New Name, New Place: Lucas Energy Enters Midcon, Plans Rebranding

Lucas Energy Inc. (NYSE: LEI) took a place in line for one of 2015’s hottest tickets—the Midcontinent—and appears to have gotten a good seat.

With the acquisition, the company plans to take on solid production, potential well locations and a new name: Camber Energy Inc.

Houston’s Lucas has signed an agreement to acquire the interests in producing properties and undeveloped acreage in central Oklahoma from a group of sellers. The value of the transaction is about $80.7 million, including assumption of debt.

The deal is one of several transactions in which companies expanded or planned to transform their companies in the Midcontinent. In 2015, the region generated about $4 billion in deals, most notably with Devon Energy Corp.'s (NYSE: DVN) $1.9 billion acquisition in December.

Lucas’ acquisition includes varied interests in two largely contiguous acreage blocks in the liquids-rich Midcontinent. Production from 114 wells is in excess of 1,200 net barrels of oil equivalent per day (boe/d), of which 53% is liquids.

Offset development drilling opportunities for at least 40 additional wells have also been identified, the company said.

The bulk of the production is from about 43,000 gross (9,900 net) acres in the Hunton Formation. Total proved developed reserves are 5.4 MMboe, with volumes consisting of 6% oil, 47% NGL and 47% natural gas, according to a third-party reserve report on Dec. 1.

As part of the transaction, Lucas said Dec. 31 it would assume about $31.4 million in commercial bank debt, issue 552,000 shares of preferred stock and about 13 million shares of common stock and pay about $5 million in cash.

Lucas will rebrand and change its name to Camber Energy at the closing of the transaction. No significant management changes are planned. Anthony C. Schnur will maintain his role as president and CEO.

As part of the asset purchase agreement, the sellers will have the right to appoint three members to the company's board of directors at closing.

Richard N. Azar II., the principal seller and manager of the properties, will be appointed as executive chairman. Azar is a founding partner of Segundo Resources LLC, which is a representative of the sellers.

The sellers consist of 21 different entities and individuals, which include RAD2 Minerals Ltd., Branch Energy Services LLC, Bushman Energy Ltd., Coyle Manna Management LLC, DBS Investments Ltd., Dudley Energy Ltd., GBC Minerals Ltd., Rockin' S FLP Ltd., Saxum Energy LLC, Scott Lake Energy LP and Segundo Resources.

Hot Spot

Lucas' acquisition wrapped up a hot year for the Midcontinent in 2015. The region has attracted significant investment throughout the year despite not seeing a recovery in commodity prices.

On Dec. 7, Devon agreed to purchase 80,000 net surface acres in the Anadarko’s Stack play from privately-held Felix Energy LLC.

The Felix acreage had long been at the top of the Oklahoma City company's list for a deal, said Dave Hager, Devon's president and CEO, in a statement.

“In our opinion, [the Stack] is the best emerging development play in North America that combines some of the best attributes of our Eagle Ford and Delaware positions,” Hager said.

A Baird Equity Research fourth quarter energy survey reflects a similar sentiment building in the industry.

“The Permian Basin and Scoop/Stack/Springer are seen as the most preferred plays as sentiment in other leading areas like the Eagle Ford, Marcellus, and Niobrara slackens,” said Daniel P. Katzenberg, Baird analyst, in a Dec. 15 report.

The findings suggest a widening chasm of funding costs between operators in select preferred plays and E&P’s in other regions, he said.

Contact the author, Emily Moser, at emoser@hartenergy.com.