources Co., Austin, Texas, for $150 million.

The assets include an estimated 7 million barrels of oil equivalent net proved reserves, approximately 650 BOE per day net production and approximately 28,000 net acres, primarily on fee lands. Current production is predominantly from the Codell and Niobrara formations.

The acquired properties from TARH E&P Holdings LP are within and near Wattenberg Field and the Hereford area, close to the Colorado-Wyoming border in in Weld and Adams counties, Colorado and Laramie County, Wyoming.

Barrett chairman, chief executive and president Fred Barrett says the company has been assembling a DJ Niobrara oil position for the past two years, with a pro forma position of more than 67,000 net acres. “With this acquisition, we have established a new, sizable DJ play that includes exploitation opportunity within the existing Wattenberg development area and a sizable exploration acreage position, where we intend to test the Niobrara through horizontal drilling this year."

Bill Barrett's preliminary estimate of 2011 capex associated with the acquisition is up to $35 million.

Texas American president and CEO Honeycutt says, "The transactional metrics for the sale of our DJ Basin assets are very compelling; we are delighted with the outcome. The resulting de-leveraging brings our net cebt/EBITDA ratio to less than 3x."

Randy King and Bill Anderson with Bank of America Merill Lynch led the advisory team for Texas American.

Texas American operates more than 400 wells in Texas, Wyoming and Colorado with 34 million BOE proved and production of 2,500 BOE per day. It plans to use proceeds to pay debt and accelerate development on its oily Eagle Ford and Texas Panhandle assets.

"The benefits from our DJ Basin sale will allow Texas American to focus on the development of our very attractive oil-prone Eagle Ford assets in South Texas," Honeycutt adds.

Wells Fargo Secuities senior analyst David Tameron calculates a per-acre cost of $2,900 after applying a multiple of $10 per BOE and deducting a reserve value of $70 million. He estimates the deal includes 234 proved undeveloped locations.

Raymond James Equity Research analysts John Freeman and Cory Garcia estimate the metrics at $4,200 per acre after backing out the production value, “which is relatively in line with the Chesapeake Energy Corp.-China National Offshore Oil Corp. (CNOOC) deal in January at $4,750 per acre.” Additionally, the deal also equates to $3.57 per Mcfe of proved reserves, slightly cheaper (because its more gassy) than its recent Uinta purchase at $4 per Mcfe of reserves.

Global Hunter Securities analyst Michael Bodino splits the difference. “If $50 million is allocated to production and reserves, unproven acreage would be valued at $3,571 per acre,” he says.