• In addition to its previously announced divestiture of nonstrategic Rockies interests, St. Mary Land & Exploration Co., Denver, (NYSE: SM) has announced several other sales in process, together totaling some $307 million.
In its second Rockies deal, St. Mary plans to sell the North Dakota portion of its mostly operated oil package to a private buyer for $137 million with an expected closing in March. This complements the Wyoming portion of the package being acquired by Midland, Texas-based Legacy Reserves LP (Nasdaq: LGCY) for $130 million and expected to close in February.
The North Dakota properties are primarily in Mackenzie County with interests in Burke and Mountrail counties. Production is approximately 150 bbl. of oil per day from the Madison, Nisku, Red River and Bakken formations. Griffis & Associates is advisor to St. Mary on this and the Legacy deal.
On Dec. 18, St. Mary sold all operated and nonoperated properties in the Hanging Woman Basin coalbed-methane project in Wyoming and Montana to Edison, N.J.-based J. M. Huber Corp. Most of the assets are in Sheridan County, Wyoming, and involve production of approximately 10 million cu. ft. of gas per day.
Total proceeds from these Wyoming divestitures are anticipated to be approximately $40 million.
Tony Best, St. Mary chief executive officer and president, says the proceeds combined with cash flow are expected to fund its 2010 capital budget.
• An undisclosed buyer plans to acquire assets in southwestern Kansas and southeastern Colorado from Ellora Energy Inc., Denver, for $247 million.
The acquisition involves all of Ellora’s operated and nonoperated holdings in the region, including its Hugoton Field assets. In third-quarter 2009, production was 30.6 million cu. ft. per day (52% gas).
T. Scott Martin, Ellora chairman and chief executive, says, “The proceeds from the sale will allow us to significantly reduce our debt and more aggressively pursue our efforts to maximize the value of our lease position in the dynamic Haynesville shale-gas play in East Texas. We believe now is the appropriate time in Ellora’s lifecycle to put our focus more squarely on the Haynesville play as we continue to explore our strategic options.”
Ellora has oil and gas assets in East Texas and Louisiana in the James lime and Haynesville shale plays.
• Houston-based El Paso Corp. (NYSE: EP) has acquired producing oil properties in the Uinta Basin in Utah from North Salt Lake, Utah-based Flying J Oil & Gas Inc., a subsidiary of Flying J Inc., for $103.5 million.
The assets are primarily in Altamont-Bluebell Field in Duchesne and Uintah counties. Proved reserves are 70 billion cu. ft. equivalent. Production is approximately 9 million equivalent per day.
The company estimates it paid $1.49 per thousand cu. ft. equivalent (Mcfe) of proved reserves.
Pro forma the acquisition, El Paso reports it has approximately $1.8 billion in liquidity.
Flying J is in Chapter 11 bankruptcy and plans to merge with Knoxville, Tenn.-based Pilot Travel Centers.
• Denver’s Berry Petroleum Co. (NYSE: BRY) plans to acquire interests in producing properties principally in the Wolfberry trend in West Texas from an undisclosed private seller for approximately $126 million in cash, marking the company’s entry into the Permian Basin.
The assets involve proved reserves of 11.2 million BOE, 85% oil, 23% proved developed, of which 92% are in the Wolfberry trend. Berry estimates the acquisition will add approximately 1,300 BOE per day to production on a 12-month annual average. Upside includes more than 130 drilling locations in the Wolfberry trend targeting the Spraberry, Dean, Wolfcamp and Strawn formations. Berry will operate 70% of the acquired properties.
Berry is increasing its 2010 capital budget by an additional $30 million to between $250 million and $290 million, which it expects to be funded from cash flow. The company plans to drill approximately 27 wells on the Permian property. One rig is currently drilling. Berry says it expects its 2010 production to be between 32,250 and 33,000 bbl. equivalent per day, an increase of 8% to 10% over 2009. In addition, Berry’s production from oil assets is expected to grow 20% by year-end 2010, driven by Diatomite and Wolfberry development.
• Midland, Texas-based Concho Resources Inc. (NYSE: CXO) via subsidiary COG Operating LLC has closed its acquisition of producing and nonproducing assets in the Wolfberry trend in the Permian Basin from Midland, Texas-based Terrace Petroleum Corp. and other private sellers for $213 million in cash, as well as other Wolfberry interests from multiple private sellers in a separate transaction for $47 million, for a combined deal value of $260 million.
The Terrace transaction, announced in November, was reduced from $225 million due to the effects of participation rights and other adjustments.
Together, the deals involve net proved reserves of approximately 20 million BOE, with 18 million bbl. equivalent of identified unproved reserves and 290 net Wolfberry drilling locations; a 61% increase over the company’s mid-year 2009 total.
Concho estimates 2010 exit rate production related to the acquired interests to be approximately 4,500 bbl. equivalent per day.
• Houston-based, privately held Alta Mesa Holdings LP plans to acquire Gulf Coast producer The Meridian Resource Corp., Houston, (NYSE: TMR) for approximately $122.8 million in cash and debt assumption, saving the company from impending bankruptcy following a negative borrowing-base reduction in the spring.
Alta Mesa will pay $0.29 per Meridian share in cash, representing an equity value of approximately $26.8 million and a premium of approximately 12% to Meridian’s closing share price of $0.26 on Dec. 22. Additionally, Alta Mesa will assume all of Meridian’s outstanding obligations, including those under the company’s senior secured credit agreement of $89.5 million and its equipment loan agreement for some $6.5 million.
As of year-end 2008, Meridian had proved reserves of 80 billion cu. ft. equivalent (63% gas, 64% proved developed). Production as of third-quarter 2009 was approximately 32 million equivalent per day.
Meridian assets include interests in 19 fields and 100 producing wells, primarily in East and South Texas targeting the Austin Chalk and in southern Louisiana (96% operated). The company holds interests in 71,500 gross developed acres (34,000 net) and 196,300 gross undeveloped acres (134,000 net) in Louisiana, Texas, the Gulf of Mexico, Oklahoma and Kentucky.
Rivington Securities LLC, a subsidiary of Rivington Capital Advisors LLC, and J.P. Morgan Securities Inc. are financial advisers to Meridian, and Morgan Keegan & Co. Inc. provided a fairness opinion to the Meridian board.
• The MLP Eagle Rock Energy Partners LP, Houston, (Nasdaq: EROC) has agreed to a joint proposal by private-equity firm Natural Gas Partners and mineral and royalty aggregator Black Stone Minerals Co. LP, Houston, that would improve the partnership’s liquidity position and simplify its capital structure, including the sale of Eagle Rock’s minerals business for some $174.5 million.
NGP, a 47% controlling owner of Eagle Rock and the founding sponsor, in September proposed a combination of transactions with the goal of enhancing the MLP’s liquidity.
Black Stone manages the largest asset in Eagle Rock’s minerals business and holds the executive rights. Its $174.5-million offer is up from $170 million in November for Eagle Rock’s minerals and royalty segment.
Eagle Rock’s minerals business consists of fee mineral, royalty and overriding royalty interests in more than 2,800 wells in the Permian Basin, Gulf Coast, Midcontinent and LA Basin. Proved reserves as of year-end 2008 were 3.6 million BOE (77% oil) involving 430,000 net acres.
Other provisions include: The option for Eagle Rock to capture controlling interest in its general partner and to reconstitute its board to allow common unit holders to elect the majority of its directors; simplifying Eagle Rock’s capital structure by cancelling existing incentive distribution rights and 20.7 million subordinated units currently held by NGP; a rights offering in which NGP will fully participate involving 9.5 million common and general partner units; and NGP’s commitment for up to five months to back-stop an Eagle Rock equity offering up to $41.6 million, at a price of $3.10 per unit.
In exchange for NGP’s contributions and commitments, Eagle Rock will pay NGP a transaction fee of $29 million.
The sale of the minerals business and full exercise of the rights offering would provide approximately $225 million of potential debt reduction before fees under the company’s revolving credit facility. Borrowed amounts could be reduced further by the proceeds from an equity offering done at a later date.
Eagle Rock chairman and chief executive Joseph A. Mills says, “The contemplated transactions provide needed near-term liquidity by way of the sale of our minerals business and the rights offering, while offering protection to the partnership against a further economic downturn by way of the contemplated equity backstop.”
He adds, “Equally as important, the contemplated transactions seek to simplify our capital structure and governance, which should make Eagle Rock attractive to a broader investor base and improve our access to the capital markets. This, in turn, should enhance our ability to grow and ultimately to pay a more meaningful distribution to our unit holders.”
The conflicts committee has approved the transactions. The initial restructuring is expected to occur in first-half 2010.
SMH Energy, a division of Madison Williams and Co., is financial advisor to the conflicts committee and has delivered a fairness opinion. Andrews Kurth LLP is counsel to the conflicts committee. Vinson & Elkins LLP is counsel to the partnership with respect to the organizational restructuring, and Thompson & Knight LLP is counsel on the sale of the minerals business. Akin Gump Strauss Hauer & Feld LLP is counsel to NGP.
• Plains All American Pipeline LP, Houston, (NYSE: PAA) plans to IPO common units representing limited partner interests of PAA Natural Gas Storage LP, an MLP subsidiary to be formed by Plains All American to own and operate its natural gas storage assets and business.
Plains All American currently expects a registration statement for the IPO to be filed during the first quarter.
Plains All American will own the 2% general partner interest and incentive distribution rights of PAA Natural Gas Storage and expects to retain a substantial portion of the MLP’s common and subordinated units. Plains All American anticipates using the proceeds of the IPO to repay debt and for general partnership purposes.