QR Energy Buys Mature Assets
Purchase of 14,600 acres in Jay Field, producing 2,500 BOE per day.
QR Energy LP (NYSE: QRE) has purchased oil properties in the Jay Field in the Florida Gulf coast area from its sponsor, Quantum Resources Fund, for $145 million.
The field is comprised of 14,600 acres in Santa Rosa and Escambia counties, Florida and Escambia County, Alabama. Current net production from the Jay Field is 2,500 barrels of oil equivalent per day, 90% of which is oil and 10% is liquids. The fields are 100% operated by Quantum. The total estimated proved reserves from the property is 11.3 million barrels of oil equivalent (BOE) as of Dec. 31. All of the reserves are proved developed and 76% are proved developed producing.
The assets have a reserve to production ratio of 12.4 years and a decline rate of about 9% per year. In addition, they offer tertiary recovery development opportunities. The estimated maintenance capital expenditures are about $11 million per year and the estimated general and administrative expenses are about $3 million per year, QR Energy reported.
The deal brings a mature asset into the company’s portfolio and adds to QR Energy’s 7.4% over-riding royalty interest in the field. QR Energy said its borrowing base will increase from $730 million to $900 million because of the Jay field and east Texas acquisitions.
The deal closed Dec. 28, 2012 and was financed with cash from its bank credit facility.
QR Energy’s management said the transaction would provide an additional $35 million to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and would be accretive to distributable cash flow.
Chief executive Alan L. Smith said the purchase fits with its focus on mature assets with a low decline rate. "This acquisition allows the partnership to own a world class oil field with significant remaining reserves, a low decline and a long reserve life. We expect the high liquids content and premium Louisiana Light Sweet crude oil pricing to deliver high margins and significant accretion to our unitholders," he said.
The announcement left analysts content the acquisition was good for the company’s unitholders. John Cusick, an analyst with Wunderlich Securities Inc., said the deal would be accretive to cash flows and came at an attractive price. “The deal looks to be accretive to cash flow and was consummated an attractive multiple,” he wrote shortly after the announcement was made.
The purchase price was about 4.1 times the expected 2013 EBITDA (earnings before interest, taxes, depreciation and amortization) of $35 million. The deal will not likely change QR Energy’s distributions, but its coverage ratios over the next several years should improve, he said.
Wunderlich estimates that distribution will be around $1.9425 per unit in 2012 and $2.03 in 2013. The expected cash flows that cover the distributions are $2.33 per unit in 2012 and $2.35 in 2013. Wunderlich maintains a price target for QR Energy at $22 per unit and rates the company a buy.
"We believe QR Energy is an attractive investment due to its high relative yield, total return potential, limited exposure to commodity prices due to its hedging program, and potential dropdowns from its sponsor," he wrote.
Wunderlich estimates growth at 4.5% in 2013 nd 3.9% in 2013. The total return potential for 2013 projects is 16.1%.