In a transforming deal, Newfield Exploration Co. plans to acquire substantially all of Stone Energy Corp.'s natural gas-heavy assets in the Rocky Mountains for $575 million cash. The assets, with proved reserves of 200 Bcfe and probable and possible reserves of more than 150 Bcfe, expand Newfield's reach in the Uinta and Williston basins and give it entry into the Green River, Powder River, Wind River and Northern Denver-Julesburg basins of Wyoming and the Southern Alberta Basin of Montana.
Newfield initially will fund the transaction with its credit agreement "and ultimately through asset divestitures," said CEO David Trice. With the U.S. expansion, Newfield intends to sell nearly all of its international assets, including properties in Bohai Bay, China, properties in the U.K. North Sea and some smaller packages along the onshore Texas Gulf Coast, in the shallow water Gulf of Mexico (GOM) and in the Midcontinent.
The proved reserves to be acquired are 70% natural gas and are 52% developed, with a reserve life index of nearly 15 years. In addition to the existing 3P (proved, probable and possible) reserves, Newfield said "significant upside exists" through further field downspacing, secondary recovery, deep gas potential and the development of emerging resource plays. Current net daily production is 40 MMcfe/d. The transaction is expected to close in June.
"We entered the Rockies in 2004 with our acquisition of the giant Monument Butte Field in the Uinta Basin," said Trice. "Since that time, we've grown production more than 40% and doubled our acreage position in the Uinta while looking for the 'right' transaction to significantly increase our footprint in the Rockies. Today's announcement does just that. We are acquiring quality reserves in fields with development drilling opportunities.
"But just as important, it provides a stepping stone to build a business in the region's major producing areas. We are confident that the Rockies will be an important part of future U.S. gas supply and we are better positioned to be a major producer in the region."
More than half of the proved reserves to be acquired from Stone are located in the Pinedale Field of the Green River Basin of Wyoming. Through the acquisition, Newfield will own interests in 8,000 gross acres (4,000 net) in the southeastern portion of the anticline. Since 2002, less than 30 wells have been drilled on this acreage. Net daily production is 12 MMcfe from 27 producing wells. Based on ongoing regional activity, Newfield sees the potential for 100 additional locations if field spacing is decreased to 20 acres and then 10 acres.
Another 15% of the proved reserves included in the package are located in the Jonah Field in the Green River Basin. Current net production is 8 MMcfe/d from 17 producing wells. Newfield has identified an inventory of more than 40 development locations on 10- and five-acre well spacing.
In the Williston Basin, Newfield will acquire 35 Bcfe of proved reserves and 75,000 net acres. Current net production is 2,200 boe/d from about 140 producing wells. Drilling opportunities targeting the Bakken, Madison and Red River formations have been identified. Newfield currently holds 65,000 net acres in the Williston Basin associated with its Big Valley, Watford and Arnegard prospect areas.
About 12 Bcfe of the proved reserves are located in the Scott Field of the Powder River Basin. Newfield will acquire an interest in 14,000 net acres and will have an average working interest of nearly 85%. In addition, Newfield said deep exploration rights exist on 28,000 net acres throughout the basin, which are prospective for developing resource plays.
In the Uinta Basin, Newfield operates the shallow Green River formations in its Monument Butte Field, which it acquired in 2004. The field covers about 100,000 gross acres. Newfield will acquire Stone's interest, which averages about 40%, in the deep gas rights beneath Monument Butte. With this transaction, Newfield will own a majority of the deep rights below Monument Butte.
"The sale of our Rocky Mountain properties will provide us with the proceeds to materially reduce our debt position, just as we planned back in January," said Stone CEO David Welch. "This sale is consistent with the four key goals we set for the year -- hit or exceed our production target, drill successful exploitation wells, execute the sale of the Rocky Mountain properties and selected Gulf Coast properties, and materially reduce debt through these asset sales and free cash flow."
Welch said that even though the Rockies assets and Stone's Denver employees "have been major contributors" to the company, the sale will allow the company "to significantly strengthen its balance sheet while still maintaining some of the upside potential through a 35% interest in a number of undeveloped areas. We look forward to working with Newfield to allow for a smooth transition."
Once the transaction closes, Stone, based in Lafayette, LA, plans to update its 2007 guidance. Last year Stone considered, then rejected a $1.9 billion merger offer by Plains Exploration & Production after Energy Partners Ltd. (EPL) offered $2.2 billion to merge (see Daily GPI, June 20, 2006). However, EPL withdrew its offer after it was pursued Australia's Woodside Petroleum Ltd. (see Daily GPI, Oct. 16, 2006). After EPL withdrew its offer, Stone said it was pursuing strategic alternatives.
Stone, which has been in business since 1973, has focused its exploration activities in the shallow GOM and onshore along the Gulf Coast. About 76% of Stone's reserves are located off the coast of Texas and Louisiana.
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