Eclipse Announces $440 Million Equity Raise, 2015 Budget

Eclipse Resources Corp. (NYSE: ECR) announced Dec. 29 that it entered into an agreement to sell 62.5 million shares of common stock for $440 million in a private placement transaction.

The financing is expected to result in net proceeds of about $434 million after deducting placement agent commissions and the State College, Pa.-based company’s estimated expenses.

Proceeds will be used to fund its capital expenditure plan and for general corporate purposes.

The shares will be sold to the investors at $7.04 per share, which was the average closing price of the company’s common stock for the five-day period ended (and including) Dec. 26.

The purchasers include affiliates of EnCap Investments LP, entities controlled by certain members of management of the company, and other selected institutional and accredited investors. The private placement was approved by the Audit Committee of the company’s board of directors, which committee is composed entirely of independent directors, and is expected to close on or around Jan. 28, subject to the satisfaction of customary closing conditions.

"This incremental capital funds our capital program and should allow us to come out of this current commodity price downturn poised to take advantage of an outstanding asset base, a strong balance sheet and an experienced and efficient operating team," said Benjamin Hulburt, CEO, in a statement.

2015 Budget

Eclipse also announced that its board of directors has approved a capital budget for 2015 of $640 million, a decrease of 20% from its 2014 capital budget. As of result of the company’s improvement in capital and drilling efficiencies, the company expects to deliver year-over-year production growth of 240-290% in 2015. The company expects that net production for 2015 will consist of about 60% natural gas, 20% condensate and oil, and 20% NGL.

The 2015 capital budget assumes Eclipse and the operators of its nonoperated properties will turn 124 gross (58 net) wells to sales during the year. The 2015 capital budget is allocated 94% to Utica Shale drilling and completions and 6% to land related activities and other general corporate purposes. The 2015 planned drilling and completions capital budget is allocated 77% to operated activities and 23% to nonoperated activities, although the company expects that continued acreage trade activities with nonoperated partners could shift capital from nonoperated to operated categories.

"As we look toward the coming year, Eclipse has formulated a capital plan that endeavors to prudently manage the company’s balance sheet and liquidity in the current commodity price environment while still achieving significant production growth despite a reduction in capital expenditures of 20%. We believe it is imperative in this environment to closely monitor and manage the company’s liquidity and balance sheet," Hulburt said.

The company intends to make further adjustments to its capital spending plan as the commodity price situation dictates in order to preserve liquidity, he said.

Additionally, he said the company continued to layer in commodity hedges as its production base has grown. The company's current natural gas hedged volumes equate to about 55% of the mid-point of its annual production guidance for 2015 at an average price of $3.75 per thousand cubic foot.

"We remain focused on our operational execution. For example, we recently drilled a horizontal Utica Shale well from spud to total depth in just 11 days," he said.

He said the company expects that its drilling and completion efficiencies will translate into a reduction in its operated well costs by 5-10% in the coming year, based on its current performance and service costs.

Transportation Agreement

Additionally, the company announced that it has entered into a 10-year firm transportation and marketing agreement with Blue Racer Midstream to market a substantial portion of its operated production of propane and butane through Blue Racer’s firm capacity on Sunoco LP’s (NYSE: SUN) Mariner East II Project.

The Mariner East II Project will connect the NGL resources in the Marcellus and Utica shales to Sunoco's existing infrastructure and international port at its Marcus Hook facility near Philadelphia. Mariner East II is expected to be operational in late 2016.

Under the agreement, Eclipse will have firm transportation, which grows from about 7,500 barrels a day (bbl/d) to 14,000 bbl/d during the term of the agreement (67% propane and 33% butane). Through the new agreement, the company plans to export propane and butane in order to capture the premium pricing offered by international markets, but also retains the ability to sell domestically.

KeyBanc Capital Markets provided advisory services to the company and was sole placement agent in connection with the private placement of Eclipse’s common stock. RBC Capital Markets and Vinson & Elkins LLP were advisers to the Audit Committee in connection with the transaction.