Energen's $160 Million Black Warrior Basin Sale Should Accelerate Permian

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To purchase Black Warrior Basin coalbed methane assets.

Energen Corp. (NYSE: EGN) signed a purchase and sale agreement with an undisclosed buyer to sell its Black Warrior Basin coal-bed methane assets in Alabama for $160 million, a valuation in line with analyst expectations of $150 - $200 million.

The deal should allow EGN to accelerate activity in its numerous high rate-of-return horizontal projects in the Permian Basin, said Gabriele Sorbara, an analayst for Topeka Capital Markets.

“While a small asset sale, we believe management is becoming more receptive to selling other assets within its portfolio (Utility business and San Juan basin, in our view) and trending towards a pure play Permian company with more than 300,000 net acres in the basin,” Sorbara said.

He added that EGN remains “one of our favorite names in the Permian basin with double digit production growth in 2014 and beyond.”

The sale is expected to close in early October and have an effective date of July 1. Energen plans to use proceeds to reduce short-term indebtedness.

At Dec. 31, 2012, proved reserves associated with Energen’s Black Warrior Basin properties totaled 97 billion cubic feet. In addition to the coal-bed methane properties, the buyer, a limited liability corporation (LLC), will assume Energen’s third-party operating agreements.

After adjusting fourth quarter production by 0.4 million barrels of oil equivalents (MMBOE) for the sale of these assets, Energen’s revised production guidance range from all operations for 2013 is 25.7 MMBOE to 26.1 MMBOE. The company’s preliminary estimates of 2013 production and income from discontinued operations, excluding a gain on the sale, are, respectively, 1.4 MMBOE and $11 million, or 15 cents per diluted share.

Energen Corp. is an independent energy company engaged in the development, acquisition, exploration, and production of oil, natural gas, and NGLs in the continental U.S. The company is headquartered in Birmingham, Ala.