Gulfport Energy Corp. plans to acquire private equity-backed Paloma Partners III LLC for $300 million and bolt on that company's 24,000 net acres in the Utica Shale's dry gas core.
Paloma's assets in the play are completely undeveloped. The acquisition is expected to give Gulfport an additional 150 drilling drilling locations in the Utica, which continues to account for a larger share of quarterly production as the company has been focused on building its position there in recent years. The deal is expected to close in the third quarter, growing Gulfport's Utica assets to 208,000 net acres.
Paloma, backed by private equity firm EnCap Investments LP and the Australia-based global investment bank Macquarie Group, sold its assets -- located in Ohio’s Belmont and Jefferson counties -- for about $12,500/acre, which analysts considered a win for Gulfport as acreage in the area has been valued at more than $20,000. The acquisition aligns with Gulfport's stated goal to focus primarily on the Utica's dry gas window this year as oil prices remain low and continue to pressure natural gas liquid prices as well (seeShale Daily, Feb. 27).
Paloma Partners III is an affiliate of Paloma Resources LLC, a Houston-based exploration and production firm founded in 2004 to focus on acquiring assets for development and monetization. In 2012 the company sold Paloma Partners II LLC to Marathon Oil Corp. in a $750 million deal for 17,000 net acres in the Eagle Ford Shale (see Shale Daily, May 11, 2012). Paloma Partners IV LLC remains, with 33,000 net acres in the Tuscaloosa Marine Shale of Mississippi and Louisiana.
Gulfport said late Wednesday that it would offer 7.5 million common shares to fund the deal, but by Thursday morning it had upsized the offer to 9.5 million common shares at a price of $47.75 each, with a 30-day option for underwriters to purchase more than 1.4 million shares as well. The equity raise is expected to net Gulfport $436.4 million after fees. Another $300 million could also be raised with senior notes that Gulfport said it would issue depending on market conditions.
Leftover proceeds will go toward debt and this year's $630-690 million budget. While Gulfport is expected to add a Utica rig to the acquired property in the fourth quarter on top of the three it already plans to run in the play this year, it did not increase its 2015 production guidance of 432-480 MMcfe/d. But a more conservative approach has led to less downtime and stronger performing wells since last year.
Since the second quarter, when it announced a plan to scale-back and focus on the quality of its wells with a restricted choke program and a well inventory aimed at consistency and cutting costs, the company has continued to beat its own guidance (see Shale Daily, October 15, 2014; May 8, 2014). It exited 2014 with about 25 wells backlogged and it plans to do the same this year, with a capital budget that was reduced by 40%. Gulfport plans to turn inline 42-46 net wells in the Utica this year, down slightly from the more than 47 it turned to sales last year.
The company had guided to produce 378-390 MMcfe/d during the first quarter, but it finished producing 424.4 MMcfe/d, an 11% increase from the fourth quarter and a 161% increase from the year-ago period. The Utica accounted for 93% of its volumes during the period, up from 78% in 1Q2014. With its plan to focus on the eastern portion of the play, 68% of Gulfport's production last quarter was natural gas.