Some E&Ps may be sweating lender adjustments to their borrowing bases, but Memorial Resource Development Corp. (MRD) would not be among them.
The company instead continues to gather strength in the Lower Cotton Valley. Memorial said Sept. 21 that it will acquire 45,000 net acres Louisiana, use an equity offering to fund the transaction and produced strong performance from its Terryville Complex wells.
Memorial said it will acquire acreage and leasehold in Jackson and Lincoln parishes, La., from a Rockcliff Energy–QLS Joint Venture LLC for $283.8 million. The company upsized its initial stock offering to 12 million common shares from 10 million shares to help fund the purchase.
Memorial has been on a tear in the Cotton Valley. It entered into separate deals to acquire or lease acreage located adjacent to its existing operating areas in north Louisiana. Since Jan. 1, the company has acquired, agreed to acquire or secured the option to lease an additional 132,758 net acres for a total of $373.8 million.
Memorial’s 45,121 net acre acquisition is southeast of MRD's Terryville Complex and appears to have similar geological features to Terryville’s over-pressured zones and stacked pay, said Patrick Rigamer, senior analyst, Global Hunter Securities.
“MRD took two steps forward in extending the company’s inventory of high-rate gas wells with a significant leasing update and continued success in drill-bit delineation efforts,” Rigamer said.
Memorial has ongoing “grass roots” leasing efforts in Louisiana, which have increased the size of its Terryville positions by 42,294 acres.
The company has identified about 588 gross potential horizontal drilling locations on the acreage and expects to hold the entire position within five years using a one-rig program.
“The prolific nature of wells at Terryville should drive industry leading production and reserve growth, leading to superior capital efficiency and returns on equity,” said Gordon Douthat, senior analyst, Wells Fargo Securities LLC.
Since January, Memorial increased its acreage by 276% since its IPO in 2014 to 193,915 net acres from 61,000 net acres.
Memorial said Sept. 21 that it recently completed its mid-year reserves review and regularly scheduled semi-annual redetermination. Its borrowing base under its senior secured revolving credit facility increased to $1 billion from $725 million.
To help fund the acquisition the company plans to offer stock worth about $211 million. On Sept. 21, the company said it would sell 12 million shares of common stock at $17.60 per share, a 5% discount to the stock’s Sept. 21 price. The company has the option of selling an additional 1.8 million shares.
Memorial said that if the pending acquisition is scuttled, it will use proceeds from the stock offering for general corporate purposes.
Barclays is acting as sole book-running manager for the offering.
Operations
Memorial also provided an update of its field work in the third quarter of 2015.
“The company guided toward a an extremely heavy completion schedule during the third quarter and delivered in spades, with total well count and production results meeting or exceeding expectations,” said Brian Gamble, research director, Simmons & Co. International.
On Sept. 10, Memorial completed the one-well Dowling (27-34-HC-1) pad targeting the Upper Red zone, located 7,620 feet northwest of the Louisiana Methodist Orphanage 2-11 HC-1 (LMO) well.
“Initial flowback gas rates are encouraging,” the company said. The well has a 24-hour IP rate of 40.7 million cubic feet equivalent per day (cfe/d), the best peak 24-hour rate drilled in the field.
“I am excited about MRD's acreage additions that further increase our exposure to one of the premier basins and some of the most prolific natural gas fields in the country," said John Weinzierl, Memorial’s CEO.” These transactions are consistent with our strategy of expanding our already industry-leading position in North Louisiana. Based on our technical expertise, we believe the additional acreage will provide us additional opportunities to grow our inventory of over-pressured, horizontal, Lower Cotton Valley drilling projects.”
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
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