Covey Park Gas LLC has agreed to pay $420 million in cash for substantially all of EP Energy Corp.’s property in the Haynesville and Bossier shales.
The agreement was disclosed in a Form 8-K filed by EP with the U.S. Securities and Exchange Commission.
EP was spun off two years ago by former El Paso Corp., which had been bought by Kinder Morgan Inc. (see Shale Daily, Jan. 17, 2014).
Most of EP’s focus has been on oil production, primarily from the Eagle Ford Shale, the Permian Basin’s Wolfcamp Shale and the Uinta Basin’s Altamont formation. The Haynesville/Bossier program is natural gas-focused.
The assets include 34,167 net acres, including 22,884 net undeveloped, with 190 net drilling locations. Average working interest is 76% with revenue interest of 61%.
EP’s Haynesville acreage contain no proved undeveloped reserves, 205 Bcf of proved developed and is 100% held by production.
The Houston-based operator last year completed four wells and four refractures in the Texas/Louisiana portfolio during the final quarter. Current well costs are estimated at $10.2 million/well using 7,500-foot laterals.
“With 113 MMCf/d of current production and 22,884 net undeveloped acres, the transaction implies $6,000/acre value, assuming $2,500/Mcfe for production,” said Wells Fargo Securities LLC analyst Gordon Douthat.
Pro forma for the sale, EP would have around $2 billion in liquidity and leverage by the end of this year, Douthat estimated. However, there are “still elevated leverage levels going into 2017 as hedges roll off, so more work needed to address the balance sheet, in our view.”
Covey Park Gas is a subsidiary of Dallas-based private Covey Park Energy, formed in June 2013 with financial backing by equity giant Denham Capital. Last September there were rumors that Denham was shopping the producer with plans to fetch up to $1 billion.
Most of Covey Park Energy’s operations today are in the East Texas counties of Robertson and Leon, with some property in adjacent Brazos and Madison counties, all prospective for the Haynesville/Bossier trend, as well as the Upper Eagle Ford Shale.
In October 2014 Covey Park Energy acquired 89,462 net acres in the four counties through two separate transactions from Encana Oil and Gas (USA) Inc. and Navasota Resources LLP.
Covey Park deposited $21 million in escrow in connection with the EP sale, which is set to close by the end of June. The agreement includes termination rights if the sale isn’t completed by July 1 or if downward adjustments to the purchase price because of casualty losses, title defects or environmental defects exceed 10% of the base price.
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