Athlon Energy Inc.’s (NYSE: ATHL) additional bolt-on of 6,450 more net acres in the core Midland Basin cost $382 million in cash--a high price, but one that gives the company high-quality acreage going forward.
The company entered into multiple agreements with unrelated third-party sellers to acquire 100% operated acreage consisting of 11 million barrels of oil equivalent (boe) of proved reserves and 3,000 boe of production as of May. The sellers were not disclosed.
Including the Aug. 12 announcement and year-to-date operational outperformance, Athlon expects daily production for full-year 2014 to average between 24,500 boe/d and 25,000 boe/d—growth exceeding 100% compared with full-year 2013.
With the acquisition, the company’s total estimated net reserve potential is about 90 MMboe.
Based on estimates made by Topeka Capital Markets, Athlon is paying $34.73 per proved boe, $127,333 per flowing boe of production and $22,016 per acre, said Gabriele Sorbara, vice president of the firm's E&P/energy research, in a report.
Analysts generally agreed the price per-acre paid was high. However, Athlon picks up high-quality acreage in Midland and Martin counties despite a relatively high price.
It’s still “cheaper vs. what equity investors are ascribing to Permian E&Ps with similar core acreage exposure,” said Mike Kelly, senior analyst for Global Hunter Securities LLC.
"While the acquisition appears expensive on an acreage basis, this transaction was executed at a valuation below ATHL’s current implied valuation of $189,753 per flowing boe of production," Sorbara said.
All acreage is adjacent to the company’s existing operating areas with more than 90% of the total acreage concentrated on the western side of the northern Midland Basin in Midland and Martin counties, Texas, and the remaining in Glasscock County.
The properties are largely HBP and require minimal drilling to hold the acreage, which Athlon plans to accomplish through the reallocation of its existing eight vertical rig fleet. The acreage has an additional 179 high-quality horizontal locations and 168 vertical 40-acre and 20-acre locations.
The company intends to begin horizontal development on the assets in 2015.
The acquisitions are anticipated to be immediately accretive to cash flow per share and earnings per share, as well as net asset value. With the acquisition and well outperformance, Athlon has raised its 2014 production guidance, Sorbara said.
“ATHL raised its 2014 production guidance by 4.8% at the midpoint to 24.5 to 25 Mboe/d from 23 to 24.25 Mboe/d, while maintaining its total capex budget at $725 million," he said.
Athlon has added roughly 42,000 net acres of leasehold since the time of its IPO in August 2013. The company’s pro forma acreage position stands at about 140,000 net acres, entirely in the northern Midland Basin, consisting by county of: 66,000 net acres in Midland, Martin and other; 57,500 net acres in Howard; and 16,500 net acres in Glasscock.
Contiguous acreage, multistack pay intervals and the ability to control operations in the northern Midland Basin will continue to be the company's core strategy for success, said Bob Reeves, Athlon’s chairman, president and CEO, in a statement.
“I am proud of the team for adding core acreage to previous deals that allow for longer laterals and the potential for pad drilling down the road which will further enhance our rate of return on the acquisitions,” Reeves said. “It is a luxury for a company our size to have such a deep inventory of high quality projects that continue to get better each quarter.”
The company plans to fund the acquisitions with a combination of cash on hand and borrowings under its revolving credit facility. The transaction is expected to close by the end of third-quarter 2014.
Recommended Reading
Defeating the ‘Four Horsemen’ of Flow Assurance
2024-04-18 - Service companies combine processes and techniques to mitigate the impact of paraffin, asphaltenes, hydrates and scale on production—and keep the cash flowing.
Tech Trends: AI Increasing Data Center Demand for Energy
2024-04-16 - In this month’s Tech Trends, new technologies equipped with artificial intelligence take the forefront, as they assist with safety and seismic fault detection. Also, independent contractor Stena Drilling begins upgrades for their Evolution drillship.
AVEVA: Immersive Tech, Augmented Reality and What’s New in the Cloud
2024-04-15 - Rob McGreevy, AVEVA’s chief product officer, talks about technology advancements that give employees on the job training without any of the risks.
Lift-off: How AI is Boosting Field and Employee Productivity
2024-04-12 - From data extraction to well optimization, the oil and gas industry embraces AI.
AI Poised to Break Out of its Oilfield Niche
2024-04-11 - At the AI in Oil & Gas Conference in Houston, experts talked up the benefits artificial intelligence can provide to the downstream, midstream and upstream sectors, while assuring the audience humans will still run the show.