Bill Barrett Corp. has agreed to combine with private equity-backed Fifth Creek Energy Co. LLC in a transaction valued at about $649 million, expanding its position in the Denver-Julesburg (DJ) Basin of Colorado.

The combined company would possess an acreage position of about 151,100 net acres and an inventory of 2,865 future drilling locations. Fifth Creek is a portfolio company of NGP Energy Capital.

"We have been seeking opportunities to expand our core DJ Basin asset base with the right acquisition to ensure the best value creation opportunity for our stockholders,” said CEO Scot Woodall, who would serve as CEO and president of the combined enterprise.

“This presents us with a unique opportunity to add a large, undeveloped acreage position at an attractive cost with the potential for decades of high-return drilling locations located in a rural area that is highly complementary to our legacy position,” he said.

Bill Barrett plans to “immediately begin employing our operational expertise on the acquired acreage as we implement enhanced completion and flowback techniques.”

The transaction is expected to close by next spring, subject to customary conditions, including approval by Bill Barrett stockholders.

Average daily production for the combined assets during 3Q2017 was 24,000 boe/d (81% liquids, 64% oil). Pro forma, the combined producer at the end of 2016 had proved reserves of 168 million boe, 69% weighted to oil, and 3Q2017 output of 24,000 boe/d.

The acreage in Weld County, CO, the heart of DJ activity, is considered a big catch. The acquisition would add 81,000 net acres and about 2,900 boe/d (72% oil-weighted) of production in the Hereford field. The Hereford has reported some of the highest-rate oil wells in the DJ, with seven wells averaging 1,052 boe/d (84% oil) during their initial 30 days of production.

Net acreage in Hereford is 100% controlled, held by production with “minimal” near-term lease expirations and “established well control consisting of 62 standard reach lateral delineation wells and seven extended reach laterals.

The assets also have established infrastructure, with current oil differentials to West Texas Intermediate of “less than $2.50/bbl,” management said.

Initial 2018 plans are to use three drilling rigs on the combined acreage, with production estimated at 11-12 million boe, 65% oil-weighted, and capital expenditures of $500-600 million.

"We believe the combined company's world class development inventory and exceptional operating talent will result in an excellent outcome for stockholders,” said Fifth Creek CEO Michael R. Starzer. “At Hereford, Fifth Creek has been on the leading edge of applying modern completion technology to its wells and is proud to have achieved basin-leading results.”

Under the terms of the transaction, Bill Barrett and Fifth Creek each would become subsidiaries of a newly formed holding company that would be publicly listed and traded.

Bill Barrett stockholders would exchange their common stock for the new holding company stock on a 1-1 basis, while Fifth Creek's current sole owner would receive 100 million shares of the new common stock.

The board of the newly created company is to consist of 11 people, including six now serving on Bill Barrett’s board. Jim W. Mogg would continue to serve as chairman.

For Bill Barrett, Tudor, Pickering, Holt & Co. acted as financial adviser while Wachtell, Lipton, Rosen & Katz acted as legal adviser. Fifth Creek was represented by Credit Suisse as financial adviser and Vinson & Elkins LLP as legal adviser.