EPL Buys GoM Properties
Purchase of shallow GOM assets with about 36.3 million BOE in proved reserves.
EPL Oil & Gas Inc. (NYSE: EPL) plans to buy shallow Gulf of Mexico shelf oil and natural gas interests from Hilcorp Energy Holdings LLC for $550 million.
The assets are currently producing about 10,000 barrels of oil equivalent (BOE) per day, about 50% of which are oil. Estimated proved reserves totaled 36.3 million BOE, 54% of which are oil.
The properties include three fields that Hilcorp had acquired from Chevron Corp. (NYSE: CVX) in Ship Shoal Block 208, South Pass 78, and South Marsh Island 239, which are all on the central GOM shelf in the vicinity of EPL's existing core field areas. These three fields account for 64% of the current proved reserves, and approximately 82% of the total proved acquisition PV10 value estimated at $626 million using strip prices as of August 31, 2012.
The currently estimated asset retirement obligation to be assumed by EPL in the acquisition is expected to total approximately $120 million.
Gary Hanna, EPL's president and chief executive says, "This is the fourth acquisition we have made since 2011, and it is the most transformational. This accretive acquisition provides scale and diversification while continuing to focus the value of our company in the Central gulf, which is the most prolific, oil bearing region of the GoM.”
EPL, based in New Orleans, La., sees more than 90 low-risk oil-rich shallow behind pipe and drilling opportunities in the area. The purchase nearly doubles EPL’s proved reserves to about 74 million BOE and increases its production to more than 20,000 BOE per day.
EPL is planning to hedge 80% of the forecasted proved producing oil and natural gas production of the assets being acquired for years 2013 through 2015, with 2013 hedges scheduled to be secured early this week representing approximately 80% of forecasted proved production. Approximately 50% of EPL's existing oil production is hedged for 2013.
EPL plans to finance the acquisition with cash on hand and with financing from the Bank of Montreal, which will increase its senior secured credit facility form $250 million to $750 million. EPL’s borrowing base has been increased from $200 million to $450 million.
Additionally, Bank of Montreal and BMO Capital Markets have provided EPL a commitment for $200 million in the form of a senior unsecured bridge loan, which is expected to remain unutilized as it plans to access the high yield market for permanent financing before the anticipated closing date in late October.
Houston-based Hilcorp has indicated to EPL that this sale represents their exit from the GOM shelf. The economic effective date is July 1, 2012, with closing expected by October 31, 2012. EPL has submitted a 10 % cash deposit to Hilcorp under the terms of the purchase agreement.