Fort Worth, TX-based Athlon Energy has struck deals with multiple third parties to acquire producing properties and undeveloped acreage for a combined price of $382 million in cash. The northern Midland Basin bolt-on deals come as the company announced record second quarter results.
Athlon's average daily production reached a record high of 21,901 boe/d as compared with 11,183 boe/d produced in the second quarter of 2013, representing a 96% increase year-over-year. Second quarter production was 61% oil, 21% natural gas liquids (NGL), and 18% natural gas.
"It's nice to see that our outstanding individual horizontal and vertical well results are directly translating to predictable growth in production and cash flows," said CEO Bob Reeves. "As we continue to seamlessly integrate our acquisitions into the company and add additional horizontal rigs through 2015, we expect these top-tier results to continue for many periods to come."
Athlon charted record production during the first quarter, too (see Shale Daily, April 16).
The Midland Basin properties being acquired are 100% operated with more than 90% of the total acreage concentrated on the western side of the northern Midland Basin in Midland and Martin counties and the remaining in Glasscock County. All acreage is adjacent to Athlon's existing operating areas, the company said.
The properties are largely held by production and require minimal drilling to hold the acreage, which Athlon believes can be accomplished through reallocation of its existing eight vertical rigs. The acquisitions are anticipated to be immediately accretive to cash flow per share and earnings per share as well as net asset value. Athlon intends to begin horizontal development on the assets next year. The acquisitions are to be funded with a combination of cash and borrowings under a revolving credit facility. Closing is expected by the end of the third quarter.
Net production on the acquired properties was about 3,000 boe/d in May. The acreage offers an additional 179 horizontal drilling locations across 6,450 net acres:
62 Wolfcamp A and B locations;
66 Lower and Middle Spraberry locations;
37 Wolfcamp D locations; and
14 Clearfork locations.
The acreage also offers 168 vertical 40- and 20-acre drilling locations. Net proved reserves are estimated by the company at 11 million boe with total estimated net reserve potential of 90 million boe.
"I am proud of the team for adding core acreage to previous deals that allow for longer laterals and the potential for pad drilling down the road which will further enhance our rate of return on the acquisitions," Reeves said. "It is a luxury for a company our size to have such a deep inventory of high-quality projects that continue to get better each quarter. Contiguous acreage, multi-stack pay intervals, and the ability to control operations in the world-class northern Midland Basin will continue to be our core strategy for success at Athlon."
Last April, the company bought 23,500 net acres in Martin, Upton, Andrews and Glasscock counties for $873 million in cash (see Shale Daily, April 9).
Athlon has added about 42,000 net acres of leasehold since the time of its initial public offering last year (see Shale Daily, June 7, 2013). The company's pro forma acreage position stands at about 140,000 net acres, entirely in the northern Midland Basin.
The company is running three horizontal rigs in Midland, Martin, and Glasscock counties. Early in the fourth quarter the company plans add a fourth horizontal rig in Howard County. Athlon has also contracted its fifth and sixth horizontal rigs. One is scheduled to arrive during the first quarter and begin drilling in northern Upton County, and the other is to begin testing additional zones upon its arrival in the second quarter.
The new rigs will come equipped with walking packages to allow Athlon to begin evaluating a pad drilling program in the second half of 2015. The company is also evaluating adding another horizontal rig in the second half of 2015 with plans to maintain its operated fleet of eight vertical rigs.
The company now expects daily production for full-year 2014 to average 24,500-25,000 boe/d, representing growth exceeding 100% over full-year 2013. For the third quarter the company expects average daily production to range 26,500-27,500 boe/d, representing 110% growth over third quarter 2013.
The previously announced capital budget for this year is unchanged, with drilling expenditures of about $700 million and another $25 million for leasing, infrastructure, capital workovers and capitalized interest.
Second quarter revenues increased 109% to $136.5 million compared to $65.2 million in the second quarter of 2013. Oil revenues comprised 84% of the total during the respective periods. Athlon's average wellhead oil price, which represents the net price received for oil production, rose to $93.91/bbl from $91.80/bbl in the second quarter of 2013. Realized natural gas prices increased to $4.07/Mcf from $3.72/Mcf in the second quarter of 2013. Second quarter realized NGL prices increased to $32.43/bbl from $27.27/bbl during the second quarter of 2013.
Direct lease operating expenses were $12.7million ($6.35/boe) versus $7.8million ($7.63/boe) for the second quarter of 2013. Athlon said it continues to control well servicing costs and leverage its centralized surface facilities and water-handling systems.
Net income was $7.9 million (8 cents/share) compared to $23.7 million (36 cents/share) for the second quarter of 2013. Adjusted net income increased 75% to $25.1 million (27 cents/share) compared to $14.3 million (21 cents/share) for the second quarter of 2013.
Derivative fair value loss was $32.4 million versus a gain of $12.6 million for the second quarter of 2013. Since Athlon does not use hedge accounting, changes are recognized as gains or losses in the period in which they occur. Included in these losses were total cash settlements paid on derivatives, adjusted for recovered premiums, of $8.5 million compared to $500,000 during the second quarter of 2013.