INDUSTRY BRIEFS

Encana acquires Athlon Energy for $7.1B

Encana Corp. and Athlon Energy Inc. have entered into a definitive merger agreement. Encana will acquire all of the issued and outstanding shares of common stock of Texas-based Athlon for $5.93 billion in cash, as well as the company's $1.15 billion of senior notes, for a total transaction value of approximately US$7.1 billion. With the acquisition, Encana adds approximately 140,000 net acres in the oil-rich Midland Basin counties of Midland, Martin, Howard, and Glasscock to its portfolio. By Wunderlich Securities estimates, the quality acreage justifies the price. "With a Midland comp group valuation of $105,000/flowing barrel and ATHL's production of 30,000 boepd, we value ATHL's production at $3.15 billion. This implies that ECA paid ~$3.9 billion for the 140,000 net acres or $28,245/net acre, a record. If we use $130,000/flowing barrel, the price paid for the land would be $22,857/net acre, still a large number; but we believe that the multi-pay potential proven in the Midland Basin justifies these valuations." Encana plans to increase the budget for 2015 to $1 billion. The Permian will play a large role within Encana's growth portfolio, contributing to company-wide projected total liquids production of around 250,000 bbls/d by 2017. Following this acquisition, Encana expects to achieve its initial 2017 target to reach 75% of operating cash flow from liquids production in 2015. Athlon shareholders will receive cash consideration of US$58.50 per share, which represents a premium of 28% over the average trading price of Athlon stock for 20 days prior to the announcment. Encana is being advised by Tudor, Pickering, Holt & Co. and Barclays as financial advisors and Paul, Weiss, Rifkind, Wharton & Garrison LLP, Vinson & Elkins LLP, and Blake, Cassels & Graydon LLP as legal advisors. Athlon is being advised by Evercore Group LLC and Goldman, Sachs & Co., as financial advisors, and Latham & Watkins LLP, as legal advisor.

Chesapeake sells Marcellus, Utica assets to Southwestern

Southwestern Energy Co. has signed a purchase and sale agreement with Chesapeake Energy Corp. to acquire certain oil and gas assets covering 413,000 net acres in West Virginia and southwest Pennsylvania in the Upper Devonian, Marcellus, and Utica shale plays for $5.375 billion. The acquired assets include 256 operated and producing Marcellus and Utica horizontal wells and an additional 179 non-operated or non-producing Marcellus and Utica horizontal wells, bringing the total horizontal well count to 435 wells with net production in September of 336 million cubic feet of gas equivalent per day (55% gas, 36% NGL, and 9% oil). The deal "came in at metrics far beyond any natural gas deal we have seen in years," said Wunderlich Securities analysts. With a pricetag of $24/boe of proven reserves, $96,000/flowing boe of current production or $13,000/net acre, the metrics are "what one would expect for an oily asset, not a gas asset, in the Appalachian region, and this price also represents a big ~15x cash flow multiple as well," the analysts continued. The average working interest of the operated properties is 67.5%, and the transaction is subject to consent of the principal co-owner of this acreage, which also has a 30-day preferential right to purchase. The largely contiguous acreage position lies almost exclusively in northern West Virginia. The majority of the acreage is either held by production or has lease commitments through 2018 that average less than 20,000 acres per year. Average net revenue on the leases is 86%. Chesapeake had not announced plans for the funds (1/6th the company's enterprise value), but the analysts believe the company will likely simplify/reduce liabilities. Following the announcement, Moody's changed the outlook on Chesapeake to positive.

Statoil sells Shah Deniz stake to Petronas for $2.25B

Statoil ASA has sold its 15.5% participating interest in the Shah Deniz production sharing agreement in Azerbaijan, 15.5% share in the South Caucasus Pipeline Co. (SCPC), 15.5% share in the SCPC holding company, and 12.4% share in the Azerbaijan Gas Supply Co. (AGSC) to Petronas. The transaction value is $2.25 billion. Statoil's 2014 second-quarter production from the Shah Deniz field was 38,000 barrels of oil equivalent per day. The effective date is Jan. 1. The transaction is expected to close in early 2015, subject to approval from the relevant authorities.

LINN sells $2.3B in assets

LINN Energy LLC and signed a definitive agreement to sell its entire position in the Granite Wash and Cleveland plays located in the Texas Panhandle and western Oklahoma to privately held institutional affiliates of EnerVest Ltd. for a contract price of $1.95 billion. The company also signed a definitive agreement with Fleur de Lis Energy LLC to sell its Wolfberry positions in Ector and Midland counties in the Permian Basin for a contract price of $350 million. Proceeds from the sales are expected to finance the company's recent $2.3 billion acquisition of assets from Devon Energy. The Granite Wash and Cleveland properties sold include 145,000 net acres, 195 MMcfe/d of current production, 755 bcfe of year-end 2013 proved reserves, and related midstream facilities. LINN is running a four-rig drilling program and has planned to spend $210 million of capital on these assets in 2014. The Permian Basin properties sold include 7,200 net acres, 4.6 Mboe/d of current production, and 19 MMboe of year-end 2013 proved reserves. LINN is running a two-rig vertical drilling program and has planned to spend $95 million of capital on these assets in 2014. Following the closing of this transaction, LINN will have remaining production of 8.0 Mboe/d and 6,600 net acres in the Midland Basin that are prospective for horizontal Wolfcamp drilling. RBC Richardson Barr, Scotia Waterous, and Wells Fargo acted as financial advisors to LINN during the Granite Wash and Cleveland play transaction. RBC Richardson Barr acted as the sole financial advisor to LINN during the Permian Basin transaction. Jefferies acted as financial advisor to FourPoint Energy and EnerVest in the Granite Wash and Cleveland transaction.

Midstates Petroleum to sell Gulf Coast assets for $90M

Houston, TX-based Midstates Petroleum Co. Inc. has executed a Purchase and Sale Agreement for the sale of the Dequincy portion of its Gulf Coast assets in Louisiana. The PSA includes Midstates' ownership interest in developed and undeveloped acreage totaling 12,816 gross (12,676 net) acres in the Dequincy area in Beauregard and Calcasieu Parishes, Louisiana to a private buyer for total consideration of $90 million, subject to customary purchase price adjustments. The transaction also includes the 20 mile El Grande pipeline in the area that Midstates constructed and owned 100%. The total consideration consists of $80 million in cash, a 10% overriding royalty interest in new wells drilled on that acreage (capped at $8 million) and future payments based on increased throughput on the El Grande pipeline (capped at $2 million). During the third quarter 2014, the properties produced approximately 1,500 boepd. The transaction does not include Midstates' acreage and interests in the Fleetwood area of Louisiana. Net proceeds from the sale will be used to pay down outstanding borrowings under the company's revolving credit facility.

EXCO sells Compass Production Partners interest

EXCO Resources Inc. has signed an agreement to sell its 25% interest in Compass Production Partners LP and its 50% interest in Compass Production GP LLC to an affiliate of Harbinger Group Inc. for $118.75 million in cash. EXCO intends to use the proceeds to reduce the revolving commitment under EXCO's Amended and Restated Credit Agreement. As of September 30, 2014, EXCO had $222.5 million of outstanding indebtedness under the revolving commitment of the EXCO credit agreement. Upon the closing of the sale of the partnership, EXCO will have received cash consideration of $701.8 million from the sale of non-core assets and the rights offering of common stock since September 30, 2013. EXCO's $875 million borrowing base will not be affected since the partnership is not a guarantor under the EXCO Credit Agreement. EXCO formed the partnership with Harbinger in February 2013, and contributed its conventional non-shale assets in East Texas and North Louisiana and its shallow Canyon Sand and other assets in West Texas. In exchange for the contribution, EXCO received net proceeds of $574.8 million and the interests in the partnership and the general partner. EXCO has received $9.6 million of cash distributions from the partnership since formation.

Mid-Con Energy to acquire Permian assets

Mid-Con Energy Partners LP, through its wholly owned subsidiary Mid-Con Energy Properties LLC, has entered into a definitive agreement to acquire net proved oil reserves in the Eastern Shelf of the Permian Basin, which are estimated at 6.1 million barrels of oil equivalent, for an aggregate purchase price of $120 million. In connection with the acquisition, the partnership has secured committed bank financing to support the purchase price. The Eastern Shelf acquisition includes a number of properties covering 18,000 net acres in Coke, Coleman, Fisher, Haskell, Jones, Kent, Nolan, Runnels, Stonewall, Taylor, and Tom Green counties, Texas. The Eastern Shelf comprises mature producing assets in the early stages of redevelopment that offer primary production with waterflood potential. Mid-Con Energy will operate the Eastern Shelf properties and will hold a 96% average working interest across the acquired properties.

Murphy to sell certain Malaysian Assets

Murphy Oil Corp. subsidiaries Murphy Sabah Oil Co. Ltd. and Murphy Sarawak Oil Co. Ltd. have entered into an agreement with PT Pertamina Malaysia Eksplorasi Produksi to sell 30% of Murphy's Malaysian oil and gas assets for an aggregate sales price of $2 billion in an all cash transaction. Murphy Oil entered Malaysia in 1999 and the assets became a core part of the company's portfolio, producing more than 40% of the company's total 2013 net production. Closing of the deal is expected to take place in two phases. The first phase is expected to be completed in 4Q14 and the second phase is expected to be completed by 1Q15. The transaction is subject to, among other things, the approval of Petroliam Nasional Berhad (Petronas). The company expects to redeploy proceeds of the sale into drilling capital for the Eagle Ford, acquisition opportunities, debt reduction, and share repurchases.

The company has acquired rights to approximately 150,000 net acres in the Eagle Ford. Production from the play commenced in 2009 and, in 2013, oil and natural gas production hit approximately 35,600 bopd and 21 MMcfd, respectively. Tudor, Pickering, Holt & Co. served as exclusive financial advisor to Murphy on the transaction. Gibson, Dunn & Crutcher LLP acted as legal counsel.

NRP buys Williston Basin interests for $340M

Natural Resource Partners LP has signed a definitive agreement to acquire non-operated working interests in oil and gas properties located in the Bakken/Three Forks play of the Williston Basin from an affiliate of privately-held Kaiser-Francis Oil Co. for $340 million. The assets, located in the Sanish Field in Mountrail County, North Dakota, are all held by production and operated by Whiting Petroleum Corp. The acquisition is expected to generate $58 million to $60 million of EBITDA in 2015. In connection with the acquisition agreement, NRP received a commitment from Wells Fargo Bank to underwrite an expansion of the borrowing base in NRP's existing oil and gas credit facility to $150 million. Natural Resource Partners LP intends to use net proceeds of a $125 million private placement of 9.125% senior notes due 2018 and a public offering (estimated at presstime to be approximately $100.7 million) to fund a portion of the purchase price. Upon closing of the deal, the partnership intends to hedge approximately 80% of the acquired current production volumes through 2016, with a small percentage of that production to be hedged for 2017 and 2018. NRP will seek to hedge additional volumes beyond 2016. With the transaction, Natural Resource Partners is acquiring estimated average current production of approximately 3,100 boe/d, 186 producing wells and 10 wells in various stages of development, approximately 5,700 net acres, all held by production, and an average working interest of approximately 15%. Evercore Group LLC acted as exclusive financial advisor to NRP and Tudor, Pickering, Holt & Co. acted as exclusive financial advisor to Kaiser-Francis. Latham & Watkins LLP represented Natural Resource Partners in the deal.

Eagle Materials to acquire CRS Proppants

Eagle Materials Inc. has entered into a definitive agreement to acquire CRS Proppants LLC and its subsidiaries, including Great Northern Sand LLC, for $225 million. CRS Proppants' operations include a northern-white frac-sand mine and processing facility in Wisconsin that is currently being expanded from one million to two million tons per year capacity; existing long-term sales contracts with targeted customers for 85% of the two million tons per year of capacity; and UP rail-based trans-load network from the mine into the Permian and other target basins. The cash purchase price of $225 million is subject to adjustments for working capital and other items, and will be funded by operating cash flow and borrowings under Eagle's bank credit facility.

TEAM Oil Tools acquires Schlehuber Oil Tools

Intervale Capital-backed TEAM Oil Tools Inc. has acquired the assets of Denver City, TX-based Schlehuber Oil Tools LLC. Schlehuber is a downhole tools company servicing the Permian Basin. Byron Cowart, TEAM's CEO, will oversee the combined business. Cowart has more than 30 years of oilfield service experience, managing the completions operations of Weatherford International, Key Energy Services, and TIW Corp. Robert Schlehuber, Schlehuber 's founder and president, will be promoted to regional manager of TEAM's Permian operations.

Pemex issued $1B in notes

State-owned oil company Petróleos Mexicanos (Pemex) has been issued two series of notes totaling $1 billion guaranteed by the US Export-Import Bank. Milbank, Tweed, Hadley & McCloy represented the international banks (BNP Paribas, Citigroup, and Santander), acting as initial purchasers/underwriters. Pemex is expected to use the proceeds to finance the purchase US goods and services for its oil and gas E&P operations. A series of $500 million floating-rate notes due 2025 was priced with an interest rate of three-month LIBOR plus 35 basis points, with a second series of $500 million fixed-rate notes due 2025 priced with an interest rate of 2.378% per annum.

ARM opens Calgary office

Houston-based Asset Risk Management LLC (ARM) has opened a new office in Calgary. ARM has hired Stephanie Barker to lead the Calgary office. Barker has an energy industry background with specific experience in Calgary. The office will initially focus on ARM's hedge advisory business. Over time, ARM expects that the new office will offer the full suite of producer services currently offered to US clients.