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Black Stone Entering East Texas Farmout, Buying Noble Assets for $340M

Black Stone Minerals LP, one of the largest owners of oil and natural gas mineral interests in the United States, has entered into a farmout agreement to develop assets in trending plays in East Texas, and plans to acquire a package of properties spread across 20 states from Noble Energy Inc. for $340 million.

On Monday, the Houston-based operator said the farmout agreement is with Pivotal Petroleum Partners, a portfolio company of Tailwater Capital LLC, that covers most of Black Stone's working interests (WI) in the Haynesville and Bossier shales of East Texas. Specifically, the agreement covers the Shelby Trough area in Angelina and San Augustine counties.

"The Shelby Trough is a part of our portfolio where we have seen operators become increasingly active over the last year," said Black Stone CEO Thomas Carter. "With this transaction, we have essentially eliminated future drilling and completion capital requirements related to our WI assets in the Shelby Trough for the foreseeable future, yet we will continue to benefit from the WI through a meaningful retained economic interest in those wells through the farmout, in addition to our base royalty.

"The tremendous success we are seeing from our operating partners there exposes us to continued significant growth in our royalty production and revenues from this play."

Under the farmout agreement reached Nov. 21, Pivotal would receive stakes in the remaining 20% of Black Stone's WI in wells operated by XTO Energy Inc. not covered by a farmout with Canaan Resource Partners. Pivotal also is to receive 100% of WI in wells operated by its other major operator in the area.

Once Pivotal achieves a preferred return, most of the farmed-out stakes and associated net revenue interests would revert to Black Stone with minimal future capital obligations, it said. Pivotal also would be obliged to fund Black Stone's interests in more than 80 wells across several development areas. After fulfilling its initial obligation, Pivotal would have the option to continue funding development of the areas for up to eight years.

From subsidiaries of Noble, Black Stone also is acquiring 1.1 million gross (140,000 net) mineral acres; 380,000 gross acres of nonparticipating royalty interests (NPRI); and 600,000 gross acres of overriding royalty interests (ORRI). The acreage is collectively spread across 20 states, with significant concentrations in North Dakota, Oklahoma and Texas.

The company said the acquisition would increase its exposure in the Permian Basin through the inclusion of about 8,300 net royalty acres in the Midland sub-basin, and 7,200 net acres in the Delaware sub-basin. The deal also would boost its exposure in the Bakken Shale/Three Forks Formation by more than 10,000 net royalty acres.

Other assets included in the deal include positions in Wyoming's Powder River Basin, Oklahoma's Anadarko Basin, and the Granite Wash play in Texas. Estimated average daily production for the combined assets was 2,600 boe/d in November (excluding natural gas liquids), of which 56% was oil and 44% was natural gas.

Carter said the acquisition "substantially expands our Permian and other positions, complements our overall existing asset base extremely well, and is immediately accretive to our distributable cash flow per unit. We see a great opportunity to actively manage these assets to generate lease bonus and move more lands into development."

The Noble transaction was expected to close on Tuesday (Nov. 28), with an effective date of July 1. The acquisition is to be funded primarily through the private placement of $300 million in newly issued series B cumulative convertible preferred units to an affiliate of The Carlyle Group.

To date this year Black Stone said it has closed or entered into agreements on 135 transactions totaling $500 million, including the Noble assets. The company said the transactions include a total of 250,000 net mineral acres, as well as 380,000 gross acres of NPRI and 600,000 gross acres of ORRI. Black Stone acquired about 18,000 net royalty acres in the core of the Midland and Delaware sub-basins, and 57,000 net royalty acres in the core of the Shelby Trough.

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