BreitBurn Energy Partners LP is building its stake in onshore natural gas properties under an agreement to purchase all of Quicksilver Resources Inc.'s properties in Michigan, Indiana and Kentucky for $750 million in cash and 21.35 million of BreitBurn's common units. The transaction, expected to close early next month, is 94% weighted to gas, with a total value of about $1.45 billion.
BreitBurn, the Los Angeles-based master limited partnership (MLP) subsidiary of Calgary's Provident Energy Trust, will acquire producing assets with a current output of 95 MMcfe/d (75.4 MMcfe/d net) from more than 5,400 producing wells. Proved reserves are estimated to be 660 Bcfe (530 Bcfe net), with a proved reserve life of 19 years. Included are related gas gathering and processing systems and Quicksilver's interests in 260,000 net undeveloped acres. The properties had total proved reserves of 539 Bcfe at year-end 2006.
Up to now the MLP has been 95% weighted to oil, with its operations centered in Southern California and Wyoming. Provident is not participating in the equity offering, and the transaction will reduce its ownership in the MLP to 23% from 51%. However, Provident will continue to control the entire BreitBurn entity through its ownership of the general partner.
"We support BreitBurn's accretive growth strategy," said Provident CEO Tom Buchanan. "We believe that our ownership of three distinct, strong, relatively independent energy businesses of size and scale will continue to give Provident valuable diversification and optionality in today's challenging business environment."
The assets represent about 38% of Quicksilver's total production in the first six months of this year. The company operated privately for 36 years before going public in 1999.
"As a result of this transaction, Quicksilver will be better prepared to develop our large inventory of higher-return, higher-growth properties in the Fort Worth [Barnett Shale] Basin and other areas," said Quicksilver CEO Glenn Darden.
On a divestment-adjusted basis, Quicksilver's 3Q2007 production volumes are projected to increase 8-15% sequentially over 2Q2007 to a range of 145 MMcfe/d to 155 MMcfe/d. For the year, Quicksilver expects its average divestment-adjusted volumes will increase more than 50% from the 2006 average volumes.
The Antrim Shale assets formed the basis for Quicksilver's original business, but in recent years, the Fort Worth, TX-based independent has staked its future on growing its Barnett Shale, Canadian and West Texas holdings. In the Barnett, Quicksilver has about 704 Bcfe of proved reserves, and it plans to drill up to 180 net wells by the end of this year. It also is expanding a cryogenic plant and its gathering system there.
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