Denver-based Antero Resources is unloading its Arkoma Basin assets and redeploying capital to Appalachian shale plays while Vanguard Natural Resources LLC, which is buying Antero's mostly natural gas Arkoma assets for $445 million, is establishing a new operating area with the deal.
The sale includes associated commodity hedges and is expected to close by the end of the second quarter with an effective date of April 1. The assets consist of 66,000 net acres in the Woodford Shale and 5,300 net acres in the Fayetteville Shale, in the Arkoma Basin in Oklahoma and Arkansas, respectively. The assets contain an estimated 251 Bcfe of proved developed reserves as of March 31.
"The Arkoma asset sale allows Antero to redeploy capital to its high-growth Appalachian shale projects, including the Marcellus Shale, Upper Devonian Shale and Utica Shale plays where we are focused on the development of liquids-rich natural gas resources," said Antero CEO Paul M. Rady. "Following the closing of the transaction, our only remaining non-Appalachian asset is our Piceance Basin project, which also produces liquids-rich gas from Mesaverde Formation tight sands."
From Houston-based Vanguard's perspective, the deal gives it proved reserves of about 420 Bcfe (58% proved developed and 82% natural gas); reserve-to-production ratio of about 15 years; current net production of about 76 MMcfe/d (91% natural gas) from 833 gross wells (134 producing wells to be operated by Vanguard in the Woodford Shale); and about 180 proved drilling locations with an average 22.5% working interest. The company has identified 1,100 future proved drilling locations on acreage that is held by production that could be developed should natural gas prices return to the $4-5 range.
The natural gas hedge book is valued at about $100 million, which at closing Vanguard intends to restructure to cover 100% of expected proved production through 2017 "at prices significantly higher" than the current market.
"...[W]e believe it's a great time to purchase natural gas assets and we believe this transaction will prove to be an excellent addition to our portfolio," said Vanguard CEO Scott W. Smith. "This acquisition is primarily natural gas with some associated liquids and has an existing hedge book that will allow us to achieve above-market pricing for the next several years. With this acquisition, we have established a new operating area which we believe has potential for future growth through other acquisitions as well as development drilling as natural gas prices improve."
According to NGI research, the 66,000 acres make Vanguard the fifth largest Arkoma-Woodford net acreage holder. The top four are ExxonMobil (300,000 net acres), Newfield Exploration (170,000), BP (90,000) and SM Energy (82,000).
Vanguard said it would fund the deal with borrowings under its credit facility. The company asked its banks to perform an interim borrowing base redetermination to include the properties from the acquisition and anticipates an increase of $300 million to the current borrowing base to take into account the additional value of the assets being acquired. Pro forma for the borrowing base increase, Vanguard said it expects to have liquidity in excess of $200 million after closing.
Separately last week, Antero updated its capital spending plans and 2012 outlook to reflect the effects of the sale. The Antero board approved a 40% increase in the company's 2012 capital budget to $1.2 billion, which includes $695 million for drilling and completion, $442 million for leasehold acquisitions and $63 million for the construction of gathering pipelines and facilities. The budget was revised primarily to fund the acquisition of additional leasehold in the Appalachian Basin and to remove post-effective date drilling costs in the Arkoma Basin due to the sale of the Arkoma Basin assets, Antero said.
About 93% of the budget is allocated to the Marcellus Shale; 6% is allocated to the Piceance Basin; and 1% is allocated to the Woodford Shale and Fayetteville Shale for drilling costs incurred prior to June 29, 2012, the expected closing date of the sale.
Antero is currently operating nine drilling rigs in the Appalachian Basin and plans to add one rig in June and another rig by September. Antero said it plans to continue to run one drilling rig in the Piceance Basin until the end of July when its rig contract expires.
The capital budget is expected to be funded internally from noncore asset sales, including Antero's Marcellus Shale midstream asset sale (see NGI, March 5) completed in March and the Arkoma Basin sale, as well as operating cash flow and the undrawn committed capacity under Antero's bank credit facility.
Antero CFO Glen Warren said the midstream and Arkoma Basin sales close a funding gap between estimated earnings and the company's $1.2 billion capital budget for this year.
"The increased capital budget allows Antero to continue to consolidate acreage into our existing 238,000 net acre leasehold position in the Marcellus, of which approximately 75% contains liquids-rich processable gas," Warren said. "We plan to begin processing our rich gas production from the Marcellus Shale in the third quarter 2012 when MarkWest is expected to complete the 200 MMcf/d Sherwood I processing plant located in the heart of our rich gas position."
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