In a transformative series of transactions, Bill Barrett Corp. (NYSE: BBG) divested in the Piceance and Powder River (PRB) basins to increase its acreage position in the Wattenberg by 20%, the company said Sept. 16.

The multilayered deal valued at $757 million leaves Bill Barrett with half as much debt.

Jeff Dietert, Simmons & Co. Intl.’s head of research, said the deal offers trade-offs but is largely a win for the company.

"On the good news side, the transactions will allow the company to fund 2014 and 2015 outspend [and potentially beyond] and pivot the company more fully toward oil," he said. "However, investors might be slightly disappointed with the PRB divestiture value and updated production/capex guidance. Overall, we believe the transaction is a smart move for the company longer-term."

The deal compliments a further transition from natural gas. Bill Barrett expects that its 2014 exit rate production will be guided to 70% oil, which repositions it as a focused, growth-oriented oil development company.

The Denver-based company said Sept. 16 it had signed agreements with several undisclosed buyers to sell the majority of its Powder River Basin acreage. In exchange, it acquired 7,856 net acres and 390 barrels of oil equivalent per day (boe/d), net production, within the southern block of its operated Northeast Wattenberg area.

The company also sold its remaining position in the Gibson Gulch natural gas program in the Piceance Basin to Houston’s Vanguard Natural Resources LLC (NASDAQ: VNR) for $525 million.

Bill Barrett’s announcement was largely positive, including the cutting of its debt in half, said David Tameron, senior analyst at Wells Fargo Securities LLC, in a report.

The transactions will cut the company’s net debt to $450 million from $1.1 billion as of the second quarter of 2014, Tameron said.

The shrinkage of debt will also significantly reduce the company’s net debt-to-EBITDAX ratio toward its long-term objective of 2.5x, said Scot Woodall, Bill Barrett’s president and CEO, in a statement.

"These transactions are significant steps in meeting strategic objectives to simplify our portfolio, focus on our highest return assets, and strengthen the balance sheet,” Woodall said.

Mike Kelly, a senior analyst Global Hunter Securities LLC, said Bill Barrett shed its legacy foundation gas asset sooner than expected, and for more cash than expected—$525 million vs. his $480 million estimate.

"However, it monetizes the majority of its challenged PRB asset [low working interest and scattered acreage] for slightly lower than expectations [$112 million or $2,400 per acre vs. our expectation of $3,000 per acre]," Kelly said.

Bill Barrett holds 129,400 net undeveloped acres in an oil development project in Utah's Uinta Basin. It also has about 76,115 net acres with 65.8 MMboe in estimated proved reserves at year-end 2013 in the Denver-Julesburg Basin, not including its pending Wattenberg acquisition.

The increased position in the Wattenberg will give the company greater operating control and enable it to accelerate drilling and extract more value from the core area, Woodall said.

Divestitures

The assets in the Powder River Basin are comprised of 46,510 net acres with net production that averaged 1,479 boe/d in the second quarter of 2014 and proved reserves of 4.2 MMboe at year-end 2013.

The company plans to sell its remaining Powder River Basin position, which includes 17,649 net acres and 170 boe/d of production based on the second-quarter 2014 results.

In the Piceance Basin, it sold its 12,000 net acres to Vanguard. The acreage’s net production averaged 80 million cubic feet equivalent per day (MMcfe) of natural gas in the second quarter of 2014 and proved reserves of 438 Bcfe of natural gas at year-end 2013.

Vanguard first established a nonoperated position in the Piceance Basin in December 2012. The company will gain operations of 950 producing wells in the basin from the acquisition with Bill Barrett.

"As the operator and majority interest owner in the assets, we can now govern the pace of development of both recompletion opportunities and development drilling projects to take advantage of positive changes in market conditions,” said Scott W. Smith, Vanguard’s president and CEO, in a statement.

The total value of Bill Barrett’s transactions includes $568 million in cash proceeds, $69 million estimated value for assets acquired in an exchange, $36 million for the assumption by a purchaser of a lease financing obligation and $84 million in future commitments assumed by a purchaser for natural gas firm gathering and transportation obligations.

Bill Barrett will use net proceeds to pay off the outstanding debt balance under its revolving credit facility (currently $280 million), future development of oil properties and to support general corporate purposes.

Currently, about 40% of Bill Barrett’s $625 million borrowing base on its revolving credit facility is supported by proved reserves in the Gibson Gulch program, based on year-end 2013 reserves. While the company expects the borrowing base to be reduced by the Gibson Gulch sale, it is in the process of identifying offsetting effects from the significantly lower net debt position expected post-closings and the expected increase in reserves from 2014 drilling.

Subsequent to the transaction closings, the company expects to have liquidity of at least $575 million, including cash after paying off the current outstanding balance on its credit facility.

The effective date for the sale/exchange of the majority of Bill Barrett’s Powder River Basin assets is April 1 and the effective date for the Gibson Gulch sale is July 1. The transactions are scheduled to close by the end of third-quarter 2014.

Citigroup Global Markets Inc. was financial adviser to Bill Barrett on the Gibson Gulch sale and BMO Capital Markets was financial adviser on the Powder River Basin transactions.