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Laredo Giving Permian Sole Focus

To give the growing Permian Basin its full focus, Laredo Petroleum Holdings Inc. has agreed to sell all of its Granite Wash properties in the Anadarko Basin to affiliates of EnerVest Ltd. for $438 million in cash.

The deal includes about 58 MMcfe/d, proved reserves of 171 Bcfe, 104,000 net acres and associated gathering assets in Western Oklahoma and the Texas Panhandle. Output in 1Q2013 totaled 4.9 Bcf of natural gas and 49,600 bbl of crude oil and condensate. Estimated proved reserves at the end of 2012 totaled about 162 Bcf and 1.5 million bbl.

"The Anadarko Basin has been a meaningful part of Laredo's rapid growth in reserves and production for the past five years," said CEO Randy A. Foutch. "However, the continued success that Laredo is experiencing with its Permian-Garden City properties makes this an ideal time to redeploy capital from this transaction into what we believe are even higher returning projects in the Permian Basin."

Once the Granite Wash assets are sold, expected by the end of September, Laredo wants to add two horizontal rigs to its Permian program, which would give it a total of six horizontals that would be drilling multi-pad wells by the end of this year, Foutch said.

The sale requires approval by interest holders in some of Laredo's Anadarko Basin properties; they would have to give up preferential rights, the operator noted.

By plowing more money into derisking its acreage in the Permian, Laredo could add around $10.00/share of value, according to Tudor, Pickering, Holt & Co. Inc. (TPH). Laredo has a $2.64 billion market cap and was trading up at about $20.72/share at midday Wednesday.

The sale reduces Laredo's 2014 volumes by an estimated 10,000 boe/d to 33,000 boe/d, but by focusing strictly on the Permian, its oil weighting would increase to 65% from 50%, TPH noted.

Wells Fargo analysts noted that the operator had successfully shopped the assets in a "tough" market. The financial firm assisted Laredo in the sale.

"The ability to fund the drilling budget in the Permian Basin, and potential for the company to issue equity, has held back shares, in our opinion, over the last few quarters," said analysts. The EnerVest transaction should give it $100 million of cash and help pay off a $2 billion credit facility. "So, from our perspective, this transaction addresses funding, and should put to bed any concerns about an equity raise or joint venture transaction in the Permian."

By Wells Fargo's calculations, the deal values the Granite Wash assets at $7,600/Mcfe/d on production and $2.56/Mcfe on reserves.

"Backing out value for the production and an assumed value for midstream assets, we do not believe there was much value attributed for undeveloped acreage in the deal. That said, we had thought a $400 million price tag would be reasonable, and given running room in the Permian, we think this deal makes a lot of sense."

Privately held EnerVest and its publicly traded arm EV Energy Partners have had about 500 million nets acres for sale in the Utica Shale since last September, put on the market to free up proceeds for other fields that require less capital and are less risky, executives said last year (see Shale Daily, Sept. 18, 2012). EnerVest also has operations in the Permian, San Juan and Appalachian basins, the Barnett and Bakken shales, the Midcontinent, Central and East Texas, Michigan and the Monroe Field in Louisiana.

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