Calgary-based Baytex Energy Corp. is buying out Eagle Ford Shale player Aurora Oil & Gas Ltd. of Perth, Australia in a cash and debt deal worth C$2.6 billion (US$2.36 billion).
Baytex is paying C$24.15 (US$21.92)/boe of proved reserves, or C$15.46 (US$14.03)/boe of proved plus probable reserves. The sale price works out to C$84,500 (US$76,689)/boe of estimated 2014 production (see Shale Daily, Jan. 3). Of the total transaction value, C$1.8 billion (US$1.63 billion) is cash.
Upon closing, Baytex's three key oil resource plays -- the Peace River oilsands (Alberta), Lloydminster heavy oil (Alberta-Saskatchewan) and the Eagle Ford -- will represent three of the highest rate of return projects in North America, the company said.
Aurora's primary asset is 22,200 net contiguous acres in the prolific Sugarkane Field in South Texas in the core of the liquids-rich Eagle Ford. The assets are mainly in Atascosa, Karnes and Live Oak counties and are predominantly operated by Marathon Oil Corp.
The deal adds proved reserves of 106.7 million boe and proved plus probable reserves of 166.6 million boe, according to Baytex, which said "attractive reserves upside" is available by exploiting additional horizons in the Austin Chalk and Upper Eagle Ford formations, through downspacing and improving completion techniques (see Shale Daily, April 10, 2013).
Aurora's fourth quarter gross production was 24,678 boe/d (82% liquids) of predominantly light, high-quality crude oil, according to Baytex. "The Sugarkane Field has been largely delineated with infrastructure in place which is expected to facilitate low-risk future annual production growth," the company said. The assets have significant future reserves upside potential from well downspacing, improving completion techniques and new development targets in additional zones, Baytex said.
Aurora is forecasting average gross production in 2014 of 29,000-32,000 boe/d, which at the midpoint of the forecast, equates to a 43% production increase over 2013.
"Baytex will acquire premier acreage in the core of the Eagle Ford, one of the leading shale oil plays in the U.S.," said Baytex CEO James Bowzer "The acquisition is an excellent fit with our existing business model and positions Baytex in another world-class oil resource play. The acquisition will provide our shareholders with exposure to low-risk, repeatable, high-return projects with leading capital efficiencies.
"This is a highly accretive transaction on a per-share basis to reserves, production, and funds from operations. The Eagle Ford play provides not only exposure to light oil, but also to Gulf Coast crude oil markets with established transportation systems. A portion of the produced crude oil benefits from Louisiana Light Sweet-based pricing, which currently trades at a premium to WTI."
Aurora's historical pretax internal rates of return per well in the Sugarkane Field exceed 100% with an undiscounted payout of one to two years and capital efficiencies (based on 30-day initial production rates) of under C$10,000 per boe/d (based on an oil price of US$90/bbl, a natural gas price of US$4.00/Mcf and a natural gas liquids price of US$27/bbl).
Improvements in drilling completion design have increased 30-day initial production rates by about 45% since the fourth quarter of 2011, with 180-day cumulative recoveries increasing about 34% over the same period, Baytex said.
Operating costs averaged US$5.68/boe in the third quarter, according to Baytex. "Given the proximity of the Eagle Ford to the Henry Hub and Gulf Coast crude oil markets, established transportation systems for both crude oil and natural gas result in strong realized pricing," the company said. "In addition, a portion of the produced crude oil benefits from Louisiana Light Sweet-based pricing, which currently trades at a premium to WTI."
After closing, Baytex total production is forecast to be 85,000 boe/d, with a production weighting of 53% heavy oil, 34% light oil and liquids and 13% natural gas. Pre-acquisition it is previously 75% heavy oil, 14% light oil and liquids and 11% natural gas.
The majority of the financing for the deal of C$1.3 billion is being underwritten by Scotiabank and RBC Capital Markets.
The deal must be approved by the Aurora shareholders at a special meeting expected to be held in late April/early May. It is also subject to approval by the Australian court, the Australian Foreign Investment Review Board and the U.S. Hart-Scott-Rodino Anti-Trust Improvements Act.
"While as a board we believe Aurora is well positioned and are confident in its future growth outlook, the board has undertaken a thorough assessment of the proposal from Baytex and believes it represents an attractive opportunity for shareholders to realize value at a significant premium to the current share price," said Aurora Executive Chairman Jon Stewart.