INDUSTRY BRIEFS
Devon Energy to sell additional upstream assets for $1B
Devon Energy Corp. has entered into definitive agreements with undisclosed parties to monetize nearly $1 billion of non-core upstream assets in east Texas, the Anadarko Basin and an overriding royalty interest in the northern Midland Basin. The largest transaction is an agreement to divest upstream assets in east Texas for $525 million. Net production from these properties averaged 22,000 oil-equivalent barrels per day (boe/d) in Q116 , of which approximately 5% was oil. Field-level cash flow accompanying these assets, which excludes overhead costs, totaled $10 million in Q1. At Dec. 31, 2015, proved reserves associated with these properties amounted to approximately 87 MMboe. In a separate transaction, the company agreed to sell its non-core position in the Anadarko Basin's Granite Wash area for $310 million. Net production associated with these properties averaged 14,000 boe/d in Q116, of which 13% was oil. Field-level cash flow accompanying these assets, which excludes overhead costs, totaled $6 million in the first quarter. At Dec. 31, 2015, proved reserves associated with these properties amounted to 31 MMboe. In the northern Midland Basin, Devon entered into an agreement to sell its overriding royalty interest across 11,000 net acres for $139 million. Current production from this overriding royalty interest is approximately 1,000 boe/d. The transaction does not include the company's working interest across 15,000 net acres in Martin County, Texas that is being marketed separately. Jefferies LLC acted as the lead financial advisor to Devon on the transactions. RBC Richardson Barr also acted as a financial advisor to Devon. Vinson & Elkins LLP acted as legal advisor to Devon.
Schlumberger acquires Omron
Schlumberger has acquired Omron Oilfield and Marine Inc., a US-based OMRON Corp. group company, a provider of automation technology and solutions. Omron Oilfield and Marine is based in Houston, Texas and consists of 139 employees. The company designs, manufactures, sells, and provides aftermarket services for automated drive and control systems, power houses, and drillers' cabins. The company also offers software-based drilling technologies on a rental or subscription basis.
Hercules Offshore files voluntary Chapter 11
Hercules Offshore Inc., after receiving votes on the company's pre-packaged Chapter 11 plan from lenders holding approximately 99.7% of the company's first lien debt, with all such lenders voting to accept the plan, the company and certain of its US subsidiaries have filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code. Under the terms of the plan, all of the company's assets will be marketed for sale, and those left unsold at the completion of the Chapter 11 process will be placed into a wind-down vehicle until sales are finalized. The company's international subsidiaries are not included as part of the Chapter 11 cases but will be part of the sale process. The Plan provides that unsecured creditors will be paid in full in the ordinary course of business or at the completion of the Chapter 11 process. Shareholders will receive cash recoveries and interests in the wind-down vehicle if they vote as a class to accept the Plan or just interests in the wind-down vehicle if the class votes against the Plan. Importantly, shareholders will have to wait until the lenders are paid in full before receiving any recovery on their interests if the class votes to reject the Plan as opposed to receiving their pro rata share of $12.5 million on the effective date of the Plan and incremental cash distributions thereafter based on the success of the sale process if the class votes to accept the Plan. The lenders also will receive cash payments largely dependent on the success of the sale process but have agreed to compromise their own recoveries to pay unsecured claims in full and provide a recovery to the company's shareholders before being paid in full if the shareholder class votes to accept the Plan. Hercules has engaged Akin Gump Strauss Hauer & Feld LLP as its legal counsel, PJT Partners as its financial advisor and FTI Consulting as its restructuring advisor.
Det norske, BP create new NCS independent
BP and Det norske oljeselskap have formed Aker BP ASA, an independent oil and gas company combining the assets and expertise from both companies' Norwegian exploration and production operations to form the largest Norwegian independent oil and gas producer. Under the terms of the proposed transaction, the BP Norge and Det norske businesses will combine and be renamed Aker BP ASA. Aker BP will be independently operated and listed on the Oslo Stock Exchange. Aker BP will be jointly owned by current Det norske shareholder Aker (40%), other Det norske shareholders (30%) and BP (30%). BP will also receive a cash payment of $140 million plus positive working capital adjustments as part of the transaction. "The transaction yields attractive acquisition metrics for BP and is a unique way to capture offshore cost deflation while giving BP long-cycle growth potential," said Cowen and Company analysts in a note following the announcement. In the deal, BP sold ~63kboed (68% liquid, FY15) production and 225 MMboe reserves to Det norske. For BP, the 30% stake it acquires in the new company holds a total value of $1.3 billion at today's Det norkse share price and including Det norske's 135.1 million share equity issuance, the analysts said, noting that accounting for Det norske's $2.6 billion net debt, the deal values BP's production at $33k/boe and reserve base at $9.2/bbl. "BP gains two attractive NCS partners that will allow it to participate in production growth through the end of the decade, including an interest in world-class Johan Sverdrup development. The newly formed Aker BP As has 122kboed production (78% liquids, FY15) and potential to grow organically to 250kboed by 2023. The newly formed company will have 723 MMboe reserves and 500 MMboe additional resource potential," the analysts continued. The completion of the transaction, which is expected by the end of 2016, is subject to customary closing conditions, regulatory review and approval by Det norske shareholders. According to BP, all of BP Norge's roughly 850 employees will transfer to the combined organization.
Seventy Seven Energy files Chapter 11
Seventy Seven Energy Inc. filed a pre-packaged plan of reorganization under Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Oklahoma City, OK-based oilfield services provider noted plans to file Chapter 11 in April in order to implement a Restructuring Support Agreement. The pre-packaged plan provides for a deleveraging transaction pursuant to which approximately $1.1 billion of the company's outstanding debt will be converted to equity. The filing follows the completion of the solicitation process, which began on May 9 of (i) lenders representing the company's Incremental Term Supplement (Tranche A) loan, (ii) lenders representing the company's $400 million Term Loan Credit Agreement dated June 25, 2014, (iii) noteholders of the company's 6.625% senior unsecured notes due 2019 and (iv) noteholders of the 6.50% senior unsecured notes due 2022. All trade creditors, suppliers, and contractors will be paid in the ordinary course of business.
Antero to acquire Marcellus Shale acreage from Southwestern
Antero Resources Corp. signed a definitive agreement to acquire approximately 55,000 net acres in the Marcellus Shale for $450 million from Southwestern Energy. Approximately 75% of the 55,000 net acres contains dry Utica rights. The acquisition includes undeveloped properties located primarily in Wetzel, Tyler, and Doddridge Counties in West Virginia. Additionally, a third party has a 30-day tag along option to sell 13K net acres with 3 MMcfe/d of associated production under the same terms, bringing the potential acquisition price close to $560 million. Antero announced an equity offering of 26.75 million shares of common stock with a 4 million share overallotment, equating to 9.6% dilution (or 11.1% with the overallotment) with estimated gross proceeds of approximately $762 million (approximately $875 million with the overallotment). Commenting on Antero's 2016 capital budget and development plans on the acquired acreage, Glen Warren, president and CFO of Antero, said the company expects to add an additional rig, focused primarily on Tyler County, in the second half of the year while maintaining its original drilling and completion budget of $1.3 billion. The transaction looks positive for Antero, noted Seaport Global Securities analysts in a note following the announcement, "as the company meaningfully high-grades its inventory at a fair price ($7.3K/acre based on $3.5K/flowing Mcfepd), increases its 2017 outlook (~20%-25% YoY growth in 2017) and de-leverages its balance sheet (2016 net debt/EBITDA ~2.9x vs. 3.1x previously)." On the other side, despite acquiring the acreage from Chesapeake Energy at a higher price roughly 18 months ago, Southwestern's sale of a portion is not surprising, said Brian Velie at Capital One Securities, as "carving out a piece of its 443K net acre Southwest Marcellus position had been widely discussed." He continued, "Considering the 12-month strip price for oil and natural gas have both declined by roughly 10% since the end of 2014, a haircut to the acreage price should be expected. However, also keep in mind that SWN has created considerable value on the acreage since the acquisition with a 40% improvement to well performance and a 33% decrease in days to drill." For Southwestern, "the acreage sold was worth less to SWN than the purchase price because the locations will come off the end of a 20+ year queue of Southwest Marcellus inventory," Velie noted, and proceeds will go toward the principal balance of SWN's $750 million term loan due in November of 2018.
Seneca, IOG modify Marcellus agreement
Seneca Resources and IOG CRV - Marcellus LLC, an affiliate of IOG Capital LP, and funds managed by affiliates of Fortress Investment Group LLC, have agreed to a modified extension of their joint development agreement, which includes a commitment to develop additional Marcellus Shale natural gas assets in Elk, McKean, and Cameron counties in north-central Pennsylvania. Under the terms of the revised joint development agreement, Seneca and IOG commit to jointly participate in a program that will develop a total of 75 Marcellus wells in the Clermont/Rich Valley area in Pennsylvania. In December 2015, IOG initially committed to developing 42 wells with an option to participate in 38 additional wells if elected prior to July 1, 2016. To date, 39 of the 75 joint development wells have been completed and turned to sales or drilled and in the process of being completed. IOG was also granted an option to participate in a seven-well Marcellus pad that will be completed prior to Dec. 31, 2017. Should IOG choose to participate, the total commitment would reach 82 wells. IOG continues to hold an 80% working interest in all of the joint wells. Seneca and IOG have agreed to make modifications to the royalty structure. Seneca's royalty in the additional 36 wells was reduced from 10% to 7.5%, resulting in a net revenue interest of 26% for Seneca and 74% for IOG. Consistent with the initial agreement, Seneca's working interest will increase to 85% after IOG achieves a 15% internal rate of return. At Seneca's current Marcellus well costs (averaging $650,000 per 1,000 feet of completed lateral fiscal year-to-date), IOG's obligation on the remaining wells is expected to reduce Seneca's net capital expenditures by approximately $35 million in fiscal 2016 and another $120 million spread across fiscal 2017 and fiscal 2018. In total, IOG is expected to fund approximately $325 million for its 80% working interest in the 75 joint wells (approximately $55 million less than projected under the initial agreement). The decrease from the initial agreement is due to the reduction in the total well count and a $600,000 per well average improvement in Seneca's actual well costs versus initial projections. Seneca will continue to be the program operator.